Apm Egmcl

HKICPA AUDIT PRACTICE MANUAL 2022
Tailoring Checklist
1. Complete the following data concerning the client. This will then appear on every sheet.
Client name Manufacturing Company Limited
Year-end 31-Dec-21
File number M0001
2. Tick the box in the 'Form required?' column to select the programmes required. The relevant tab will appear or disappear
as the box is ticked or unticked. In most cases the box is ticked by default, but for programmes that are not expected to be
used that frequently the box is unticked.
3. This page can be printed as a record of the tailoring for this client. The notes column can be used to record any reasoning
behind the tailoring decisions.
Ref Sheet Title Is this Notes

required?
CURRENT AUDIT FILE
A001 Ai Section A index

A002 A1 Final completion memorandum
A003 A1.2 Final subsequent events review
A004 A1.3 Final completion

A005 Aapp1 Will the accounts require calling over? [Not reproduced in example file]
B001 Bi Section B index

B002 B1 Completion memorandum
B003 B2.1 Engagement partner review Review notes B2.1
B004 B2.2 Second partner review/ EQCR / EQR
B005 B3 Compliance with auditing standards
B006 B4 File completion
B007 B5 Review of accounts
B009 B6 Audit highlights Highlights report prepared B6
B010 B6.1 Summary of significant audit matters
B011 B6.2 Evaluation of accounting estimates
B012 B7 Unadjusted errors
B013 B8 Justification of audit report Comments noted on B1
B014 B8.1 Guidance on forming an opinion under HKSA 700 (Revised)
C001 Ci Section C index

C002 C1 Planning memorandum
C003 C2 Preliminary engagement activities Comments noted on C1
C004 C2.1 Independence questionnaire Comments noted on C1
C005 C2.2 Accounting & tax compliance: safeguards applied Comments noted on C1
C006 C3.1 Audit strategy - general Comments noted on C1
C007 C3.2 Audit strategy - group audits Not applicable
C008 C4 Understanding the entity
C009 C4.1 Review of accounting estimates
C010 C5 Internal controls
C011 C5.1 Evaluate the design and implementation of internal control activities
C012 C5.2 Internal control questionnaire
C013 C6 Preliminary analytical procedures
C014 C7 Materiality summary
Questions Page 1 of 565 APM 2022

C7.1 Determining materiality
C015 C7.2 Materiality summary - group components Not applicable
C016 C8 Risk assessment
C017 C8.1 Detailed risk assessment
C018 C8.2 Financial statement risk action plan
C019 C8.3 Assertion risk action plan
C020 C8.4 Risk response summary
C021 C9 Notes of engagement team planning meeting
C022 C9.1 Fraud risk factors Comments noted on C1
C023 C9.2 Engagement team planning meeting checklist
C024 C10 Other planning issues
C025 C11 Audit administration
C026 C12 Engagement quality
C028 C13.2 Sample size planning
C029 C13.3 Assignment planning - timetable
C030 C13.4 Budget and performance summary
C031 C13.5 Job progress report
C032 Capp01 Checklist for reporting exemptions (HK incorporated company)
C033 Capp02 Requirement for consolidated accounts (HK incorporated company)
C034 Capp03 Requirement for business review (HK incorporated company)
D001 Di Section D Optional programmes index

D002 D1 Substantive analytical procedures: audit programme
D003 D1.1 Substantive analytical procedures: working paper Filed as R5.2
D004 D2 Opening balances and comparatives: audit programme
D005 D3 Accounting estimate: work programme Filed as F2.5
D006 D4 Service organizations: audit programme
D007 D5 Using the work of an auditor's expert: audit programme
D008 D6 Using the work of management's expert: audit programme Filed as F3.1
D009 D7 Segment information: audit programme
D010 D8 Using the work of internal auditors: audit programme
D011 D8.1 Direct assistance from internal auditors: audit programme
D012 D9 Specimen debtor / creditor confirmation
D013 D10 Additional procedures for listed companies: audit programme
D014 D11 Other information included in the annual report: audit programme
D015 D20 Blank summary sheet for additional bespoke section
D016 D21 Blank audit programme for additional bespoke section
E001 Ei Section E Intangible assets index

E002 Es Intangible assets - audit objectives
E003 E2 Intangible assets - audit programme Filed as E2.1
E004 Eapp01 Intangible assets - supplementary procedures Filed as E2.2
F001 Fi Section F PPE index

F002 Fs PPE - audit objectives
F003 F2 PPE - audit programme Filed as F2.1
F004 Fssb1 Sample calculation form for PPE Filed as F2.3 and F2.4
F005 Fapp1 PPE - supplementary procedures Filed as F2.2
G001 Gi Section G Investments in group or associated undertakings index

G002 Gs Investments in group & associated undertakings - audit objectives
G003 G2 Investments in group & associated undertakings - audit programme
H001 Hi Section H Other investments index

H002 Hs Other investments - audit objectives
H003 H2 Other investments - audit programme
I001 Ii Section I Inventories index

I002 Is Inventories - audit objectives
I003 I2 Inventories - audit programme
I004 I4 Stock take attendance programme
I005 I5 Confirmation of inventory held by a third party
I006 Issb A sample selection planning form for this section Filed as I2.1, I2.2, I2.3
J001 Ji Section J Trade & other receivables index

J002 Js Trade and other receivables - audit objectives
J003 J2 Trade and other receivables - audit programme Filed as J2.1
J004 Japp01 Trade receivables circularisation summary Filed as J6
J005 Japp02 Trade receivables circularisation sheet Filed as J6.1
J006 Jssb A sample selection planning form for this section Filed as J2.3
J007 Japp03 Trade and other receivables - supplementary procedures Filed as J2.2
K001 Ki Section K Bank balances and cash index

K002 Ks Bank & cash - audit objectives
K003 K2 Bank & cash - audit programme
K004 Kapp01 Bank & cash - supplementary procedures
L001 Li Section L Trade & other payables index

L002 Ls Trade and other payables - audit objectives
L003 L2 Trade and other payables - audit programme Filed as L2.1
L004 Lapp01 Trade payables' circularisation summary Filed as L7
L005 Lapp02 Trade payables circularisation sheet Filed as L7.1
L006 Lssb A sample selection planning form for this section Filed as L2.3 and L2.4
L007 Lapp03 Trade and other payables - supplementary procedures Filed as L2.2
M001 Mi Section M Long-term loans and deferred income index

M002 Ms Long-term loans or deferred income - audit objectives
M003 M2 Long-term loans or deferred income - audit programme Filed as M2.1
M004 Mapp01 Long-term loans or deferred income - supplementary procedures Filed as M2.2
N001 Ni Section N Provisions, contingent liabilities and financial commitments

N002 Ns index
Provisions, contingencies and commitments - audit objectives
N003 N2 Provisions, contingencies and commitments - audit programme Filed as N2.1
N004 Napp01 Provisions, contingencies and commitments - supplementary procedures
N005 Napp02 Does the entity contribute to a defined benefit pension scheme?
The purpose of the programme in this section (N2) is to ensure that all provisions, contingencies and commitments
are identified. It is therefore good practice to complete the tests in this programme even if you believe they are not
applicable. If you decide not to use the programme you must consider carefully how the completeness of provisions,
contingencies and commitments will be addressed.
O001 Oi Section O Share capital, reserves and statutory records index

O002 Os Capital, reserves and statutory records - audit objectives
O003 O2 Capital, reserves and statutory records - audit programme Filed as O2.1
O004 Oapp01 Capital, reserves and statutory records - supplementary procedures Filed as O2.2
P001 Pi Section P Income taxes index

P002 Ps Income taxes - audit objectives
P003 P2 Income taxes - audit programme Filed as P2.1
P004 Papp01 Income taxes - supplementary procedures Filed as P2.2
[Not included in this example file]
Q001 Qi Section Q Income index
R001 Ri Section R Profit and loss index

R002 Rs Income statement - audit objectives

R003 R2 Income statement - audit programme Filed as R2.1
R004 Rapp01 Income statement - supplementary procedures Filed as R2.2
R005 Rapp02 Related parties - audit programme Filed as R8.1
R006 Rapp03 Related parties - supplementary procedures Filed as R8.2
R007 Rapp04 Are there any share-based payment arrangements?
R008 Rsspl A sample selection planning form for this section Filed as R2.3 and R2.4
S001 Si Section S Operating effectiveness of controls index

S003 Ss Test of control - audit objectives
S004 S2 Test of control - audit programme
S005 S3 Internal control evaluation
T001 Ti Section T Subsequent events index

T002 Ts Subsequent events - audit objectives
T003 T2 Subsequent events - audit programme
T004 T3 Going concern - checklist
T005 T3.1 Going concern - conclusion
Subsequent events review is a requirement of auditing standards. Are you sure that this area will be properly
addressed and documented without completion of at least the audit objectives on Ts?
U001 Not Used
V001 Vi Section V General ledger index

V003 Vs General ledger - audit objectives
V004 V2 General ledger - audit programme
V005 V3 Review of accounting estimates for bias - working paper
V006 V4 Testing journal entries - working paper
V007 V4.1 Detailed testing of journals [Not reproduced in example file]
W001 Wi Section W Consolidation index

W002 Ws Group accounts - audit objectives
W003 W2 Group accounts - audit programme
W005 W3 Component auditors - audit programme
W006 W4 Component auditor instructions
W007 W5 Component auditor questionnaire
W008 W6 Reporting to the group auditor
W009 W7 Example component auditor's confirmation
X001 Xi Section X Accounts working papers index

Y001 YZi Section Y Other primary financial statements and
Section Z Computer reports and records received index
App01 App1.1 Business combinations - index

App02 App1.2 Business combinations - objectives
App03 App1.3 Business combinations - audit programme
App04 App2.1 Investment property - index
App05 App2.2 Investment property - objectives
App06 App2.3 Investment property - audit programme
App07 App2.4 Investment property - sample selection planning form
App08 App3.1 Other financial instruments and derivatives - index File at Xi
App09 App3.2 Other financial instruments and derivatives - objectives Filed at Xs
App10 App3.3 Other financial instruments and derivatives - audit programme (HKAS
App11 App3.4 39)
Other financial instruments and derivatives - audit programme HKFRS 9) Filed at X2
App12 App3.5 Classification of financial assets under HKFRS 9
App18 App5.1 Revenue under HKFRS 15 - index Filed as R10
App19 App5.2 Revenue under HKFRS 15 - objectives Filed as R10.1
App20 App5.3 Revenue under HKFRS 15 - audit programme Filed as R10.2
App21 App6.1 Leases under HKFRS 16 - index Filed as F6

