Page 171 - CA Inter Audit PARAM

CA Ravi Taori
QNO-- Intangible Assets Completeness New Course – (J25M)
AIFS.36.70 Bhaskar CNO – AIFS-P2.040

CA Karan wants to test the “completeness” assertion relating to intangible assets reflected in the financial
statements of Data Solutions Private Limited. State audit procedures to be performed by CA Karan in this
regard.
Answer The audit procedures to be performed by CA Karan to test completeness assertion relating to intangible
assets are as under: -
• Verify the movement in the intangible assets schedule compiled by the management i.e. Opening
balances + Additions – Deletions = Closing balances. Tally the closing balances to the entity’s books of
account.

• Check the arithmetical accuracy of the movement in intangible assets schedule.

• For additions during the period under audit, obtain a listing of all additions from the management and
undertake the following procedures: -

▪ For all material additions, verify whether such expenditure meets the criterion for recognition
of an intangible asset as per AS 26.

▪ Ensure that no intangible asset arising from research (or from the research phase of an internal
project) should be recognised. Expenditure on research (or on the research phase of an internal
project) should be recognised as an expense when it is incurred. Check the certificate or report
or other similar documentation maintained by the entity to verify the date of use of the
intangible which could be linked to date of commencement of commercial production/
economic use to the entity, for all additions to intangible assets during the period under audit.

▪ Verify whether the additions (acquisitions) have been approved by appropriate entity’s
personnel.

▪ Verify whether proper internal processes and procedures like inviting competitive quotations/
proper tenders etc. were followed prior to finalizing the vendor for procuring item of intangible
assets by testing those documents on a sample basis.

▪ In relation to deletions of intangible assets, understand from the management the reason and
rationale for deletion and the manner of disposal. Obtain the management approval and
disposal note authoring disposal of the asset from its active use. Verify the process followed
for sale of discarded asset, for example inviting competitive quotes, tenders and the basis of
calculation of sales proceeds. Verify that the management has accurately recorded the
deletion of intangible asset (original cost and accumulated amortization up to the date of
disposal) and the resultant gain/ loss on disposal in the entity’s books of account.

QNO— Checking Ownership (Rights & Obligation) Of Inventory New Course – (SM25/J25M)
AIFS.36.80 Bhaskar CNO - AIFS-P2.060
A company is engaged in manufacturing of fabrics from yarn purchased from different suppliers.
Occasionally, it also manufactures fabrics tailor made in accordance with requirements of certain mills
from yarn received from these mills. The company raises bill of its labour charges only on mills for
converting yarn into fabrics. The auditor of company tries to ensure that stocks of the company as at
year end do not include stocks pertaining to these mills. Which assertion auditor tries to verify in above
situation? How he can ensure that?
Answer The auditor is trying to verify assertion relating to “Rights and Obligations”. He is verifying that the
company owns or controls the inventory recorded in the financial statements. Any inventory held by the
company on behalf of another entity has not been recognized as part of inventory of the company.

This can be achieved by verifying stock records pertaining to goods received from mills and sent back to
mills after carrying out necessary operations. Besides, agreements with such mills may also be verified.

Following are audit procedures for Rights & Obligations.
Rights and Obligations of Inventory physically available with us :

www.auditguru.in 5.17