INTERNAL CONTROLS AND AUDIT

PROCEDURES OF SANKEN CONSTRUCTION

(PVT) LTD

A REPORT
BY
SAB NO. NAME
SAB/BSc/2019/12/A/064 D.Packiyanathan
SAB/BSc/2019/12/A/033 W.R.S.Guruge

SAB/BSc/2019/12/A/117 G.B.S.R.Botheju
SAB/BSc/2019/12/A/085 V.D.C.Rodrigo
SAB/BSc/2019/12/A/040 J.T.A.L.Jayalath

SAB/BSc/2019/12/A/088 L.G.S.M.Samarawickrama

Course: AFM 30930 Audit and Assurance

Mr. Chinthaka Amila

Year III, Semester I

School of Accounting and Business

The Institute of Chartered Accountants of Sri Lanka
04th September 2021
 Acknowledgement

In performing our assignment, we had to take the help and guideline of some respected persons,
who deserve our greatest gratitude. The completion of this assignment gives us much Pleasure.
We would like to show our gratitude Mr.Chinthaka Amila for giving us a good guideline for
assignment throughout numerous consultations. We would also like to expand our deepest
gratitude to all those who have directly and indirectly guided us in writing this assignment.

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Our Selected Company
We chose Sanken Construction (Pvt) Ltd to conduct the following tests. Mitsui
Construction Company Japan commences its operations in Sri Lanka in 1977. Under the
FIAC, Mitsui Construction Company Lanka (Pvt) Ltd., is incorporated and authorizes to
carry out civil construction work in 1984. FIAC authorization is extended to include the
leasing / hiring of industrial equipment in 1985.

Mitsui Construction Company Lanka (Pvt) Ltd., changes its name to Sanken Lanka (Pvt)
Ltd in 1988. FIAC approvals are extended to cover the construction of middle and upper
class housing and commercial complexes. Approval for the sale of Ready-Mixed
Concrete is granted. Sanken Lanka is awarded ISO Certification for Ready-Mixed
concrete by Sri Lanka Standards Institute (SLS) in 1991. Mitsui Construction Company
Japan commences its operations in Sri Lanka in 1997.

Change in ownership with the merger of Mitsui Construction Company with Sumitomo
Corporation of Japan. Ownership became 80% Sri Lankan and 20% Japanese in 2003.
Sanken Lanka (Pvt) Ltd., changed its name to Sanken Construction (Pvt) Ltd. Sanken
Construction is an ICTAD C1 Graded (Highest Rank) company, with ISO 9001:2008
QMS Certification in 2011. Sanken Construction certified with OHSAS 18001:2007
Certification in 2013. Sanken Construction is in process to obtain ISO 14001:2004- EMS
Certification. Sanken Construction certified with ISO 14001:2004 EMS Certifications in
2014.

Sanken Construction (Pvt) Ltd has obtained Highest Grade CS-2 from CIDA in 2015.
Sanken Construction Re-certified with ISO 9001:2008, ISO 14001:2009 & OHSAS
18001:2007 From RoyalCert International in 2016. Sanken Construction Re- Certified
with ISO 9001:2015, ISO 14001:2015 and OHSAS 18001:2007 From RoyalCert
International in 2017.