App22 App6.2 Lessees under HKFRS 16 - objectives Filed as F6.1
App23 App6.3 Lessees under HKFRS 16 - audit programme Filed as F6.2
App24 App6.4 Lessors under HKFRS 16 - objectives
App25 App6.5 Lessors under HKFRS 16 - audit programme
PERMANENT FILE
PAF001 PAF01 Permanent audit file index Filed as PAFi
PAF002 PAF02 Background information Filed as 1.1
PAF003 PAF03 Details of bankers and professional advisors Filed as 1.2
PAF004 PAF04 Know your client checklist Filed as 1.3
PAF005 PAF05 Register of laws and regulations Filed as 1.4
PAF006 PAF06 Details of related parties Filed as 1.5
PAF007 PAF06.1 Related parties checklist
PAF008 PAF06.2 Covering letter to client
PAF009 PAF07 Significant accounting policies Filed as 1.6
PAF010 PAF08 New client checklist Filed as 2.6
PAF011 PAF09 Systems overview
PAF012 PAF10 Register of non-audit services Filed as 2.7
PAF013 PAF11 Register of involvement in the audit Filed as 2.8
PAF014 PAF13 Accounting estimates Filed as 1.7

Manufacturing Company Limited Ref:
31-Dec-21
M0001
AUDIT FILE INDEX
A FINAL COMPLETION
B AUDIT COMPLETION
C AUDIT PLANNING
D OPTIONAL PROGRAMMES
E INTANGIBLE ASSETS
F PROPERTY, PLANT AND EQUIPMENT
G INVESTMENTS IN GROUP AND ASSOCIATED UNDERTAKINGS
H OTHER INVESTMENTS
I INVENTORIES
J TRADE & OTHER RECEIVABLES
K BANK BALANCES AND CASH
L TRADE & OTHER PAYABLES
M LONG-TERM LOANS AND DEFERRED INCOME
N PROVISIONS, CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
O SHARE CAPITAL, RESERVES AND STATUTORY RECORDS
P INCOME TAXES
Q INCOME AND EXPENDITURE
R PROFIT AND LOSS
S OPERATING EFFECTIVENESS OF CONTROLS
T SUBSEQUENT EVENTS
U NOT USED
V GENERAL LEDGER
W CONSOLIDATION
X ACCOUNTS WORKING PAPERS
Y OTHER PRIMARY FINANCIAL STATEMENTS
Z COMPUTER REPORTS AND RECORDS RECEIVED
APPENDICES
1 BUSINESS COMBINATIONS
2 INVESTMENT PROPERTIES
3 OTHER FINANCIAL INSTRUMENTS AND DERIVATIVES
4 CONSTRUCTION CONTRACTS
5 REVENUE UNDER HKFRS 15
6 LEASES UNDER HKFRS 16
Ai Page 6 of 565 APM 2022

31-Dec-21 A
M0001
A FINAL COMPLETION
1 Final completion memorandum A1
1.2 Final subsequent events review A1.2

Review management's forecast and going concern assessment [Not included in this
example file] A1.2a
1.3 Final completion checklist A1.3
2 Accounts & tax computations
2.1 Final accounts A2.1
2.2 Tax computations A2.2
3 Final journals A3
4 Draft accounts, typing instructions, calling over checklist (Aapp1)
5 Letter of representation A5
6 Letter to management A6
7 Disclosure checklists of financial statements under HKFRS [Not included in this example file] A7
8 Management accounts A8
Ai Page 7 of 565 APM 2022

31-Dec-21 A1
M0001
FINAL COMPLETION MEMORANDUM
The purpose of this memorandum is to document any matters arising between the issue of the accounts to the client
for approval and completion of the audit report. These can be either free form notes, a reference to the relevant
checklist or a combination of both. See the guidance notes for further information on the completion of this form.
1. Approval for Signing the Audit Report

I confirm that:
1 The audit complies with professional standards and applicable legal and regulatory requirements.
2 In particular the audit complies with all relevant requirements of the HKSAs.
3 A sufficient and appropriate record for the basis of the audit report has been documented.
4 There are no factors to indicate that the representations received from the directors cannot be relied upon.
5 The auditor’s report issued is appropriate in the circumstances.
I authorize the issue of the completion of the audit report.
Bob Lee 25/4/2022
Audit engagement partner Date
Second partner (where appropriate ) Date
2. Matters outstanding on B1
There are no matters outstanding on B1.
3. Final Subsequent Events Review A1.2 Completed - YES / NO

As at 25 April there are no matters arising since the review completed on T2.
4. Other (Including late amendments to the file) A1.3 Completed - YES / NO

Following completion of A1.3 there are no matters which impact on our audit opinion, or necessitate delaying the issue
of our report.
Note. Where the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly
of the final audit file has been completed (see test 17 on A1.3), the auditor shall, regardless of the nature of the modifications or
additions, document:
(a) The specific reasons for making them; and
(b) When and by whom they were made and reviewed (HKSA 230.16)
A1 Page 8 of 565 APM 2022

Manufacturing Company Limited Completed by: JO Date: 25-Apr Ref:
31-Dec-21 Reviewed by: BL Date: 25-Apr A1.2
M0001
FINAL SUBSEQUENT EVENTS REVIEW

Test Results Sch ref Comments Initials
required satisfactory and
Y/N Y/N date
General
1 Establish whether the management have Y Y T2.1 There are no JO
effective procedures to ensure that subsequent formal procedures. 25/4/22
events are identified. Discussed with
management on
subsequent
events.
2 Read the management minutes held since the Y Y O4 Review of minutes JO

final audit and enquire about matters documented on 25/4/22
discussed at meetings for which minutes are O4. No
not yet available. subsequent
events noted from
the minutes review
that would affect
the financial
statements.
3 Review any available accounting records and Y Y T2 - 2(a) Post y/e mgmt JO
identify whether anything needs to be reflected accs reviewed. No 25/4/22
in the financial statements. such issues noted.
4 Enquire with management whether any Y Y T2.1 Discussed with JO

subsequent events have occurred which might mgmt 15/04/22. 25/4/22
affect the financial statements. Cover
specifically:
(a) the current status of accounting Y Y None JO
estimates, other items involving 25/4/22
subjective judgment or which were
accounted for on the basis of preliminary
data: specify:
(b) whether new commitments, borrowings or Y Y None JO
guarantees have been entered into; 25/4/22
(c) whether sales of assets have occurred or Y Y None JO

are planned; 25/4/22
(d) whether the issue of new shares or Y Y None JO

debentures, or an agreement to merge or 25/4/22
to liquidate, has been made or is planned;
(e) whether any assets have been destroyed; Y Y None JO

25/4/22
(f) whether there have been any Y Y None JO

developments regarding risk areas and 25/4/22
contingencies;
(g) whether any unusual accounting Y Y None JO

adjustments have been made or are 25/4/22
contemplated;
A1.2 Page 9 of 565 APM 2022

Y/N Y/N date
(h) whether any events have occurred or are Y Y None JO

likely to occur which might bring into 25/4/22
question the appropriateness of the
accounting policies.
(i) whether events have occurred that are Y Y None JO

relevant to the measurement of estimates 25/4/22
or provisions.
(j) whether any events have occurred that Y Y None JO

are relevant to the recovery of assets. 25/4/22
5 Consider, where appropriate, the validity of the Y Y A1.2a Reviewed JO
going concern basis of accounting. management's 25/4/22
[A1.2a 2023 forecast,
Not assessed the
included assumptions used
in this in the forecast and
example considered the
file] going concern
basis accounting
remains
appropriate. Also,
from discussion
with management,
they do not have
any plan to cut
down or terminate
the existing
business. See
A1.2a for the
forecast and our
assessment.
6 Confirm that the directors ’ review of the future Y Y A1.2a Period considered JO
of the business still extends to a period of at to December 2023 25/4/22
least 12 months from the date of the financial [A1.2a using 2022
statements. Not budgets and 2023
included forecasts. See
in this A1.2a
example
file]
A1.2 Page 10 of 565 APM 2022

Manufacturing Company Limited Prepared by: JO Date: 25-Apr Ref:
31-Dec-21 Reviewed by: BL Date: 25-Apr A1.3
M0001
FINAL COMPLETION CHECKLIST

Comments WP Ref
1 Have all outstanding items on the initial partner completion on B1

been adequately dealt with? Yes
2 Has a signed letter of representation addressed to the firm been

received from management that addresses at least the specific Yes A5
issues required by the HKSAs (see guidance notes)?
3 Is the letter of representation dated near as practicable to but not

after the expected date of the audit report; and do the representations The letter of representation is
include all those that relate to all financial statements and all periods to be dated 25 April, the same
referred to in the report? date as proposed for our audit
report.
4 Where fraud was found or suspected was this and any other relevant
information communicated to the appropriate level of management
and those charged with governance on a timely basis? N/A
5 Where the letter of representation is signed by one director on behalf

of the Board, have we seen minutes of a meeting agreeing its The letter is signed by all 3
contents? directors.
6 Are we satisfied that the directors' representations can be relied

upon? Yes
7 Have any inconsistencies between the directors' representations and

other evidence been resolved? N/A
8 Does the file contain adequate justification of the audit report?

