INTERNAL AUDIT ENGAGEMENT FOR RASLAG CORP.

AUDIT PROGRAM AND PROCEDURE - PREPAYMENTS & INPUT TAXES

AUDIAUDIT ACTIVITY: FINANCIAL AUDIT

# 110033-000 Prepaid Insurance AUDIT REMARKS WP

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PARTICULARS

A. AUDIT SCOPE:

The audit will cover financial transactions for the period June There was a special
2022 to May 2023. In particular, the audit will cover review of the request to include in the
following Prepayments & Input taxes accounts: audit scope 2021 input
vat for importation.

● Prepaid expenses
● Prepaid insurance
● Prepaid real property tax
● Prepaid business permit
● Prepaid business permit - Raslag 1
● Prepaid business permit - Raslag 2
● Input VAT (2021 Input Vat for Importation)
● Input VAT - Raslag 3 (2021 Input Vat for Importation)
● Deferred input VAT

B. AUDIT OBJECTIVES:

1. Ensure that prepayments and Input VAT recorded actually exist

and represent valid transactions.

2. Confirm that all relevant prepayments and all eligible Input VAT
transactions are included in the financial statements.

3. Verify the accuracy of prepayment amounts and Input VAT

calculations.
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4. Ensure that prepayments are properly authorized in accordance

with the company's policies.

5. Confirm that prepayments and Input VAT are recorded in the

correct accounting period.

6. Confirm that prepayments and Input VAT are appropriately

presented and disclosed in the financial statements and BIR
returns.

7. Compliance with the VAT returns and filing are consistent and
made with respect to tax laws and regulations. (Limited only to
selected samples)

C. AUDIT RISKS:

1. Absence of proper guidelines and procedures in the

disbursement of expenses may lead to unreliability and
inaccuracy of financial reporting and/or possible exposures to Tax
Authorities.

2. Incorrect or non- application of input tax which exposes the

company to possible assessments by Tax Authorities and
disqualification to claim for tax refund. (Limited to selected
samples only)

3. Incomplete supporting documentary requirements for the

transactions.

4. Incompliance to the terms and conditions of the signed contracts.

5. Incorrect recognition of prepayment expense for a certain period.

D. AUDIT PROCEDURES:

D.1 Preliminary Assessments:

1. Gain an understanding of the client's internal controls related to There was absence of
prepayments and Input Vat, through management inquiry and established guidelines and
discussions with accounting staff involved. policies within
management regarding
the authorization process
This includes review of authorization process for prepayments, for prepayments, as well
 # 110033-000 Prepaid Insurance AUDIT REMARKS WP
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PARTICULARS

policies or guidelines for recording, monitoring prepayments and as the recording,

documentation procedures. monitoring, and
documentation
procedures. (There still
data for confirmation
with the management
subject for discussion)

D.2 Understand Applicable Tax Laws

1. Gain a thorough understanding of the tax laws and regulations The management are
related to input tax in the jurisdiction where the business aware of their eligibility
operates. This includes knowing the eligibility criteria for claiming
for claiming input tax,
input tax credits. however, not all
transactions with input
tax are claimed for
Confirm that the business is eligible to claim input tax credits on refund, only input vat in
the specific purchases. This involves checking whether the importation in 2021 are
2.
purchases are for business purposes and whether the suppliers being claimed for refund.
are registered for tax purposes. Through management
interview/Inquiry and checking of related supporting documents.
Local purchases with
input vat are not included
Verify that input tax claims are made within the prescribed time for refund to the Bureau
limits set by tax authorities. of Internal Revenue.
(There still data for
confirmation, requested
3.
documents was not yet
provided)

D.3 Review of Documentation and Supports

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1. Examine the documentation supporting prepayments. This 1. As we have

includes invoices, contracts, purchase orders, and other relevant obtained and reviewed
agreements. the schedules of
prepayments and
supporting
Examine purchase invoices and supporting documentation for documentations, some of
2. evidence of input tax. Verify that the invoices are valid, accurate, the vouchers do not have
and meet the criteria for claiming input tax credits. (Limited only supporting attachments.
to selected samples)

2. Based on the
selected samples of
transactions subject to
input VAT in the year
2022, some vouchers do
not have an attached
official receipt and sales
invoice, this will make the
transaction invalid to
claim for tax refund.

For year 2021 almost all

transactions with regards
to input vat in importation
are complete and with
proper documentations,
there was only one
transaction/voucher not
included in the compiled
hard copy of the
documents, however, the
management was able to
present the soft copy of
the documents.

D.4 Accuracy and Completeness of Documentations:

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1. Trace prepayments recorded in the financial 1. There was no proper

statements/Schedules back to the source documents to ensure documentation to enable
the accuracy of the amounts and appropriate recording. the management to easily
trace the recorded
transactions in the
Confirm that there is adequate documentation to support each financial statement back
2. input tax claim. This includes invoices, receipts, and other to the source documents
relevant documents. (Limited only to selected samples from 2021 to ensure the accuracy of
and 2022) the amounts and the
appropriate recording.
Some of the vouchers and
Verify that prepayments are recognized in the correct accounting journal entries have no
period. Ensure that the timing of recognizing prepayments aligns supporting documents or
with the matching principle. schedules.
3.

Recalculate the amounts of prepayments to ensure accurate 2. There was no adequate

computation and proper allocation of expenses. documentation to support
each input tax claim for
year 2022, some of the
4.
Reconcile the input tax recorded in the accounting records to the vouchers do not have
amounts reported in the tax returns. Ensure that any differences attached official receipts
are properly documented and explained. (Limited only to selected and sales invoices.
samples)
5.
3. The recorded amounts
in the general ledgers and
in the provided schedules
for prepayments are
appropriately recognized
in the correct accounting
period/cut-off. (Not yet
final, still have items for
verification, for
discussion)
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4. Amounts of
prepayments have
accurate computation and
proper allocation of
expenses. (Not yet final,
still have items for
verification, for
discussion)

5. Input VAT recorded in

the books are not tally
with the tax returns, not
all transactions subject to
input VAT are reported in
the BIR. (Still for
confirmation, other
documents to support the
claim are not yet
provided, remarks are
based on discussion with
the management.)