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Area Internal Controls Test of Controls Audit Substantive
imposed by the Procedures that can Procedures that can
management imposed by the imposed by the
Auditor. Auditor.
SAP / TOD
1. Cash at Bank Occurrence Occurrence Occurrence
● Preparing timely ● Review procedures ● Call direct
monthly bank for reconciling confirmations from
reconciliation is a key supplier statements. the financial
control over cash. ● Consider bonding institutions to
● The bank statement employees who determine their
should also be handle money to existence.
reviewed for debit safeguard against
memos, credit memos losses. Completeness
and unusual items. ● Blank checks should ● Trace a sample of
● Segregation of duties. not be signed and remittance advices
● Avoid holding too kept for future use and pay-in slip to
much idle cash even if held in a cash receipt journal.
because excess cash locked environment. ● Trace a sample of
could be invested to payment vouchers
generate income. Completeness (with supporting
● To ensure that there documents) to cash
Completeness is no unrecorded book.
● Review of cash cash.
payments by manager ● Examine a selection Accuracy, valuation
before release. of listings for signs and allocation and
● In addition, the of senior review. classification
institution will provide ● Compare a sample
you with a daily cash of remittance
receipt report which Accuracy, valuation and advices with
includes a detailed allocation and amount in cash
listing of the source of classification receipts recorded in
the receipts. ● Review the cash book.
reconciliations for a ● Compare a sample
Accuracy, valuation and sample of accounts. of (cancelled)
allocation and ● Examine the cash checks with
classification payments diary to amounts in cash
● Monthly bank determine whether recorded in the cash
reconciliations of bank the charges to book.
statements to ledger accounts are
accounts. appropriate. Cut-off
● Monthly cash ● Examine a sample of ● Compare the dates
payments journal to cash receipts and for recording a

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 general ledger posting payments transaction sample of cash
agreement. for proper transactions with
● To ensure cash at bank classification. the dates of cash
stated on the deposited in bank or
reconciliation is Cut-off cheques sent.
accurate. ● Examine the receipt
cut-off process. Presentation
Cut-off ● A separate mailing
● The owner of the Presentation location is set up to
business should have ● To ensure that the receive all cash
the bank statement cash balance and receipts directly.
delivered directly to related statement of ● Since the financial
his residence (or comprehensive institution receives
receive it unopened at income entries are the money directly,
the office), and open correctly disclosed in you have immediate
and review the the financial access to the cash.
statement and statements in
cancelled checks. accordance with
● Cancelled checks legislation and
should be reviewed for accounting standards.
unfamiliar or ● Review assignment
unauthorized payees, of general ledger
accounts.
Presentation
● As well as independent
approval and
evaluation of general
ledger account
assignment are all
required.

2. Trade Payables ● Purchase orders and Completeness Completeness

GRNs must be pre- ● Completeness ● Search for
numbered. Accounts payable unrecorded
● All vendor invoices balances reported on liabilities in
and other appropriate the balance sheet accounts payable
documents such as include all payable and recording that.
purchase orders, transactions that have ● Check samples
receiving reports, etc., occurred during the from supplier
must be approved for accounting period. statements to
payment by ● The purchase system listing.
appropriate staff (A should ensure that all ● Ensure that all
person other than the purchase transactions purchase order

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 buying agent, usually that occurred have numbers have been
an owner/estimator) been recorded. accounted for at all
should be attached to times, used,
the verification when Accuracy canceled, or
presented for ● The purchase system available.
signature. should ensure that ● Review of the
● Once signed, cheques purchase transactions entity's procedures
must not be returned to are correctly for accounting for
the employee in charge recorded in the previously
of preparing the accounting system. numbered
cheques. documents and
● Ensure that where Existence examination of a
invoices are sent, such ● Existence Accounts sample of GRNs for
as the office or Jobsite. payable balances sequential
● Some employees may reported on the numbering.
be allowed to carry balance sheet
business credit cards to actually exist at the Accuracy
allow them to purchase reporting date. ● Compare current
small items year payables
immediately. Valuation balances with prior
● Management should ● Valuation Accounts year balances.
require credit card payables have been ● Select a sample of
receipts as well as recorded in the vouchers and track
detailed invoices from correct amount and them in the
suppliers for all items their balances reflect purchase journal.
that employees may the actual economic ● Retrace a sample of
attempt to pass value. reports received
personal purchases to ● The purchase system against supplier
the company. should ensure that invoices.
goods and services ● Recalculation of the
are provided at mathematical
authorized prices and accuracy of a
on authorized terms sample of supplier
and ensure that invoices.
customers are
encouraged to pay Classification
promptly. ● Select a sample of
suppliers’
statements and
reconcile them with
accounting records.
● Select a sample of
accounts payable

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 and verify with
supporting
documents, such as
purchase orders and
supplier invoices.

