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Following are the substantive procedures to be carried out in the verification of Stock in trade:
1. Examine stock taking instructions issued by the client and assess their adequacy for a proper
stock count.
2. Observe counting of inventory at the selected location.
3. Check that slow moving, damaged and obsolete inventories are segregated.
4. Check final summary of stocks prepared from the stock count sheets.
5. Check cut-off.
6. Check calculation of rates to be applied for inventory valuation.
7. Check valuation.
8. Ensure that inventories are presented in accordance with the requirements of the law and IAS-2.

Stores and Spares

Following are the substantive procedures to be carried out in the verification of Stores and Spares:
1) Verification of Opening Balance from previous year's balance sheet and audit working papers file.
2) Review and checking of Stores Record Keeping.
3) Reconciliation of closing balance i.e. Opening balance + Purchases -Purchases Return - Cost of Sales
4) Observation of physical counting done by the client.
5) Checking the source documents for purchases, purchase return and consumption.

Verification of certain expenses items:
a. Director’s Fee

1. Examine the Articles of Association of the company to ascertain mode of determining rates of fee.
2. Examine the minutes of meeting to ensure that only the fee rates agreed are paid to the directors.
3. Where fee is payable according to attendance at meetings, examine attendance to ensure that only
attendance is paid.
4. Ensure that proper receipt is obtained from the payees.
5. Check that proper disclosure is made in the accounts as required by the Companies Ordinance 1984.

b. Interest on Long Term Loan (Foreign Currency)

i) Obtain loan agreement and read its terms and conditions.
ii) Check interest rate mentioned in the agreement.
iii) Check calculation of interest according to specified rate.
iv) Check accrual of interest in case of non-payment.
v) Check payment voucher with bank advice.
vi) Ensure that any gain or loss resulting from the translation has been properly accounted for.
vii) Ensure the following are properly disclosed:
1) Amount of interest;
2) Interest rate;
3) Penal interest, if any; and
4) Interest capitalized.
viii) See that whether any interest has been capitalized. If so examine that requirements of IAS-23
have been fully met and disclosure has been made accordingly.

c. Depreciation on Fixed Assets

i) Check opening balances of the cost of assets and accumulated depreciation with the last
year's audited accounts.
ii) Ensure that depreciation policy is appropriate and applied consistently i.e. there is no change
in policy as compared to last year.
iii) Verify that the depreciation calculations for additions and disposals during the year are in
accordance with the accounting policy.
iv) Analytical Review

page 121
Check that depreciation for the year is reasonable in relation to book value, stated policies
and previous years.

d. Staff Loans

i) Examine the services rules and regulation of the company, note major particulars regarding
staff loan.
ii) Examine and evaluate internal control. Authority in particular important.
iii) See application form for loan.
iv) Ensure loan is properly authorized, see Board resolution.
v) Examine agreement with the staff and ensure terms are being adhered to.
vi) Obtain certificate direct from staff.
vii) If loan is secured, examine the security.
viii) See that adequate provision for amount of doubtful recovery is made in the accounts.

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