Yes. There are no grounds to
consider qualification of the
B6
opinion. See audit highlights
summary on B6.
9 Have we informed the directors of any unadjusted misstatements, any

material weaknesses in the accounting and internal control systems, Unadjusted misstatements
or any other relevant matters relating to the audit? Yes (A5) A5
Weaknesses Yes (A6) A6
10 Has the Final Subsequent Events Review programme on A1.2 been
completed? Yes
11 Does the balance sheet state the name of the director who approves Yes
the financial statements on behalf of the Board, together with the date R Chan and A Leung
of approval? 25 April
12 Where applicable does the audit file contain sufficient evidence to
support reporting under the SME-FRF & FRS (Revised) or HKFRS for N/A, using HKFRS
Private Entities?
13 Do the working papers and the tax computation reflect final

adjustments? Yes
14 Have all final journals been recorded and processed to produce a

closing trial balance agreeing with the financial statements? Yes A3
15 Has the final copy of the accounts been referenced to the file to
ensure all lead and Q schedules reflect final adjustments? Yes A1.2
A1.3 Page 11 of 565 APM 2022

Comments WP Ref
16 On consideration of the file and in particular questions 22 and 23 on

B4 are we satisfied that it is appropriate for us to seek re-appointment Yes
as auditors?
17 Will the assembly of the file be completed on a timely basis, ordinarily
not more than 60 days, after the date of the audit report? Yes
Audit report signed on: 25/4/2022

Deadline for assembly of file 24/6/2022
Actual date of assembly of file 25/4/2022
Note. Once the assembly of the final audit file has been completed,
the auditor shall not delete or discard audit documentation of any
nature before the end of its retention period (HKSA 230.15)
A1.3 Page 12 of 565 APM 2022

A2.1
Manufacturing Company Limited

Reports and Financial Statements
For the Year Ended 31 December 2021
[These reports and financial statements are not intended to be model or illustrative reports and financial
statements and may not necessarily adhere to all relevant requirements. They are provided to support the
example audit working papers included in this file.]
A2.1 Page 13 of 565 APM 2022

Contents
For the year ended 31 December 2021
Page
Directors' report 1
Independent auditor's report 2
Statement of profit and loss and other comprehensive income 3
Statement of financial position 4
Statement of changes in equity 5
Statement of cash flows 6
Notes to the financial statements:
1 General information 7
2 Application of new and revised Hong Kong Financial Reporting Standards 7
3 Significant accounting policies 8
4 Critical accounting judgments and key sources of estimation uncertainty 15
5 Revenue 16
6 Other gains and losses 16
7 Finance costs 16
8 Income tax expense 16
9 Discontinued operations 17
10 Profit for the year from continuing operations 18
11 Directors' remuneration 18
12 Property, plant and equipment 19
12a Right-of-use assets 21
13 Goodwill and other intangible assets 23
14 Inventories 23
15 Trade and other receivables 24
16 Amount due from a director 25
17 Trade and other payables 25
18 Borrowings 26
19 Derivative financial instrument 26
20 Lease liabilities 27
21 Provisions 27
22 Share capital 27
23 Reserves 28
24 Capital management 28
25 Financial instruments by category 28
26 Financial risk management 29
27 Fair value measurements 32
28 Related party transactions 33
29 Parent company 33
A2.1 Page 14 of 565 APM 2022

Manufacturing Company Limited Page 1
Directors' report
The directors present their annual report and the audited financial statements for the year ended 31 December 2021.
[Contents of the director's report not produced in this example file]
A2.1 Page 15 of 565 APM 2022

Page 2
Independent auditor’s report
Nickleby & Chuzzlewitt
Counting House
Kings Road
Hong Kong
To the shareholders of Manufacturing Company Limited

(Incorporated in Hong Kong with limited liability)
[Contents of the independent auditor's report not produced in this example file]
A2.1 Page 16 of 565 APM 2022

Statement of profit or loss and other comprehensive income
2021 2020
Notes HK$'000 HK$'000
(restated)
Continuing operations B5.1
Revenue 5 92,096 55,673
Cost of sales (39,396) (15,979)
Gross profit 52,700 39,694
Other gains and losses 6 241 224

Net reversal / (recognition) of impairment losses on trade receivables 56 (75)
Distribution costs and selling expenses (7,784) (7,079)
Administrative expenses (31,149) (24,116)
Finance costs 7 (1,536) (1,444)
Profit before tax 12,528 7,204
Income tax expense 8 (1,522) (2,116)

Profit for the year from continuing operations 10 11,006 5,088
Discontinued operations
Loss for the year from discontinued operations 9 (4,762) (1,249)
Profit for the year 6,244 3,839
Other comprehensive income

Items that will not be reclassified to profit or loss:
Gain on revaluation of land and buildings 12 1,442 -
Deferred tax arising from revaluation of land and buildings 8 (238) -
Other comprehensive income for the year, net of tax 1,204 -
Total comprehensive income for the year 7,448 3,839
A2.1 Page 17 of 565 APM 2022

Statement of financial position
At 31 December 2021
2021 2020
Notes HK$'000 HK$'000
ASSETS
Non-current assets B5.1 ß
Property, plant and equipment 12 12,153 10,220
Right-of-use assets 12a 9,435 9,646
Goodwill and other intangible assets 13 1,022 1,022
22,610 20,888
Current assets
Inventories 14 10,795 8,547
Trade and other receivables 15 14,865 12,052
Amount due from a director 16 126 58
Cash and cash equivalents 5,669 42
31,455 20,699
Total assets 54,065 41,587
EQUITY AND LIABILITIES

Equity
Share capital 22 9,975 9,450
Other reserves 23 2,094 -
Retained earnings 23 10,640 4,396
Total equity 22,709 13,846
Non-current liabilities
Borrowings 18 6,861 1,681
Lease liabilities 20 8,953 9,199
Deferred tax liabilities 8 1,937 1,589
17,751 12,469
Current liabilities
Trade and other payables 17 9,716 12,057
Current tax liabilities 8 1,377 681
Borrowings 18 83 1,580
Lease liabilities 20 1,153 875
Derivative financial instrument 19 76 79
Provisions 21 1,200 -
13,605 15,272
Total liabilities 31,356 27,741
54,065 41,587
The financial statements on pages 3 to 33 were approved and authorized for issue by the board of directors on 25 April
2022 and are signed on its behalf by:
R. Chan A. Leung
Director Director
A2.1 Page 18 of 565 APM 2022

Statement of changes in equity
Property
Share Capital Retained
revaluation Total
capital Contribution earnings
Notes reserve
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000

ß
At 1 January 2020 9,450 - - 557 10,007
Profit for the year and total

comprehensive income - - - 3,839 3,839
At 31 December 2020 and

1 January 2021 9,450 - - 4,396 13,846
Profit for the year - - - P/L 6,244 6,244

Gain on revaluation of land
and buildings - -
O1 1,442 - 1,442
Deferred tax arising from
revaluation of land and
O1
buildings - - (238) - (238)
Other comprehensive income
for the year - - 1,204 - 1,204
Total comprehensive income
for the year - - 1,204 6,244 7,448
New shares issued in the year 22 O3 525 - - - 525

Deemed contribution arising
from Group loan 18 - M5 890 - - 890
At 31 December 2021 9,975 890 1,204 10,640 22,709
A2.1 Page 19 of 565 APM 2022

Statement of cash flows
For the year ended 31 December 2021 Notes 2021 2020
HK$'000 HK$'000
Cash flows from operating activities Y1 P/L
Profit / (loss) before tax: from continuing operations 12,528 7,204
from discontinued operations (4,762) (1,249)
Adjustments for: ß
Finance costs 1,536 1,444
Provisions 1,200 -
Depreciation and amortization 2,877 2,129
Impairment loss on goodwill - 350
Profit on disposal of property, plant and equipment (266) (175)
Loss on disposal of discontinued operations 1,806 -
Fair value movements of derivative financial instruments (3) (49)
Net (reversal) / recognition of impairment losses on trade receivables (56) 75
14,860 9,729
Movements in working capital
(Increase)/ decrease in inventories (2,248) 252
Increase in amounts due from a director (68) -
Increase in trade and other receivables (2,757) (2,259)
Decrease in trade and other payables (2,341) (4,115)
Cash generated from operations 7,446 3,607
Interest paid (1,373) (1,399)

Income taxes paid (716) (1,235)
Net cash generated by operating activities 5,357 973
Cash flows from investing activities

Proceeds from sale of discontinued operations 9 350 -
Proceeds from sale of property, plant and equipment 322 175
Payments for property, plant and equipment (3,867) (1,527)
Payments for other intangible assets (497) -
Net cash used in investing activities (3,692) (1,352)
Cash flows from financing activities

Proceeds from issue of new shares 525 -
Repayments of bank borrowings (730) (308)
Proceeds from borrowings 6,640 -
Principal elements of lease payments (972) (786)
Net cash generated by/ (used in) financing activities 5,463 (1,094)
Net increase/ (decrease) in cash and cash equivalents 7,128 (1,473)
Cash and cash equivalents at the beginning of the year (1,459) 14

Cash and cash equivalents at the end of the year 5,669 (1,459)
Cash and bank balances 5,669 42

Bank overdrafts 18 - (1,501)
5,669 (1,459)
Cash flows of discontinued operations 9

Non-cash investing and financing activities - acquisition of right-of-use assets 12(a)
A2.1 Page 20 of 565 APM 2022

Notes to the financial statements
1. General information
Manufacturing Company Limited is a limited company incorporated in Hong Kong. The addresses of its registered
office and principal place of business are disclosed in the directors' report.
The principal activity of the Company is the manufacture and supply of computer components. The manufacture of
memory sticks was discontinued in the current year (see note 9).
The financial statements are presented in Hong Kong dollars, which is also the functional currency of the Company.
2. Application of new and revised Hong Kong Financial Reporting Standards (HKFRSs)
(a) New and revised HKFRSs applied with no material effects on the financial statements
The following new and revised HKFRSs have been issued and effective for the current financial period of the
Company. The application of these new and revised HKFRSs has not had any material impact on the Company's
financial statements.
Effective for annual periods commencing
Amendments to HKFRSs
on or after
Covid-19-Related Rent Concessions - amendment to HKFRS 16 1 June 2020
Interest Rate Benchmark Reform - Phase 2 - amendments to HKFRS 9, 1 January 2021

HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16
(b) New and revised HKFRSs in issue but not yet effective
The Company has not early adopted new and revised HKFRSs that have been issued but are not yet effective for
December 2021 reporting periods. The Company is not in a position to state whether substantial changes to the
Company's accounting policies and presentation of accounts will result.
A2.1 Page 21 of 565 APM 2022