Existence
● Examine the list of
delegated
purchasing
authorities.
● Examine a sample
of Authorized
Purchase Order(s)
appropriately.
● Check whether or
not any fraudulent
changes to the
signed check.
● Check invoices are
in the Jobsite
because payment
can be delayed.

Valuation
● Check if excessive
amounts are not
ordered and/or if
higher than normal
prices are not paid.
A careful review
may also determine
when materials are
delivered to a
location other than
the workplace, such
as an employee’s
residence.
3. Trade Records receivables Receivables discount here's possible, use
Receivables maturing reports ought ought to be pre numbered
to be looked in to appreciated and invoices, a gap in
month by month the endorsed , recorded numerical sequence
executive any sum in as a hard copy by the may indicate

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 the “over go day " proprietor, it ought to problem consider
segment ought to be be useful to keep a shifting the
clarified and followed records of accounts responsibility for
up. If a client is a receivables discount collecting
sluggish payer, by project chief, receivables to the
consider not working charging clerk or project manager for
with them or delaying other significant their jobs the status
until the present place characterization , a of the jobs the
of employment is trend may foster that status of the job can
finished completely would warrant communicate
paid prior to starting further examination directly with the
the following position. by the executive. customer to speed
● Segregation of  Recalculating, up the payment
duties for account the figures of process.
receivables accounts This will also
○ The segregation of receivables segregate the
duties for Account general ledger account receivable
receivables is to confirm the duties so that the
important methods of accuracy. employee
account receivable  Verification of responsible for
management method invoices against entering cash
○ Checking new the supporting. receipts is not part
invoices ( account  Documentation of the collection
receivable internal to verify the process .if cash
control check list ) correct postings receipts are being
are carried out diverted payment as
 Receiving in the general the customers
purchasing. ledger. records will indicate
 Order for  Verifying sales that payment has
customer. period already occurred.
 Preparing sales (construction  Confirmation of
invoices. period) by account balance
 Post accounts inspecting the with 3rd party
receivable shipment such as
ledger. documents of confirmation
those sales. receivables.
 Verifying  Recalculating.
completeness  Observing
and existence transaction
by sending being processed
direct such as being
confirmation to receivables
trade counting.

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 receivables.
 Reviewing the
company’
policy for
allowance for
doubtful trade
receivables and
applying it to
the receivables
balance.
 Comparing
general ledger
balance to
actual and
active
receivables
listing and
checking their
accuracy.
 Trade
receivables
reports to
general ledger.
 Calculate the
receivables
reports total.
 Investigate
reconciling
items.
 Test invoices
listed in
receivables
reports.
 Review case
receipts.
4. Property Plant ● Plant assets and ● Assess the ● Verification of PPE
and Equipment equipment usually reasonableness of consists of
Acquisitions represent a large design of system of examination of
and disposals portion of a company's internal control by related records and
total assets. The cost to enquiring relevant physical
maintain and client personnel and verification. The
depreciate fixed assets documenting the auditor should,
can also be a big line same. A walk normally, verify the

