1. Auditing & Investigations II
Audit of liabilities, Capital and Reserves II

2. Audit of VAT and Others taxes payable
Key issues
Audits of Tax payables
Audit of Dividend
Audit of VAT and Others taxes payable
Audit of Capital
Audit of Reserves

3. 1. Audit of Tax Payables
Audit Objectives
Liability for taxation is fairly stated by being properly classified and presented;
Provision for the deferred tax liability is adequate and is computed on an acceptable and consistent basis;
All contingent liabilities relating to tax are adequately described by way of note.

4. Audit Procedures
Review of tax information questionnaire Check list (collect tax background information)
Review current year’s working papers. Extract expenditure not allowable as deductions against income for tax purposes.

5. Continued…..
Examine the draft computation with the available data and compare with the computation and correspondence for previous years.
Check the calculation of the tax liability.

6. Continued……………
Review the charge to the income statement in respect of tax to ensure that it is fairly computed and note any transfers to or from the deferred tax account.
Payments to the tax authorities in respect of tax liabilities should be vouched by reference to tax correspondence, assessment notices and paid cheques.

7. 2. Audit of dividend
Key issues for audit attention:
Authority for paying a dividend (company constitution authorisation)
Legality of Dividend (companies act provisions. Dividend can only be paid from realised profits)

8. Audit procedures
Read the directors’ minute authorising the interim dividend or the entry in the members’ minute book validating the final dividend.
Vouch the journal entries in respect of setting up the liability for the dividend.

9. Continued…….
Vouch the transfer of the dividend from the main bank account to the dividend bank account.
Review the dividend bank account reconciliation for earlier periods and vouch the authority for write back of unclaimed dividends.

10. VAT liability is obtained from the audit of purchases and sales.
3. Audit of VAT payable
VAT liability is obtained from the audit of purchases and sales.

11. Audit Procedures on VAT
Examine a sample of VAT and tax returns and re-perform calculations thereon.
Scan any large or unusual items and note that the VAT has been treated correctly.
Review official handbooks in relation to the company’s trade and verify that the system accounts for input tax and output tax properly.

12. Continued
Review payments to and correspondence with the tax authorities to ensure that the liability is being properly discharged.
Vouch payments from the tax authorities where input tax exceeds output tax with returns and supporting evidence.

13. Continued…..
Review sales figures with output tax calculations and assess the reasonableness of the balance.

14. 4. Audit of Capital
Audit objective:
The auditor must be satisfied that the amount of share capital is properly stated.

15. Audit Procedures over Capital
Confirm opening balance with working papers and State of Financial Position;
Vouch any issues during the year with directors’ minute book and monies received;
Verify postings to share premium account;
Confirm year-end balance with share register.

16. 5. Audit of Reserves Audit Approach:
The auditor should obtain a schedule of reserves showing opening balances, closing balances and movements.
Where a revaluation reserve is created, the auditor should satisfy himself that there is an objective basis of valuation and that all the individual movements (by asset class) are properly identified and disclosed.

17. Validation of Movements
Statutory books – directors’ and members’ minute books, share register etc;
Resolutions to redeem, purchase, issue or forfeit shares.

18. Thank you for your attention
End
Thank you for your attention