Compliance and Audit checklist (AS 4 – Part 4)

Compliance and Audit checklist

(Each of the following Compliance and Audit checklist points, requires to be checked for a positive or negative answer and is to be supplemented with remarks and evidences collected where essential)

1. General
1. Has the auditee established appropriate internal control procedures for determination of contingencies of the following nature:
1. Claims not acknowledged as debts
2. Liabilities under guarantees given
3. Bills discounted with recourse
4. Matters under litigation
2. Do the procedures established by auditee also permit determination of events of the following nature occurring after the balance sheet (are there any such events?)
1. Natural calamities
2. Theft of stock, asset, etc.
3. Changes in Governmental policy
4. Major clients becoming bankrupt
5. Claims made by suppliers
6. Any other important event occurring, such as amalgamation, merger
7. And, other similar items
2. Review of books
1. Have you undertaken a review of management accounts, budgets, cash flow forecasts, or unusual items, trends – and made a note of important items
2. Have you reviewed the minutes of meetings of shareholders, directors, executive committees, etc., held after BS date – and has this review shown occurrence of any important event?
3. Has the register of Charges been reviewed, and the entries taken note of?
3. Adjustments to assets and liabilities
1. Do the compliance tests indicate that one or more events occurring after the BS Date include items of the nature stated under ‘1’ above
1. If yes, do the events indicate that probably an asset (a financial) has been impaired.
2. If yes, can a reasonable estimate of the likely loss be made.
3. If no, refer to item 4 below.
4. If yes, can also a reasonable estimate of the likely liability be made.
5. If yes, refer to audit checklist under AS 29.
2. Where the result of audit procedures undertaken, (a) indicate that one or more events occurring after the BS Date include items of the nature under 1 above and (b) where the amount is not determinable, then, has it been ensured that the item is adequately disclosed, to reflect:
1. Nature of contingent event.
2. Uncertainties that may affect the outcome in future.
3. Financial effect of the uncertain event, where it is determinable.
4. A statement, if such be the case, that financial effect of the uncertain event is not determinable.
3. Where the result of audit procedures undertaken, indicate that one or more events have occurred after the BS date:
1. Is the event (one or more events) such that it has a bearing to condition(s) that existed on BS Date
2. If yes, does the event throw up additional evidence assisting in the determination of amount
3. If yes, have appropriate adjustments been made to assets and liabilities on BS Date
4. Does the event throw up signals, which prompts an inference that going concern assumption will be rendered invalid
5. If yes, has this issue been appropriately settled
6. Have dividends been declared by approving authority after BS date
7. If yes, has an appropriate adjustment been made, and the amount shown as a part of Current Liabilities and Provisions, as required under Part I of Schedule VI
4. Have you obtained an updated MRL where appropriate, indicate the nature of PB events, and actions taken:
5. Are the contingencies noticed, such that they require a provision for a liability or write off of any assets?

• If yes, has the provision been made, or liability created?
• If the P&L has not been charged (for anticipated loss)
• If no, is there appropriate disclosure in the Notes to accounts about this contingency

4. Non-adjusting events
1. Where the result of audit procedures undertaken, indicate that one or more events have occurred after the BS date:
1. Is the event (one or more events) such that it has no bearing to any condition that existed on BS Date
2. If yes, is the event ‘significant’ enough to warrant a disclosure
3. If yes, has this been disclosed in the report of approving authority
4. Does the above disclosure contain essential details, such as nature of event, and estimate of financial effect of such an event
5. If the management of the opinion that the event does not have a material bearing on the commitments and financial position of the auditee, do you agree
6. Is the event such that computation of EPS for current period and last reported period requires to be adjusted in accordance with the provisions of AS 20
2. If there is conflicting or insufficient evidence for estimating the amount of a contingent loss, whether the disclosure has been made of the existence and nature of the contingency?
3. A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter-claim or claim against a third party. In such cases, the amount of the provision is determined after taking into account the probable recovery under the claim if no significant uncertainty as to its measurability or collectability exists. Whether a suitable disclosure regarding the nature and gross amount of contingent liability of this nature has been made?
4. Whether the existence and amount of guarantees, obligations arising from discounted bills of exchange and similar obligations undertaken by an enterprise have been disclosed in financial statements by way of note, even though the possibility that a loss to the enterprise will occur, is remote
5. Does your review show that the events occurring after the BS date show that contingencies have been appropriately disclosed
1. If yes, does the disclosure show the nature of event
2. If yes, does the event throw up additional evidence assisting in the determination of amount
6. Whether the dividends declared after BS date but before the financial statements are approved for issue have been properly disclosed in Notes?

5. Going concern assumption

In case one or more events after BS date have rendered Going Concern assumption inappropriate, has the entity adjusted the assets and liabilities properly to realisable (payable) value ?

Whether the entity has made appropriate disclosures (under significant accounting policies) the reasons for not following going concern assumption, and the methodology (basis) used for preparation and presentation of financial statements? (such as realisable value basis)


CA. S D Bala
Chartered Accountant, Author and Accounting Standard Expert