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Procedures

10.4 Procedures

 Obtain a breakdown of the items to be provided for, cast it and agree the figure
to the financial statements: accuracy and presentation.

 Enquire with the directors or inspect relevant supporting documentation to
confirm that a present obligation exists at the year-end: rights and obligations.

 Inspect relevant board minutes to ascertain whether payment is probable:
existence.

 Recalculate the provision and agree components of the calculation to
supporting documentation: completeness.

 Inspect post year-end bank statements to identify whether any payments have
been made, compare actual payments to the amounts provided to assess
whether the provision is reasonable: valuation.

 Obtain confirmation from client's lawyer about the likely outcome and chances
of payment (e.g. for a legal provision): existence and rights and obligations.

 Inspect correspondence received from the lawyer regarding the legal provision
to assess whether a provision should be recognised and if so, whether the
amount of the provision is adequate: valuation and completeness.

 Inspect the financial statement disclosure of the provision to ensure compliance
with IAS 37: presentation.

 Obtain a written representation from management that they believe the
provision is valued appropriately and is complete: valuation and completeness.

Illustrations and further practice

Look at Illustration 4 in Chapter 10 for an example of procedures to be
performed in relation to a warranty provision and a legal provision.

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