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VERIFICATION OF EQUITY |
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Fundamentals
of Auditing ACC 311
VU
Lesson
35
VERIFICATION
OF EQUITY
Equity
consists of share capital
and reserves. This part of the
balance sheet represents
interest of the owners in
net
assets of the entity.
To
verify the owners' equity
the auditor verifies following
aspects:
Share
capital is properly classified
and described in the
accounts
Movement
in share capital is properly
authorized and correctly
presented
Reserves
are properly classified and
presented
Movements in
reserves are properly
authorized
Verification
Methods
Share
capital is properly classified and
described in the accounts in
accordance with the
Companies
Ordinance,
1984
1.
Check disclosure using
Company Accounts
Checklist.
2.
Agree authorized capital
with memorandum of
association.
3.
Agree issued capital with
form A, or obtain certificate
from registrar.
4.
Obtain list of shareholders.
Movement
in share capital is properly authorized
and correctly shown and described in
accordance
with
the Companies Ordinance,
1984
1.
Ensure shareholders' pre-emption rights
have been respected.
2.
Check that directors were
authorized to allot
shares.
3.
Ensure proper authorization for share
redemption.
4.
Check authority for share
capital reductions.
5.
Agree all movements to statement in lieu
of prospectus, board minutes,
memorandum and articles
of
association.
6.
Consider special rules for
allotments of public company
shares.
7.
Test allotments with supporting
evidence and trace entries
in register.
8.
Test payments with supporting
evidence and trace entries
in register.
9.
Check additions to allotment lists
and cash records and
agree totals to recorded
movements.
10.
Ensure correct treatment of
share premiums.
11.
Vouch issue expenses.
Reserves
are properly classified and
described in the accounts in
accordance with the
Companies
Ordinance,
1984
1.
Ensure disclosure complies
with Companies Ordinance,
1984.
2.
Ensure whether it is clear, which
reserves are distributable.
Movements
in reserves are properly
authorized and currently shown and
described in accordance
with
the Companies Ordinance,
1984
1.
Check movements to minutes of
Board's meeting.
2.
Check movements do not
contravene statutory restrictions
and articles of
association.
3.
Ensure disclosure of movements
and related tax
treatment.
115
Table of Contents:
- AN INTRODUCTION
- AUDITORS’ REPORT
- Advantages and Disadvantages of Auditing
- OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS
- What is Reasonable Assurance
- LEGAL CONSIDERATION REGARDING AUDITING
- Appointment, Duties, Rights and Liabilities of Auditor
- LIABILITIES OF AN AUDITOR
- BOOKS OF ACCOUNT & FINANCIAL STATEMENTS
- Contents of Balance Sheet
- ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT
- Business Operations
- Risk Assessment Procedures & Sources of Information
- Measurement and Review of the Entity’s Financial Performance
- Definition & Components of Internal Control
- Auditing ASSIGNMENT
- Benefits of Internal Control to the entity
- Flow Charts and Internal Control Questionnaires
- Construction of an ICQ
- Audit evidence through Audit Procedures
- SUBSTANTIVE PROCEDURES
- Concept of Audit Evidence
- SUFFICIENT APPROPRIATE AUDIT EVIDENCE AND TESTING THE SALES SYSTEM
- Control Procedures over Sales and Debtors
- Control Procedures over Purchases and Payables
- TESTING THE PURCHASES SYSTEM
- TESTING THE PAYROLL SYSTEM
- TESTING THE CASH SYSTEM
- Controls over Banking of Receipts
- Control Procedures over Inventory
- TESTING THE NON-CURRENT ASSETS
- VERIFICATION APPROACH OF AUDIT
- VERIFICATION OF ASSETS
- LETTER OF REPRESENTATION VERIFICATION OF LIABILITIES
- VERIFICATION OF EQUITY
- VERIFICATION OF BANK BALANCES
- VERIFICATION OF STOCK-IN-TRADE AND STORE & SPARES
- AUDIT SAMPLING
- STATISTICAL SAMPLING
- CONSIDERING THE WORK OF INTERNAL AUDITING
- AUDIT PLANNING
- PLANNING AN AUDIT OF FINANCIAL STATEMENTS
- Audits of Small Entities
- AUDITOR’S REPORT ON A COMPLETE SET OF GENERAL PURPOSE FINANCIALSTATEMENTS
- MODIFIED AUDITOR’S REPORT