3. Significant accounting policies

Basis of preparation
The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by
the Hong Kong Institute of Certified Public Accountants. In addition, the financial statements include applicable
disclosures required by the Hong Kong Companies Ordinance.
The financial statements have been prepared on the historical cost basis except for certain properties and financial
instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The accounting policies are set out below.
Revenue recognition
The recognition of revenue from contracts with customers is based on the performance obligations identified in the
contracts. Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a
promised good or service (i.e. an asset) to a customer who obtains the control of the asset.
In respect of sale of computer products, revenue is recognized when control of the products has been transferred,
being when the products are delivered to the customer, and there is no unfulfilled obligation that could affect the
customer's acceptance of the products. Revenue excludes value added tax or other sales taxes and is after deduction
of any trade discounts. No significant element of financing is deemed present as the sales are made with a credit
term of 30 days. The Company's obligation to replace and replace faulty products under the standard warranty terms
is recognized as a provision (see accounting policy on provision).
A receivable is recognized when the goods are delivered as this is the point in time that the consideration is
unconditional because only the passage of time is required before the payment is due.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the
cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in
profit or loss in the period in which they are incurred.
A2.1 Page 22 of 565 APM 2022

3. Significant accounting policies (continued)
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
statement of profit or loss and other comprehensive income because of items of income or expense that are taxable
or deductible in other years and items that are never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities
are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if
the temporary differences arises from the initial recognition (other than a business combination) of assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax
liabilities are not recognized if the temporary differences arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the
liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Current or deferred tax for the year is recognized in profit or loss, except when they relate to items that are recognized
in other comprehensive income or directly in equity, in which case, the current and deferred tax is also recognized in
other comprehensive income or directly in equity respectively.
A2.1 Page 23 of 565 APM 2022

Property, plant and equipment

Land and buildings held and used in the Company's own activities for production and supply of goods or for
administrative purposes are stated in the statement of financial position at their revalued amounts. The revalued
amounts equate to the fair value at the date of revaluation, less any depreciation or impairment losses subsequently
accumulated. Revaluations are carried out regularly so that the carrying amounts do not differ materially from that
which would be determined using the fair value at the date of the statement of financial position.
Any revaluation increase or decrease on land and buildings is credited to the property revaluation reserve, except to
the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss, in which
case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in net
carrying amount arising on revaluation of the land and building is recognized in profit or loss to the extent that it
exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset.
Depreciation on revalued buildings is charged to profit or loss so as to write off their value, net of their residual value,
over their estimated useful lives, using the straight-line method.
Once a revalued property is sold or retired any attributable revaluation surplus that is remaining in the property
revaluation reserve is transferred to retained earnings. No transfer is made from the revaluation reserve to retained
earnings unless an asset is derecognized.
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation on plant and equipment is charged to profit or loss so as to write off their cost, net of their residual value,
over their estimated useful lives, using the straight-line method.
The residual values and useful lives of assets and the depreciation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item
of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognized in profit or loss.
Impairment of non-financial assets (other than goodwill)

At each balance sheet date, the Company reviews the carrying amounts of its non-financial assets (other than
goodwill) to determine whether there is any indication that any items of non-financial assets (other than goodwill) have
suffered an impairment loss. If any such indication exists, the recoverable amount of a non-financial asset (other than
goodwill) is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to
estimate the recoverable amount of the asset, the Company estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal and value in use. If the recoverable amount of
an asset or a cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or
a cash-generating unit is reduced to its recoverable amount. Impairment loss is recognized as an expense
immediately, unless the relevant asset is carried at revalued amount under another standard, in which case the
impairment loss is treated as a revaluation decrease under that standard.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised
estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying
amount that would have been determined (net of depreciation) had no impairment loss been recognized for the asset
in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is
carried at revalued amount under another standard, in which case the reversal of the impairment loss is treated as a
revaluation increase under that standard.
A2.1 Page 24 of 565 APM 2022

Intangible assets
(a) Development expenditure
Development of products is capitalized when it meets the following conditions:
(i) It is technically feasible to complete the development so that the product will be available for use or sale.
(ii) The Company intends to complete the product and use or sell it.
(iii) The Company is able to use or sell the product.
(iv) It can be demonstrated that the product will generate probable future economic benefits.
(v) Adequate technical, financial and other resources exist so that product development can be completed and the
product can be subsequently used or sold.
(vi) Expenditure attributable to the research and development work can be reliably measured.
Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses.
Amortization is recognized on a straight-line basis over its estimated useful life. The estimated useful life and
amortization method are reviewed at the end of each reporting period.
All research and other development expenditure is recognized as an expense in the period in which it is incurred.
(b) Goodwill
Goodwill arising on an acquisition of a business is carried at cost less accumulated impairment losses, if any. For the
purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units (or groups of
cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit (or groups of cash-generating units) to which goodwill has been allocated is tested for
impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit (or groups of cash-generating units) is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets on a pro-
rata basis based on the carrying amount of each asset in the unit (or groups of cash-generating units). Any
impairment loss for goodwill is recognized directly in profit or loss in the statement of profit or loss and other
comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods. On
disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs, which comprise direct production costs, are
based on the method most appropriate to the type of inventory class, but usually on a first-in-first-out basis. Net
realizable value is based on the estimated selling price less any estimated completion or selling costs.
When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in
which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all
losses of inventories are recognized as an expense in the period in which the write-down or loss occurs. The amount
of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized
as an expense in the period in which the reversal occurs.
A2.1 Page 25 of 565 APM 2022

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other short-term
highly liquid investments with original maturities of three months or less as well as bank overdrafts that are repayable
on demand and form an integral part of the Company's cash management. In the statement of financial position, bank
overdrafts are shown within borrowings or current liabilities.
Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual
provisions of the instruments.
Financial assets and financial liabilities within the scope of HKFRS 9 are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
those measured at fair value through profit or loss (FVTL)) are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on initial recognition. Transactions costs of financial assets and
liabilities carried at FVPL are expensed in profit or loss.
The Company's financial assets, including trade and other receivables, amount due from a director and cash and
cash equivalents, are subsequently measured at amortized cost using the effective interest method, less identified
loss allowances as the assets are held within a business model whose objective is to hold assets in order to collect
contractual cash flows and the contractual terms of the financial assets give rise on specific dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
Financial liabilities include lease liabilities, trade and other payables, borrowings and derivative financial instrument.
All non-derivative financial liabilities are subsequently measured at amortized cost using the effective interest method,
except for lease liabilities (see accounting policy on leased assets).
A2.1 Page 26 of 565 APM 2022

Impairment of financial assets

The Company assesses on a forward-looking basis the expected credit losses associated with its financial
instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by
HKFRS 9, which measures the loss allowance at an amount equal to lifetime expected credit losses. For all other
financial instruments, the Company recognizes a loss allowance equal to 12-month expected credit losses unless
there has been a significant increase in credit risk since initial recognition, in which case the loss allowance is
measured at an amount equal to lifetime expected credit losses.
The Company also assesses whether a financial asset is credit-impaired at each reporting date. A financial asset is
credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred, for example, significant financial difficulties of the debtor, a breach of contract such as
a default or past due event.
A default event occurs when the debtor is unlikely to pay its debt to the Company in full, or the debt is 90 days past
due unless the Company has reasonable and supportable information to demonstrate that a more lagging default
criterion is more appropriate.
Expected credit losses are remeasured at each reporting date to reflect changes in the financial instrument's credit
risk since initial recognition. The Company recognizes an impairment gain or loss through the use of a loss allowance
account. Changes in the carrying amount of the loss allowance account are recognized in profit or loss. The
receivable is written off against the loss allowance account when the Company has no reasonable expectations of
recovering the receivable.
If, in a subsequent period, the amount of expected credit losses decreases, the reversal would be adjusted to the loss
allowance account at the reporting date. The amount of any reversal is recognized in profit or loss.
Derivative financial instruments

Derivatives are initially recognized at fair value at the date when derivative contracts are entered into and are
subsequently remeasured at fair value at the end of the reporting period. The resulting gain or loss is recognized in
profit or loss immediately unless the derivatives is designated and effective as a hedging instrument, in which case
the timing of the recognition in profit and loss depends on the nature of the hedge relationship. The Company has not
designated any derivatives as hedging instruments in either the current or prior year.
Derecognition of financial assets and financial liabilities

Financial assets are derecognized when the contractual rights to receive the cash flows of the financial assets expire.
Financial liabilities are derecognized when they are extinguished, i.e. when the obligation is discharged, cancelled or
expires.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue
costs.
A2.1 Page 27 of 565 APM 2022

Related parties
A related party is a person or entity that is related to the Company.
(i) A person or a close member of that person’s family is related to the Company if that person:
(a) has control or joint control over the Company;
(b) has significant influence over the Company; or
(c) is a member of the key management personnel of the Company.
(ii) An entity is related to the Company if any of the following conditions applies:
(a) The entity and the Company are members of the same group (which means that each parent, subsidiary
and fellow subsidiary is related to the others).
(b) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of
a group of which the other entity is a member).
(c) Both entities are joint ventures of the same third party.
(d) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(e) The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity
related to the Company.
(f) The entity is controlled or jointly controlled by a person identified in (i).
(g) A person identified in (i)(a) has significant influence over the entity or is a member of the key management
personnel of the entity (or of a parent of the entity).
(h) The entity, or any member of a group of which it is a part, provides key management personnel services to
the Company.
Leased assets
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
At the lease commencement date, the Company recognizes a right-of-use asset and a lease liability, except for short-
term leases that have a lease term of 12 months or less and leases of low-value assets which, for the Company, are
primarily computers. When the Company enters into a lease in respect of a low-value asset, the Company decides
whether to capitalize the lease on a lease-by-lease basis. The lease payments associated with those leases which are
not capitalized are recognized as an expense on a systematic basis over the lease term.
Where the lease is capitalized, the lease liability is initially recognized at the present value of the lease payments
payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at
amortized cost and the interest expense is calculated using the effective interest method.
The right-of-use asset recognized when a lease is capitalized is initially measured at cost, which comprises the initial
amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct
costs incurred. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment
losses. A right-of-use asset in which the Company is reasonably certain to obtain ownership of the underlying leased
asset at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise,
the right-of-use asset is depreciated on a straight-line basis over the shorter of its estimated useful life and the lease
term.
Foreign currencies
Transactions in currencies other than the functional currency of the Company are recorded at the rate of exchange on
the date the transaction occurred. Monetary items denominated in other currencies are translated at the rate
prevailing at the end of the reporting period. All differences are taken to the statement of profit or loss and other
comprehensive income. Non-monetary items that are measured at historic cost in a foreign currency are not
retranslated.
A2.1 Page 28 of 565 APM 2022

