Balance Sheet Audit

Statutory & Standard Requirements

• Account should be kept (S.166A, Co. Act 1965)• Preparation of the financial statement by

management/client should comply with MFRS. (S.167, Co. Act 1965

• MFRS 101: “…It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content” (Para.1, MFRS 101)

Statutory & Standard Requirements (cont’d)

• ISA 500: the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion

• ISA 330.4: Substantive procedure – An audit procedure designed to detect material misstatements in the financial report assertion.

• ISA 330.18: Irrespective of the assessed risks of material misstatement, the auditor shall design and perform substantive procedures for each material class of transactions, account balance, and disclosure.

Verification of intangibles, investments equities & reserves,

Intangible assets & GoodwillIntangible assets are identifiable assets that provide economic benefit for longer than a year, but lack physical substance (IFRS), for example:

1. Marketing – trademark, brand name, and Internet domain names.2. Customer – customer lists, order backlogs, and customer relationships.3. Artistic – items protected by copyright.4. Contract – licenses, franchises, and broadcast rights.5. Technology – patented and unpatented technology.

Goodwill represents the difference between the acquisition price for a company and the fair value of the identifiable tangible and intangible assets and liabilities (IFRS).

•The inherent risk associated with intangible assets and goodwill raises serious risk considerations. The accounting rules are complex and the transactions are difficult to audit. Accounting standards require different asset impairment tests for different classes of intangible assets.

•With the judgment and complexity associated with valuation and estimation of intangible assets and goodwill, the auditor would likely assess the inherent risk as high.

In assessing control risk, the auditor considers factors such as:

1. The expertise and experience of those determining the fair value of the assets.

2. Controls over the process used to determine fair value measurements, including controls over data and segregation of duties between those committing the client to the purchase and those undertaking the valuation.

3. The extent to which the entity engages or employs valuation experts.

4. The significant management assumptions used in determining fair value.

5. The integrity of change controls and security procedures for valuation models and relevant information systems, including approval processes

Key procedure:

• Physical examination

• Confirmation

• Inspection of legal documents

• Recomputation, vouching, tracing

• Specialised valuation procedures– consider use of experts.

Investments - Assertions, objectives and substantive procedures

10-9

Non-current liabilities and owners’ equity: key procedures

Key assertion:•completeness

Key procedures:•external confirmation•reading minutes of meetings•substantive analytical procedures•examination of contracts and agreements•inspection of share registers.

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