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 item expense on the through test would be records with
income statement. necessary to confirm reference to the
Since these assets are the understanding as documentary
so significant to documented. Identify evidence and by
company financial the preventive and evaluation of
statements and internal detective controls internal controls.
operations, companies established by Physical
should implement key management to verification of PPE
controls over their support its assertions. is primarily the
acquisition, storage responsibility of the
and record keeping. ● Check on sample of management.
selected transactions
● Separate Ledgers: covering the whole ● The auditor must
Instead of lumping all period that all also consider the
fixed assets into one preventive controls appropriateness of
account in the are exercised on all the accounting
accounting system, transactions. policies, including
companies should policies for
maintain a separate ● Check that proper determining which
subsidiary ledger for fixed assets register costs are
each fixed asset. Each has been maintained capitalized, whether
asset will have a and entries are made a cost or valuation
different useful life in the register on model is followed
and salvage value, and prompt and and depreciation
it might require a consistent basis and (including
different depreciation the same is assessment of
method. Separate reconciled with residual values)
ledgers reduce errors general ledger and appropriately
and allow users to physically verified calculated.
easily identify any out- assets on periodical
of-the ordinary basis. ● As per the relevant
expense entries. Revised AS, the
● Check on a sample of auditor should
● Purchase transactions that ensure that the
Authorization: To detective controls are entity has
reduce the risk of appropriately been capitalized the
fraud and bad exercised and in case assets as per the
purchasing decisions, of any detection of component
companies should error/ fraud, proper approach, whereby
have a procedure for steps have been taken a component or part
asset purchase to avoid recurrence of an asset which is
authorization. Other of the same. significant in value
departments should be compared to the

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 required to issue a ● Ensure that total value of the
purchase requisition management does asset or the useful
document to the not override the life of which is
purchasing department designed controls by: different from that
to request a new asset. ● Enquiring from the of the asset, has to
Before complying, the designated staff be capitalized
purchasing department person separately.
should obtain ● Remain skeptical
executive approval. during performing
Managers can test of design and test
maintain plant asset of effective operation
budget schedules to
help them decide ● Document the
which requisitions to conclusion after
approve Assess the performing test of
reasonableness of controls and required
design of system of level of assurance
internal control by from substantive
enquiring relevant procedures.
client personnel and
documenting the same.
A walk through test
would be necessary to
confirm the
understanding as
documented. Identify
the preventive and
detective controls
established by
management to
support its assertions.

● Check on sample of
selected transactions
covering the whole
period that all
preventive controls are
exercised on all
transactions.

● Check that proper

fixed assets register
has been maintained

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 and entries are made in
the register on prompt
and consistent basis
and the same is
reconciled with
general ledger and
physically verified
assets on periodical
basis.

● Check on a sample of
transactions that
detective controls are
appropriately been
exercised and in case
of any detection of
error/ fraud, proper
steps have been taken
to avoid recurrence of
the same.

● Ensure that
management does not
override the designed
controls by:
● Enquiring from the
designated staff person
● Remain skeptical
during performing test
of design and test of
effective operation

● Document the
conclusion after
performing test of
controls and required
level of assurance
from substantive
procedures.
● Verification of PPE
consists of
examination of related
records and physical

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 verification. The
auditor should,
normally, verify the
records with reference
to the documentary
evidence and by
evaluation of internal
controls. Physical
verification of PPE is
primarily the
responsibility of the
management.

● The auditor must also

consider the
appropriateness of the
accounting policies,
including policies for
determining which
costs are capitalized,
whether a cost or
valuation model is
followed and
depreciation (including
assessment of residual
values) appropriately
calculated.

● As per the relevant

Revised AS, the
auditor should ensure
that the entity has
capitalised the assets
as per the component
approach, whereby a
component or part of
an asset which is
significant in value
compared to the total
value of the asset or
the useful life of which
is different from that
of the asset, has to be