Employee benefits
Short-term employee benefits are recognized at the undiscounted amount of the benefits expected to be paid as and
when employees rendered the services. They are recognized as an expense as incurred.
The obligations for contributions to defined contribution scheme are recognized as an expense as incurred. The
assets of the scheme are held separately from those of the Company in an independent administered fund.
Discontinued operation
A discontinued operation is a component of the Company's business, the operations and cash flows of which can be
clearly distinguished from the rest of the Company and which represents a separate major line of business or
geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business
or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be
classified as held for sale, if earlier. When an operation is classified as discontinued, a single amount is presented on
the face of the statement of profit or loss and other comprehensive income, which comprises:
- the post-tax profit or loss of the discontinued operation; and
- the post-tax gain or loss recognized on the measurement to fair value less costs to sell, or on the disposal of the
assets or disposal group constituting the discontinued operation.
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation arising as a result of a
past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable
estimate can be made. Provisions are measured at the present value of the expenditures expected to be required to
settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company's accounting policies, which are described in note 3, management is required to
make judgments, estimates and assumptions about the carrying values of assets and liabilities that are not readily
apparent from other sources. The estimates and underlying assumptions are based on experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
The key sources of estimation uncertainty that have a significant effect on the amounts recognized in the financial
statements are described below.
Valuation of land and buildings

As described in note 12 to the financial statements, land and buildings are stated at fair value based on the valuation
performed by an independent professional valuer Messrs. Twist & Copperfield which has among their staff fellows of
the Hong Kong Institute of Surveyors with recent experience in the location and category of property valued. The
valuer used observable market prices adjusted as necessary for any difference in the location or condition of the
specific asset.
A2.1 Page 29 of 565 APM 2022

5. Revenue
2021 2020
HK$'000 HK$'000
Continuing operations
P/L ß
Revenue from the sale of goods 92,096 55,673
Disaggregated by type of goods:

R1.4 ß
Sound and graphics 54,882 31,990
Network 23,936 22,156
WiFi & Bluetooth 13,278 1,527
Total 92,096 55,673
6. Other gains and losses

2021 2020
HK$'000 HK$'000
R1.1 ß
Foreign exchange gains 203 49
Gain on disposal of property, plant and equipment 266 175
Losses on fair value changes in derivative financial instruments (228) -
241 224
7. Finance costs
2021 2020
HK$'000 HK$'000
Continuing operations Q2.1 ß
Interest on bank overdrafts and loans 232 226
Interest on Group loan 164 -
Interest on lease liabilities 1,140 1,218
1,536 1,444
8. Income tax expense

2021 2020
Income tax recognized in profit or loss: HK$'000 HK$'000
Current tax P1 ß
Provision for Hong Kong profits tax 1,377 821
Under-provision in respect of prior year 35 -
1,412 821
Deferred tax 110 1,295
Total income tax recognized in profit or loss 1,522 2,116
Hong Kong profits tax is calculated at 16.5% (2020: 16.5%) on the estimated assessable profits for the year.
The current tax charge for the year can be reconciled to the profit per the statement of 2021 2020
profit or loss and other comprehensive income as follows:
HK$'000 HK$'000
Profit before tax from continuing operations 12,528 7,204
A2.1 Page 30 of 565 APM 2022

8. Income tax expense (continued) 2021 2020

HK$'000 HK$'000
P3.1 ß
Tax on profit at Hong Kong tax rate of 16.5% (2020: 16.5%) 2,067 1,189
Tax effect on non-deductible expenses 30 927
Tax effect on non-taxable income (610) -
Under-provision in respect of prior year 35 -
Income tax expense for the year 1,522 2,116
Components of the deferred tax liabilities recognized in the financial statements and the movements during the year
are set out below:
Revaluation Accelerated
of land and tax
Deferred tax arising from: building depreciation Total
HK$'000 HK$'000 HK$'000
At 1 January 2020 ß - 294 294
Charged to profit or loss - 1,295 1,295
At 31 December 2020 - 1,589 1,589
P5.1
At 1 January 2021 - 1,589 1,589
Charged to profit or loss - 110 110
Charged to other comprehensive income 238 - 238
At 31 December 2021 238 1,699 1,937
9. Discontinued operations
Due to a sustained downward turn in sales, the Board of Directors sold the Memory Stick division in December 2021.
The disposal was completed on 31 December 2021 at which date control of the division passed to the acquirer. The
results of the discontinued operations are analyzed below. The comparative figures have been re-presented to show
separately the results of the discontinued operations as included in that period.
2021 2020
HK$'000 HK$'000
Loss for the year from discontinued operations R1.2
Revenue 18,774 20,102
Expenses (21,730) (21,351)
Loss before tax (2,956) (1,249)
Loss on disposal of operations (1,806) -
Loss for the year from discontinued operations (4,762) (1,249)
A2.1 Page 31 of 565 APM 2022

9. Discontinued operations (continued)

2021 2020
Y1
Cash flows from discontinued operations HK$'000 HK$'000
Net cash used in operating activities (3,130) (1,481)
ß
Net cash used in financing activities (77) (45)
(3,207) (1,526)
Sale of discontinued operations

Goodwill E3 350
Property, plant and equipment 1,806
Net assets disposed of 2,156
Loss on sale of discontinued operations (1,806)
Cash consideration received 350
10. Profit for the year from continuing operations

2021 2020
HK$'000 HK$'000
Profit for the year from continuing operations has been arrived at after charging: ß
Auditors' remuneration 473 452
Depreciation of property, plant and equipment
- owned assets Note 12 1,514 885
- right-of-use assets Note 12a 1,216 1,082
Amortization of intangible assets Note 13 147 162
Impairment loss on goodwill - 350
Staff costs including directors' remuneration
R1.5
- salaries 19,534 14,975
- defined contribution plans 934 747
11. Directors' remuneration

2021 2020
HK$'000 HK$'000
Directors' remuneration disclosed pursuant to Section 383(1) of the Hong Kong ß
Companies Ordinance is as follows:
Q1
Fees - -
Other emoluments
- salaries 2,250 2,100
- defined contribution plans 112 105
2,362 2,205
A2.1 Page 32 of 565 APM 2022

12. Property, plant and equipment
Land and Plant and

building equipment Total
HK$'000 HK$'000 HK$'000
Cost or valuation
F1
At 1 January 2020 7,203 5,156 12,359
Additions - 1,527 1,527
Disposals - (1,526) (1,526)
At 31 December 2020 and 1 January 2021 7,203 5,157 12,360
Additions - 3,867 3,867

Disposal of business - (2,954) (2,954)
Other disposals - (637) (637)
Revaluation 1,099 - 1,099
At 31 December 2021 8,302 5,433 13,735
Accumulated depreciation
At 1 January 2020 21 2,760 2,781
Charge 147 738 885
Disposals - (1,526) (1,526)
At 31 December 2020 and 1 January 2021 168 1,972 2,140
Charge 175 1,339 1,514

Disposal of business - (1,148) (1,148)
Other disposals - (581) (581)
Revaluation (343) - (343)
At 31 December 2021 - 1,582 1,582
Carrying amount
At 31 December 2021 8,302 3,851 12,153
At 31 December 2020 7,035 3,185 10,220
A2.1 Page 33 of 565 APM 2022

12. Property, plant and equipment (continued)
The analysis of the cost or valuation at 31 December 2021 and 2020 of the above assets is as follows:
Land and Plant and

building equipment Total
HK$'000 HK$'000 HK$'000
At 31 December 2021
F1
At cost - 3,851 3,851
At valuation 8,302 - 8,302
8,302 3,851 12,153
At 31 December 2020
ß
At cost - 3,185 3,185
At valuation 7,035 - 7,035
7,035 3,185 10,220
The land and building represents the Company's ownership interest in a warehouse situated in Hong Kong and held
under a medium lease. As the consideration cannot be allocated reliably between non-lease building element and
undivided interest in the underlying leasehold land, the entire property is classified as property, plant and equipment.
The property is depreciated based on an estimated useful life of 48 years.
An independent valuation to ascertain the fair value of the land and building was carried out by Messrs. Twist &
Copperfield on 31 December 2021. The valuation conforms to valuation standards in Hong Kong and was determined
by reference to market evidence of recent transaction prices for similar properties as well as returns based on likely
market rentals.
Had this property been carried at historical cost less accumulated depreciation, the carrying amount would have been
HK$6,860,000 (2020: HK$7,035,000).
The land and building as shown above have been pledged as security for bank loans. The Company is not allowed to
pledge these assets as security for other borrowings, subject to additional arrangements with the same bank, or to sell
them to another entity without redeeming the loans in full first.
Plant and equipment is depreciated over an estimated useful life between 5 and 10 years. All depreciation charges for
the year and last year were recognized in cost of sales.
A2.1 Page 34 of 565 APM 2022

12a Right-of-use assets
Leased
premise Equipment Total
HK$'000 HK$'000 HK$'000
Cost
F1
At 1 January 2020 - 332 332
Additions 9,800 629 10,429
At 31 December 2020 and 1 January 2021 9,800 961 10,761
Additions - 1,005 1,005
At 31 December 2021 9,800 1,966 11,766
Accumulated depreciation
At 1 January 2020 - 33 33
Charge 980 102 1,082
At 31 December 2020 and 1 January 2021 980 135 1,115
Charge 980 236 1,216
At 31 December 2021 1,960 371 2,331
Carrying amount
At 31 December 2021 7,840 1,595 9,435
At 31 December 2020 8,820 826 9,646
A2.1 Page 35 of 565 APM 2022

