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agree with answer add by mr. ahmed
check material amount entries for completeness.
Thanks for invitation.
The completeness of client’s hire purchase and leasing liabilities may be tested as follows:
- Examine the hire-purchase/lease agreement carefully and note the description of the machinery, cost of the machinery, hire purchase charges, terms of payment and rate of purchase.
- Ascertain that the machinery/asset has been included in the related assets account at its cash value. Also installments due have been paid and the hire-purchase charges applicable to the period from the commencement of the agreement to the end of the financial year have been charged against current profits.
- See that interest including penalties has been charged off to revenue. Ensure that machinery/asset acquired on hire purchase/lease basis has been included at its cash value in the balance sheet and depreciation has been calculated on the cash value from the date of the purchase. The amount due to the hire purchase/leasing company in respect of the capital outstanding has either been shown as a deduction from the machinery account or as a separate amount under current liabilities.
- An important feature of liabilities which has a significant effect on the related audit procedures is that these are represented only by documentary evidence which originates mostly from third parties in their dealings with the entity.
- In any auditing situation, the auditor employs appropriate procedures to obtain reasonable assurance about various assertions. In carrying out an audit of liabilities, the auditor is particularly concerned with obtaining sufficient appropriate audit evidence to satisfy himself that all known liabilities are recorded and stated at fair and reasonable amounts.
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