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 capitalized separately.
5. Inventories ● Fence and lock the Occurrence and ● physically
warehouse. The single existence examining Sanken’s
In Sanken, most important ● Auditor of Sanken inventory on
investment in inventory control is company always balance date as
inventory is simply locking down review documents in evidence that
usually large the warehouse. This use. inventory shown in
one, and it may means that you ● Review sample of the accounting
be comprised of construct a fence reconciliations to records exists
many around the inventory, confirm they are (validity assertion)
construction lock the gate, and only performed and then ● Match Purchase
items that can allow authorized reviewed by an orders and suppliers
be readily personnel into the independent person. invoices to confirm
stolen and warehouse. ● Observe the account payable
resold. In terms● Inspect incoming recording of balances are align
of ensuring the inventory. Verify that inventory and with the supporting
safety of the all incoming inventory discusses inventory documents.
inventory , is of the correct type procedures with
Sanken and is not damaged. relevant staff
company has All items that fail members to ensure
been inspection should be that proper
implemented an returned at once, and segregation of duties
array of the accounts payable are happening.
controls. And staff notified that the ● Review security
also keeping returned items should systems where
track of not be paid for. located in warehouse
inventory is
essential for ● Segregate customer- Completeness
ensuring that owned inventory. If ● Review entity’s
the construction there is inventory on- procedure related to
activities going site that customers consignment
smoothly own, the warehouse inventory.
without having staff will likely count ● Review
a short of it as though it is owned reconciliations
construction by the company, so performed and
materials. have a procedure in inspect them for
They have place for labeling these evidence of review
revealed items as customer-
number of key owned when they Right and obligation
controls arrive, and segregate ● Review Sanken’s
them in a separate part procedures relating
of the warehouse. to consignment
● Record scraps inventories.

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 transactions. Do not
just throw scrap in a Accuracy
scrap bin when it ● Always inspect
occurs. If you do, the variance reports
accounting system still produced.
thinks the scrapped ● Review and test
item is in stock, and so Sanken’s procedures
will overstate the for in terms of
amount of inventory. devolving standard
Instead, create a costs
procedure to track
scrap on a regular Cut-off
basis. ● Inspect Sanken’s
documents to ensure
daily processing.
● Review
reconciliations
performed.

Presentation
● Review Sanken’s
working papers for
evidence of review.

6. Investments  Rules and Regulations Existences Existences

governing the ● Inspecting investment  Balances
Company Permit for securities on hand confirmation from
investments by the and comparing with broker respect of
company. previous year securities held.
 There are restrictions balances and  Physically Inspect
or limitations for any accounts along with the investments that
of such investments. purchases and sales are tangible.
 There are policies and in the current year.  Vouching and
procedures established ● This also takes into verification of all
to ensure investment the movement of purchases and
certificates are cash from and disposals of the
received or towards the investment.
appropriately reflected investment
in the custodial Valuation
accounts. Valuation ● Verifying that
 Investment purchases, ● Examining financial investment balances
disposal and income statements to check reflect market
earned are recorded in recognition of gains values at reporting

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 the general ledger on or losses from date.
the date traded on a investment.  Re computation of
timely basis. ● This also would mean interest and
 The acquisition and checking carrying dividends.
disposal of amounts of securities  Determining if
investments authorized under the equity gains and losses
by a person with method. have been properly
approval authority. recorded.
 Investment guidelines Completeness
formally established ● The investments have Completeness
and periodically been completely ● Checking arithmetic
reviewed. recorded with respect accuracy of the
 Authority and to interest, dividends schedule by footing
responsibility have and fair value, if and cross- footing.
been established for applied. ● Preparing and
investment opportunity Rights and obligations verifying the
evaluation and ● Checking and balances with
purchase. verifying that the reconciliation of
 The following duties client has ownership investment balances
are generally rights for with reconciliation
performed by different investments on the of investment
people: Cash flow date of balance sheet. balances from
management, previous year.
investment Presentation and ● Verifying that all
transactions, disclosure investment related
safeguarding the ● Verifying that all transactions have
investments, investments have been recorded in the
responsibility for them been properly proper accounting
and recording them. classified and notes period.
 Maintaining detail have been placed
accounting records with respect to Right and obligations
segregated from those restrictions in ● Inquiring the
for general ledger investments. management on
entries. restriction if any on
 Custodial investment
responsibilities for ● Studying the terms
securities or for other and conditions of
documents evidencing investments and
ownership or other checking if they
rights assigned to an have complied
official who has no
accounting duties.
 Investment certificates