12a Right-of-use assets (continued)

The Company entered into lease agreements in respect of a factory and certain equipment. The lease terms range
from 5 to 10 years with no extension or termination options and all the lease payments are fixed.
The leased premise is a factory situated in Hong Kong with a lease term of 10 years. It is depreciated based on an
estimated useful life of 10 years.
Equipment is depreciated over an estimated useful life between 5 and 10 years. All depreciation charges for the year
and last year were recognized in cost of sales.
The lease agreements do not impose any covenants other than the security interests in the leased assets that are
held by the lessor. Leased assets may not be used as security for borrowing purpose.
2021 2020
Amounts recognized in profit and loss HK$'000 HK$'000
Depreciation expense on right-of-use assets
Per above
1,216
ß 1,082
Q2.1
Interest expense on lease liabilities 1,140 1,218
F6.3
Expense relating to short-term leases 450 450
Expense relating to leases of low value assets 850 938
L6
During the year ended 31 December 2021, the total cash outflows for leases amounted to HK$3,412,000 (2020:
ß HK$3,392,000).
A2.1 Page 36 of 565 APM 2022

13. Goodwill and other intangible assets
Goodwill Development Total

HK$'000 HK$'000 HK$'000
Cost E1
At 1 January 2020, 31 December 2020 and 1 January 2021 1,400 1,946 3,346
Additions - 497 497
Disposal of business (1,400) - (1,400)
At 31 December 2021 - 2,443 2,443
Amortization and impairment

At 1 January 2020 700 1,112 1,812
Impairment loss 350 - 350
Amortization expense - 162 162
At 31 December 2020 and 1 January 2021 1,050 1,274 2,324
Amortization expense - 147 147

At 31 December 2021 - 1,421 1,421
Carrying amount
At 31 December 2021 - 1,022 1,022
At 31 December 2020 350 672 1,022
The goodwill related to business purchased from Kowloon USB Memory Sticks Limited to expand sales in the Memory
Stick division. The goodwill was sold along with the rest of the division in December 2021.
Development expenditure is amortized on a straight-line basis over a period of 12 years and represents the cost of
designing products currently being sold by the Company.
Amortization expense and impairment of goodwill for the year and last year are included in administrative expenses.
ß As at 31 December 2020, the Company performed an impairment test for the goodwill of the Memory Stick division
using a value in use calculation. The calculation used cash flow projections based on financial budgets prepared by
management covering a five-year period and a weighted average pre-tax discount rate of 10%. Cash flows beyond
the five-year period were assumed not to grow by more than 0.5% per annum. Based on the impairment test, the
value in use of the Memory Stick division was less than its carrying amount which resulted in an impairment loss of
HK$350,000 against goodwill for the year ended 31 December 2020.
14. Inventories
2021 2020
I1 ß
HK$'000 HK$'000
Raw materials 3,374 3,780
Work in progress 1,568 1,652
Finished goods 5,853 3,115
10,795 8,547
A2.1 Page 37 of 565 APM 2022

14. Inventories (continued)
The amount of inventories recognized as an expense in cost of sales during the year is as follows:
Continuing operations 2021 2020
HK$'000 HK$'000
Carrying amounts of inventories sold I1 28,523 ß 15,235
There are no write-downs or reversals of write-downs of inventories in 2021 or 2020.
15. Trade and other receivables

2021 2020
HK$'000 HK$'000
Trade receivables J1 14,417 ß 10,808
Loss allowance (539) (595)
13,878 10,213
Other receivables 35 152
Prepayments 952 1,687
14,865 12,052
J3.2
Included above are receivables from a related party of HK$ 265,685 (2020: nil) (see note 28).
Credit terms offered are 30 days.

per above
At 31 December 2021, a lifetime expected credit loss of HK$539,000 (2020: HK$595,000) was recognized by the
Company. In estimating the expected credit losses, the Company's debtors have been grouped based on shared
credit risk characteristics and the past due status. The loss rates are estimated based on historical default rates over
the expected life of the debtors and are adjusted for forward-looking macroeconomic factors (such as GDP and
interest rates) that affect the ability of the debtors to settle the receivables.
On that basis, loss allowance is determined as follows:
Gross
carrying Expected Loss
amount loss rates allowance
HK$'000 % HK$'000
At 31 December 2021
J4
Current 4,450 0.1 4
30-60 days 5,172 0.6 31
61-90 days 3,881 1.2 46
91+ days 914 50.0 458
14,417 539
At 31 December 2020 ß
Current 4,120 0.5 21
30-60 days 3,227 1.1 35
61-90 days 2,813 3.0 84
91+ days 648 70.0 455
10,808 595
A2.1 Page 38 of 565 APM 2022

15. Trade and other receivables (continued)

2021 2020
HK$'000 HK$'000
The movement in the loss allowance during the year is as follows:
J4 ß
Balance at 1 January 595 480
Impairment loss made during the year - 195
Reversal of impairment loss (56) (120)
Uncollectible amounts written off - 40
Balance at 31 December 539 595
Trade receivables are written off when there is information indicating that the debtors are in severe financial difficulty
and there is no realistic prospect of recovery.
The Company does not hold any collateral over the above and the directors consider that the carrying amount of trade
and other receivables approximates to their fair value.
16. Amount due from a director

Director's current account disclosed pursuant to Section 383(1)(d) of the Hong Kong Companies Ordinance and Part
3 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:
Maximum
amount
outstanding
Balance at Balance at during the
Director Term of loan 31.12.2021 31.12.2020 year
HK$'000 HK$'000 HK$'000
Unsecured, no repayment
Raymond Chan terms and interest free J5 126 ß 58 J5 126
17. Trade and other payables

2021 2020
HK$'000 HK$'000
L1 ß 10,225
Trade payables 8,673
Accruals 1,043 1,832
9,716 12,057
The directors consider that the carrying amounts of trade and other payables approximate to their fair values.
A2.1 Page 39 of 565 APM 2022

18. Borrowings
2021 2020
Current HK$'000 HK$'000
M1 ß
Bank loans - secured 83 79
Bank overdrafts, repayable on demand - unsecured - 1,501
83 1,580
Non-current
Bank loans - secured 2,587 1,681
Group loan - unsecured 4,274 -
6,861 1,681
6,944 3,261
Carrying amount
Bank loans comprise: Effective 2021 2020
Maturity date interest rate HK$'000 HK$'000
Floating rate bank loan M4.1 2031 4.8% M4 1,030 1,109
Floating rate bank loan M4.2 2021 4.8% - 651
Floating rate bank loan M4.3 2036 4.8%
M4 1,640 -
Total bank loans 2,670 1,760
M1 F3.2
The bank loans are secured by the Company's land and building which have a carrying value of HK$8,302,000 (2020:
HK$7,035,000). Bank loans include a new loan drawn down in March 2021 of HK$1,640,000, however capital
repayments will not commence until March 2024. During the year the Company repaid HK$730,000 (2020:
HK$308,000). The bank loans bear interest at the prime rate less 0.2% and are repayable over 10 to 13 years. The
directors consider that the carrying amounts of the bank loans and overdraft approximate to their fair value.M4.1-4.3
M5
During the year the Company received a loan from its Parent Company ("Group loan") of HK$5,000,000. The loan is
interest free with a fixed five year term. The loan was initially recognized at an effective interest rate of 4% giving rise
to a capital contribution in the year of HK$890,000. At the year-end the carrying value equated to HK$4,274,000 and
approximated the year-end fair value.
19. Derivative financial instrument

2021 2020
HK$'000 HK$'000
Foreign currency forward contract L10, Note 25 76 ß 79

L10
The Company has entered into a foreign currency forward exchange contract which matures within 3 months (2020: 3
months) of the year-end. The Company is committed to sell € 200,000 and receive a fixed HK$ amount (2020: €
175,000). The forward currency contract is measured at fair value using quoted forward exchange rates.
A2.1 Page 40 of 565 APM 2022

20. Lease liabilities

As at 31 December, the lease liabilities were repayable as follows:
2021 2020
Maturity analysis HK$'000 HK$'000
L6 ß
Within one year 1,153 875
After one year but within five years 4,763 3,850

After five years 4,190 5,349
8,953 9,199
10,106 10,074
Note 25
During the year the Company entered into new leases of equipment (note 12a) and recognized lease liability of
F5 HK$1,004,000 (2020: new leases of other property and equipment of HK$10,429,000) and repaid principals of
HK$972,000 (2020: HK$786,000).
21. Provisions
2021 2020
HK$'000 HK$'000
Provision for faulty Ethernet cards
Balance at 1 January - -
Provision made during the year N3.1 1,200 -
Balance at 31 December 1,200 -
The provision for faulty Ethernet cards represents the directors' best estimate of the present value of the cost to the
Company due to the recall and replacement of faulty Ethernet cards, which is expected to be settled within 12 months
after the end of the reporting period. N3.1
22. Share capital

2021 2020
No. of No. of
shares HK$'000 shares HK$'000
Ordinary shares issued and fully paid: O3 ß
At 1 January 9,450,000 9,450 9,450,000 9,450
Shares issued in the year (Note i) 350,000 525 - -
At 31 December 9,800,000 9,975 9,450,000 9,450
Note (i): During the year, 350,000 ordinary shares of HK$525,000 were issued and were fully paid for in cash at their
market value.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one
vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company's residual
assets.
A2.1 Page 41 of 565 APM 2022

23. Reserves
Property
Capital revaluation Retained
Contribution reserve earnings Total
HK$'000 HK$'000 HK$'000 HK$'000
ß
At 1 January 2020 - - 557 557
Profit for the year - - 3,839 3,839
At 31 December 2020 and 1 January 2021 - - 4,396 4,396
Gain on revaluation of land and buildings - O1 1,442 - 1,442
Deferred tax - (238) - (238)
Deemed contribution arising from Group loan O1 890 - - 890
Profit for the year - - P/L 6,244 6,244
At 31 December 2021 890 1,204 10,640 12,734
24. Capital management