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 and interest coupons Presentation and
are sufficiently disclosure
safeguarded. ● Verifying that if any
 Detail records restrictions have
maintained on: Date of been placed on
acquisition, investments are
identification and properly disclosed
purchase amount or in the notes to
cost. The physical accounts
location of the item, ● Verifying that
i.e., safe deposit box, investments have
etc. Interest dividend, been properly
or income rates and classified and
accrual or receipt dates reported
Ownership by the
fund.
 Procedures exist for
reconciling the detail
accounting records
with the General
Ledger control.
 Specific procedures
exist for tracking
maturing investments
and interest payments.
7. Provisions ● Should make sure that Should evaluate the  Make sure that
the provision is created procedure taken by provisions are
only for an management to performed with
expenditure that progress the respect to all
accrues, and not for an estimation. obligations &
expenditure that arises. Should consider the contingencies.
Ex: Liability to pay agreements or  Make sure whether
insurance premium guidelines for the that the sum
arises on the due date terms of the contract provided is
& it does not accrue to achieve a acceptable or not.
over a period of time. satisfactory  Check the
Then it is improper to responsibility. requirements of the
create a provision Analyze messages with Articles of
account. the Sanken Company Association
● A provision for during the time concerning the
expected expenditure period to achieve an provisions to be
should be disclosed understanding of the prepared.
under the head ‘current statements previously  Should certify that

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 liabilities and evolved during the all provisions are
provisions' and year. performed when
provision for an Should execute consideration to
expected loss should reasoned trials and debiting the profit
disclose under the equate the budgeted and loss account.
head 'provision for to real provisions.  Approve that the
doubtful debts '. This Should re-evaluate the provisions are
is to be shown as a warranty provision. consumed only for
deduction from the Should approve the the aim of which
asset which is likely to percentage functional they are produced.
result in a loss. in the calculation to  Make sure that the
Ex: If a provision is made the indicated financial statements
by a bank for interest accounting plan of have all the
on overdue deposits, the Sanken appropriate
then provision needs to Company. provisions.
be carried in the
financial statements
and any such interest
paid upon renewal is
to be debited to such
provision account
only.
● An excess provision
not anymore required
should be written back
to the profit and loss
account (as provision
for doubtful debts) or
to the general reserve
(as proposed
dividends) depending
upon the nature of the
provision.
8. Income Tax Management of Sanken Completeness Completeness
must , ● The tax process ● Tie in of significant
 Ensure that income tax should ensure that components of
balances are recorded the Sanken income tax
in accordance with company's income calculations to trial
generally accepted tax has been recorded balance or
accounting principles. completely. supporting
 Ensure that there are evidence.
enough documents to Accuracy ● Reading the reports
support the correct tax ● The tax process of financial

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 record. should ensure that authorities and tax
 Make sure that the raw data is advisors.
accounting tax policy referenced back to Accuracy
has been approved by the trial balance to ● Ensure that the
the chief financial ensure there are no source information
officer and the external material differences. collected from
auditor. accounting and
 Make sure all tax- Existence other external
related data are agreed ● The tax process departments is
for public release. should ensure that accurate.
the income tax ● Tests of
actually is paid by mathematical
the organization. accuracy of
calculations.
Classification ● Ensure the accuracy
● The tax process of tax calculations.
should ensure that
Income Tax is being Existence
disclosed and ● Vouching of tax
presented in the payments.
financial statements ● Review of roll-
of the Sanken forward of current
company as solely & deferred tax
income tax. liability (as
receivable).
● Make sure the entry
Valuation of future tax
● The tax process balances is accurate
should ensure that and reasonable.
rates used in
calculations have Classification
been checked to an ● Analytical
external source such procedures should
as a current version include comparison
of the Income Tax on a year-to-year
Act or taxing basis; actual vs.
authority website. budget and
development of
auditor’s hypothesis
as for the income
tax positions based
on auditor
understands of the

19 | P a g e
 Sanken’s business
and operations.
These hypotheses
are to be compared
with actual figures
and the results
should be
evaluated.
● Review movements
of income tax
accounts.
● Tie-in of financial
statements income
tax amounts to the
general ledger, trial
balance, and
journal.

Valuation
● Ensure that the tax
rates used for
current and future
tax calculations are
correct.

9. Revaluation of  Adjusting the cost of Agree valuations as per  Choose an

Non- Current assets. valuation report. assertion from
Assets  Eliminating Assess independence, Completeness,
accumulated experience of the Valuation and
depreciation of asset value. allocation, Rights
being revalued. Verify that surplus and obligations
 Recognizing taken to separate and Existence if
revaluation gain or revaluation reserve. you are testing the
loss. Verify all similar assets period-end balance
 Ascertainment of have been revalued of PPE; valuation
working condition of together. of non-current
each unit of PPE, Recalculate assets is the
technical estimates of depreciation to assertion tested.
future working life and ensure it is based on Assess
the possibility of the new vale. appropriateness of
obsolescence are used the valuer’s work
to value the assets. as audit evidence
for revaluation of

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 the land building.

 Identify the risk

that will cause a
material
misstatement in the
financial
statements.
 Think of the audit
procedures that
should be
performed in order
to avoid the risk.

The auditor will check

the availability of a
revaluation report and
confirm that the value
mentioned in the
valuation report
matches the amount at
which the PPE is
revalued and shown in
the financial
statements.

Furthermore, the
auditor will recalculate
the revaluation surplus
in accordance with the
provisions of IAS 16,
Property, Plant and
Equipment to confirm
the correctness of the
accounting entries
relating to revaluation
surplus.
Check the assumptions
used in the report for
reasonableness.

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10. Long-Term  Long-term obligation Occurrence and Occurrence
interest-bearing has been properly Authorization  Examine copies of
obligations authorized by board of Adequate new note or bond
directors. documentation must agreements.
 There is proper control verify that a note or Examine board of
over issued and bond was properly directors’ minutes
unissued obligations as authorized. for approval of
in bonds, by an Any significant debt new lending
independent bond commitments should agreements.
trustee or transfer be approved by the
agent. board of directors or
 Redeemed bonds are by executives who Completeness
cancelled, property have been delegated  Trace large cash
mutilated and retained this authority. receipts and
for audit in order to payments to source
prevent unauthorized Completeness documents and the
issuance The client should general ledger.
 Bond ledgers are used maintain a subsidiary Review interest
in which details of ledger that contains expense for
bond issued, cancelled information about all payments to debt
and outstanding are the long term debt holders not listed
shown. A subsidiary owed by the entity. on the debt
bondholder’s ledgers The debt amount analysis schedule.
are also maintained by recorded in the Review notes paid
the issuing corporation subsidiary ledger or renewed after
or the bond trustee for should be reconciled the balance sheet
bonds registered, as to to the general ledger date to determine if
principal and interest. control account there are
 Proper control is regularly. unrecorded
exercised over the liabilities at year
payment of interest on Valuation end. Evaluate lease
long-term liabilities. Notes and bonds are contracts to
Payments are done by recorded at their face determine if lease
an independently value less any is properly
engaged interest- unamortized discount accounted for as an
paying agent or plus any operating or capital
unamortized lease.
premium. The
effective interest Authorization
method should be  Examine board
used to amortize minutes for
discounts and evidence of proper
premiums. authorization of

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 notes or bonds.

Accuracy
Disclosure-Classification  Test a sample of
Controls should ensure receipts and
that notes and bonds payments.
are properly
classified in the Cut-off
financial statements.  Review debt
The major issue is to activity for a few
properly classify as a days before and
short term liability after year end to
the portion of long determine if the
term debt that is due transactions are
in the next year. included in the
proper period.

Classification
 Examine the due
dates on notes or
bonds for proper
classification
between current
and long term debt

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