Capital comprises of share capital and reserves stated on the statement of financial position. The Company ’ s
objective when managing capital is to provide sufficient resources to allow the continued investment in new products
that is required in the rapidly changing market in which the Company operates and to safeguard the Company's ability
to continue as a going concern, so that it can continue to provide returns for shareholders.
The Company manages capital by regularly monitoring its current and expected liquidity requirements rather than
using debt/equity ratio analyses. No changes were made in the objectives, policies and processes during the year
2020 and 2021.
B/S
The Company is substantially owned by the directors. The share capital and reserves totaling HK$22,709,000 (2020:
HK$13,846,000) supplemented by borrowings, including leases, of HK$17,050,000 (2020: HK$13,335,000) provide
the majority of the working capital required by the Company. The Company is not subject to either internally or
externally imposed capital requirements.
25. Financial instruments by category

Financial assets
2021 2020
HK$'000 HK$'000
Amortized cost
Cash and cash equivalents K1 5,669
ß 42
Trade receivables Note 15 13,878 10,213
Other receivables J5 161 210
19,708 10,465
A2.1 Page 42 of 565 APM 2022

25. Financial instruments by category (continued)

Financial liabilities
2021 2020
Amortized
FVTPL cost Total FVTPL Amortized cost Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Note 17 ß
Trade and other payables - 9,716 9,716 - 12,057 12,057
Group loan Note
- 18 4,274 4,274 - - -
Bank overdraft and bank
loans - 2,670 2,670 - 3,261 3,261
Note 20
Leases - 10,106 10,106 - 10,074 10,074
Derivative financial
Note 19
instruments 76 - 76 79 - 79
76 26,766 26,842 79 25,392 25,471
26. Financial risk management
Exposure to risk
Exposure to foreign currency, credit, liquidity and cash flow interest rate risks arises in the normal course of the
Company ’ s business. These risks are limited by the Company ’ s financial management policies and practices
described below.
Foreign currency risk

The Company is exposed to foreign exchange risk in relation to certain currency debtors. To minimize this risk the
Company has entered into a foreign currency forward exchange contract as described in note 19.
The forward currency contract is measured at fair value using quoted forward exchange rates.
In the opinion of directors, a reasonably possible change in exchange rate in foreign currency denominated debtors
and derivative instrument is not expected to have a material impact to the Company's profit or loss, as such,
sensitivity analysis is not presented.
Credit risk
The Company is at risk from its customers defaulting in making payments for goods that have been supplied to them.
The majority of the Company's customers are based within the computer technology business and therefore industry
related changes or economic hardships present a risk to the Company.
To minimize this risk the Company has a policy of only dealing with customers who have either demonstrated
creditworthiness or can provide sufficient collateral. To determine creditworthiness the Company makes use of
independent rating agencies, other publicly available financial information and its own trading records. The Company's
exposure and its customers creditworthiness is continually monitored so that any potential problems are detected at
an early stage. Details of impairment assessment of trade receivables are set out in note 15.
In respect of other financial instruments, the Company considers the risk of default is low if the debtor has a strong
capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business
conditions in the longer term may, but will not necessarily, reduce the ability of the debtor to fulfill its contractual cash
flow obligations. As such, the Company's bank balances are assessed to be of low credit risk as they have been
deposited with reputable and creditworthy banks in Hong Kong and the loss allowance is assessed to be minimal at
the end of the reporting period.
A2.1 Page 43 of 565 APM 2022

26. Financial risk management (continued)

Throughout the reporting period, the Company assesses whether there has been a significant increase in credit risk
on other receivables by comparing the risk of a default occurring on these receivables as at the reporting date with the
risk of default as at the date of initial recognition. The Company considers reasonable and supportive forward-looking
information that is available without undue cost or effort, including the following indicators:
• external credit rating;
• actual or expected significant adverse changes in business, financial or economic conditions that are expected to
cause a significant change to the debtor’s ability to meet its obligations; and
• significant changes in the expected performance and behavior of the debtors, including changes in the payment
pattern of debtors
At the end of the reporting period, there has been no significant increase in credit risk in respect of other receivables
and the loss allowance based on 12-month expected credit loss is assessed to be minimal.
J2.4
At the end of the reporting period, the Company has a certain concentration of credit risk as 25% (2020: 27%) and
88% (2020: 96%) of the total trade and other receivables was due from the Company's largest customer and the five
largest customers respectively. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset.
Liquidity risk
The directors have ultimate responsibility for liquidity risk management in maintaining adequate reserves, banking
facilities and reserve borrowing facilities. They do this by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
The following table details the remaining contractual maturities at the end of the reporting period of the Company's
non-derivative and derivative financial liabilities, which are based on contractual undiscounted cash flows (including
interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting
period) and the earliest date the Company can be required to pay. For derivative financial instruments that require
gross settlement, the undiscounted gross (inflows) and outflows on those derivative are presented as well.
2021
Total
contractual More than 1 More than 2
Carrying undiscounted Within 1 year or year but less years but less More than
amount cash flows on demand than 2 years than 5 years 5 years
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
B/S M4 3,684 M4
Bank loans 2,670 211 211 938 2,324
Group loan 4,274 M5 5,000 - - M5 5,000 -
L6
Lease liabilities 10,106 L6 14,169 2,162 2,013 5,253 4,741
Trade and other
payables 9,716 9,716 - - -
instruments - gross
settlement
- (inflows) (1,439) (1,439) (1,439) - - -
- outflows 1,515 1,515 1,515 - - -
76 76 76 - - -
L10 L10
26,842 32,645 2,449 2,224 11,191 7,065
A2.1 Page 44 of 565 APM 2022

26. Financial risk management (continued)
Liquidity risk (continued)

2020
Total
contractual More than 1 More than 2
Carrying undiscounted Within 1 year or year but less years but less More than
amount cash flows on demand than 2 years than 5 years 5 years
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
ß
Bank loans 1,760 2,114 794 133 397 790
Bank overdrafts 1,501 1,501 1,501 - - -
Lease liabilities 10,074 15,050 1,963 2,025 4,741 6,321
Trade and other
payables 12,057 12,057 12,057 - - -
instruments - gross
settlement
- (inflows) (1,277) (1,277) (1,277) - - -
- outflows 1,356 1,356 1,356 - - -
79 79 79 - - -
25,471 30,801 16,394 2,158 5,138 7,111
Cash flow interest rate risk

The Company is exposed to interest rate risk primarily through the impact of rate changes on interest-bearing
borrowings. The interest rates and terms of repayment of the Company’s bank loans are disclosed in note 18 to the
financial statements. The Company’s policy is to obtain the most favorable interest rates available for its borrowings.
Interest is paid on right-of-use assets. The effective interest rate is expected to apply for the lease term. Therefore
there will be no effect to the interest payable in the event of future interest rate changes.
Except for the Company ’ s cash and cash equivalents, bank borrowings and lease liabilities, the Company has no
significant interest-bearing assets and liabilities.
The Company does not use any derivative instruments to reduce its economic exposure to changes in interest rates.
Sensitivity analysis
At 31 December 2021, it is estimated that a general increase/decrease of 1 percent in interest rates, with all other
variables held constant, would decrease/increase the Company's profit after tax and retained earnings by
approximately HK$22,000 (2020: HK$15,000).
M4
The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the
end of reporting date and had been applied to the exposure to interest rate risk for financial instruments in existence
at that date. The 1 percent increase or decrease represents management's assessment of the likely maximum change
in interest rates over the period until the next reporting date.
A2.1 Page 45 of 565 APM 2022

27. Fair value measurements
HKFRS 13 requires fair value measurements to be recognized using a fair value hierarchy that reflects the
significance of the inputs used in the measurements, according to the following levels:
Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable market data.
The fair value of land and buildings held for own use is determined using market comparison approach by reference
to recent sales prices of comparable properties on a price per square foot basis. This price is then discounted to take
account of the relative condition of the company's property compared to the recent sales. Land and buildings
disclosed in note 12 have been classified as Level 3 in the fair value hierarchy. Higher discount for relative condition
of property will result in lower fair value measurement. The valuation was undertaken by a professional valuer and
discussion of the valuation process and the results is held annually with the finance director.
Unobservable
Market rate input -
per square Discount for
foot for relative
Valuation similar condition of
technique properties property
HK$'000
Market F3.1a
Land and building comparison 5 to 6 5% to 10%
The forward exchange contracts are valued by discounting future cash flows based on forward exchange rates (from
observable forward exchange rates at the end of the reporting period) and contract forward rates, using a rate that
reflects the credit risk of the counterparty. As such this has been classified as Level 2 in the fair value hierarchy.
There have been no transfers between Levels 1, 2 and 3 fair value measurements during the current or prior period.
A2.1 Page 46 of 565 APM 2022

28. Related party transactions

Receivable from a director is disclosed in note 16, and Group loan from the Parent Company is disclosed in note 18.
During the year the Company made sales of HK$1,151,000 on agreed terms to a subsidiary of a company that is
owned by the wife of Mr. Raymond Chan. The receivable from that company at 31 December 2021 is shown in note
15 (2020: nil).
Key management personnel compensation

The remuneration of directors and other members of key management during the year 2021 2020
was as follows:
HK$'000 HK$'000
Q1 ß
Short-term benefits 2,950 2,700
Post employment benefits 472 465
3,422 3,165
Directors' material interests in transactions, arrangements or contracts

Save for the aforementioned transaction, no other significant transactions, arrangements and contracts to which the
Company was a party and in which a director of the Company had a material interest, whether directly or indirectly,
subsisted at the end of the year or at any time during the year.
29. Parent Company

The Parent Company and ultimate controlling party is Holding Company Limited, a company registered and domiciled
in Hong Kong.
A2.1 Page 47 of 565 APM 2022

MANUFACTURING COMPANY LIMITED
PROFITS TAX COMPUTATION AND SUPPORTING SCHEDULES
FOR THE YEAR OF ASSESSMENT 2021/22
Profits tax computation
Depreciation allowances
Commercial building allowance
Additions to plant and equipment
Assets under finance lease
Profit on disposal of plant and equipment
Charitable donations
Pension contributions
[Note. Detailed tax computations are not included in this example file]
A2.2 Page 48 of 565 APM 2022

Manufacturing Company Limited AW A3
31/12/2021 28/3
Journal Adjustments JO 1/4
The following journal adjustments were agreed with and approved by Adeline Leung.
Balance Sheet P&L Profit

Dr Cr Dr Cr
$'000 $'000 $'000 $'000 $'000
Profit per management accounts 6,601
1 Dr Sales - sound & graphics 621 (621)

Dr Sales - network cards 85 (85)
Dr Sales - WiFi & Bluetooth 36 (36)
Cr Trade receivables 742
Being cut off errors - sales invoiced but not despatched (R6.4)
2 Dr Sales - sound & graphics 357 (357)

Dr Sales - network cards 45 (45)
Cr Trade receivables 402
Being credit notes issued in 2022 related to sales 2021 (R6.5)
3 Dr Inventory - finished goods 1,044

Cr Cost of sales 1,044 1,044
Being stock omitted from finished goods listings (I7.4)
4 Dr Inventory - finished goods 1,750

Cr Other receivables 1,750
Being goods in transit from factory to warehouse (J5.1)
5 Dr Allowance for impairment loss 336

Cr Cost of sales - Doubtful debt expense 336 336
Being reduction in allowance for impairment loss (J4)
6 Dr Sales 18,774
Cr Loss on Memory Stick division 18,774
Being reclass of Memory Stick division turnover to discontinued operations (R1.4)
7 Dr Loss on Memory Stick division 19,188

Cr Purchase 16,028
Cr Maintenance 533
Cr Direct wages 2,627
Being reclass of Memory Stick division direct costs to discontinued operations (R1.5)

Cr Packaging 458
Cr Freight 921
Being reclass of Memory Stick division distribution expenses to discontinued operations (R1.6)

Cr Advertising 323
Cr Travel 408
Cr Motor 432
Being reclass of Memory Stick division distribution expenses to administrative expenses (R1.6)
C/fwd to A3.1 6,837
A3 Page 49 of 565 APM 2022

Manufacturing Company Limited AW A3.1
31/12/2021 28/3
Journal Adjustments JO 2/4
The following journal adjustments were agreed with and approved by Adeline Leung.
Balance Sheet P&L Profit

Dr Cr Dr Cr
$'000 $'000 $'000 $'000 $'000
Profit b/fwd from A3 6,837
10 Dr Current tax charge 250 (250)

Cr Current tax liabilities 250
Being amendment to client's tax charge (P1)
11 Dr Current tax charge 35 (35)

Cr Current tax liabilities 35
Being adjustment for under provision in previous year (P1)
12 Dr Deferred tax charge 110 (110)

Cr Deferred tax liabilities 110
Being deferred tax charge to P&L for year (P1)
13 Dr Reserves 238
Cr Deferred tax creditor 238
Being deferred tax charged to equity re warehouse (P1)
14 Dr Wages - Holiday pay 37 (37)

Cr Accruals 37
Being holiday pay accrual movement in year (L4)
15 Dr Forex FI liability 3
Cr P&L Account 3 3
Being movement in fair value of FI in 2021 (L10)
16 Dr Reserves 37
Cr Deferred Tax creditor 37
Being prior year adjustment to deferred tax (P1)
17 Dr Group loan 890

Cr Capital contribution 890
Being reduction of group loan to NPV (M5)
18 Dr Group loan interest payable 164 (164)

Cr Parent company loan 164
Being interest charge for 2021 (M5)
19 Dr Cost of sales 56
Cr Net reversal of impairment losses on trade receivables 56 -
Being reclassification of doubtful debt expense (R1.5) from cost of sales to a separate line item on P/L
20 Dr Recall Provision - Non-current liabilities 1,200

Cr Recall Provision - Current liabilities 1,200 -
Being reclassification of recall provision (N3.1) from non-current to current liabilities
Profit per financial statements 6,244
Overall net effect of adjustments on profit per the management accounts (357)
R1.1
A3 Page 50 of 565 APM 2022

MCL The Component Warehouse
Sea Bird Lane
Tai Shui Hang
Hong Kong
B Lee
Counting House
Kings Road
Hong Kong Island
Hong Kong
25 April 2022
Dear Mr. Lee
This representation letter is provided in connection with your audit of the financial
statements of Manufacturing Company Limited for the year ended 31 December 2021 for
the purpose of expressing an opinion as to whether the financial statements give a true and
fair view in accordance with Hong Kong Financial Reporting Standards.
We confirm that, to the best of our knowledge and belief, having made such inquiries as we
considered necessary for the purpose of appropriately informing ourselves:
Financial statements
● We have fulfilled our responsibilities, as set out in the terms of the audit engagement
dated 7 March 2022, for the preparation of the financial statements in accordance with
Hong Kong Financial Reporting Standards; in particular the financial statements give a
true and fair view in accordance therewith.
● The methods, the data and the significant assumptions used in making accounting
estimates and their related disclosures are appropriate to achieve recognition,
measurement or disclosure that is reasonable in the context of the applicable financial
reporting framework.
● Related party relationships and transactions have been appropriately accounted for and
disclosed in accordance with the requirements of Hong Kong Financial Reporting
Standards.
● All events subsequent to the date of the financial statements and for which Hong Kong
Financial Reporting Standards require adjustment or disclosure have been adjusted or
disclosed.
● The effects of uncorrected misstatements are immaterial, both individually and in the
aggregate, to the financial statements as a whole. A list of the uncorrected
misstatements is attached to the representation letter.
Information provided
● We have provided you with:
○ Access to all information of which we are aware that is relevant to the preparation
of the financial statements, such as records, documentation and other matters;
○ Additional information that you have requested from us for the purpose of the
audit; and
○ Unrestricted access to persons within the entity from whom you determined it
necessary to obtain audit evidence.
A5 Page 51 of 565 APM 2022

● All transactions have been recorded in the accounting records and are reflected in the
● We have disclosed to you the results of our assessment of the risk that the financial
statements may be materially misstated as a result of fraud.
● We have disclosed to you all information in relation to fraud or suspected fraud that we
are aware of and that affects the entity and involves:
○ Management;
○ Employees who have significant roles in internal control; or
○ Others where the fraud could have a material effect on the financial statements.
● We have disclosed to you all information in relation to allegations of fraud, or suspected

fraud, affecting the entity ’ s financial statements communicated by employees, former
employees, analysts, regulators or others.
● We have disclosed to you all known instances of non-compliance or suspected non-
compliance with laws and regulations whose effects should be considered when
preparing financial statements.
● We have disclosed to you the identity of the entity’s related parties and all the related
party relationships and transactions of which we are aware.
Yours sincerely
R Chan A Leung T Ho
Mr. R Chan Mrs. A Leung Mr. T Ho
Director Director Director
A5 Page 52 of 565 APM 2022

Appendix
Uncorrected misstatements
DR CR
HK$ HK$
1 Dr Cost of sales 15,000

Cr Inventory 15,000
Being overvaluation of components
A5 app Page 53 of 565 APM 2022

Nickleby & Chuzzlewit
Counting House
Kings Road
Hong Kong Island
Hong Kong
The Board of directors
The Component Warehouse
Sea Bird Lane
Tai Shui Hang
Hong Kong
18 April 2022
Dear Sirs and Madam
In accordance with our normal practices and further to our meeting last week we are
writing to draw your attention to the various matters which arose during the course of the
audit of the Manufacturing Company Limited's (the "company") financial statements for
the year ended 31 December 2021.
1 We have no comments on significant qualitative aspects of the entity's accounting

practices and financial reporting, including accounting policies, accounting
estimates and financial statement disclosures.
2 There were no significant difficulties encountered during the audit to bring to your
attention.
3 The main adjustments made to the draft accounts prepared by you were to correct
a number of cut-off errors caused by the poor controls over inventories in the
warehouse and to show the disposal of the Memory Stick division separately as a
discontinued operation. Specific recommendations concerning internal controls and
systems are set out in an appendix to this letter. The net effect of the adjustments
was to reduce the overall profit for the year by HK$357,000.
4 As you are aware from our letter of engagement, our audit procedures were
directed towards testing the accounting systems in operation upon which we have
based our assessment of the financial statements. We did not identify any
significant deficiencies in internal control; however, other deficiencies of sufficient
importance to be reported to you in your role as management of the business are
set out in an appendix to this letter. The appendix contains details of actual and
potential weaknesses identified and our recommendations for improvements. It is
not meant to be a full and accurate reflection of all weaknesses that may be present
in the company.
5 We do not propose any modifications to our audit opinion and hence will be issuing
our report with an unmodified audit opinion.
We would like to take this opportunity of expressing our thanks to your staff for their
assistance during the course of our audit.
Please note that this report has been prepared for the sole use of the company. It must
not be disclosed to third parties, quoted or referred to, without our prior written consent.
No responsibility is assumed by us to any other person.
A6 Page 54 of 565 APM 2022

The purpose of the audit was to enable us to express an opinion on the financial
statements.
The audit included consideration of internal control relevant to the preparation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
internal control.
The matters reported in the attached appendix are limited to those deficiencies that we
have identified during the audit and that we have concluded are of sufficient importance
to merit being reported to you as directors, being those charged with governance.
If we can be of any further assistance, please contact Mr. B Lee, engagement partner.
Yours faithfully
Nickleby & Chuzzlewit
A6 Page 55 of 565 APM 2022

31 December 2021
Appendix of Weaknesses
Possible Suggested
Current Procedure Benefit of Control
Consequences Improvement
1 Minutes of directors Key decisions or agreed Recommend that More detailed minutes
meetings are maintained actions may not be Elizabeth Shen attends will provide a proper
but they are not very properly documented meetings to take proper record of decisions taken
detailed and do not which may result in them minutes. and action that is
include all key decisions. being overlooked. required.
2 Checks from the fixed Plant and equipment may Checks should be Property, plant and
asset register to the be lost or stolen without undertaken more equipment will be
physical assets happen management being regularly, say quarterly, properly controlled.
on a haphazard basis aware of. properly documented
and are not properly and any matters arising
documented. followed up by
management.
3 The weekly inventory Warehouse inventory Resources should be Reliable inventory

checks work well in the records may become invested in getting all the records will mean that
factory but have been unreliable. processing in the sales invoices will only be
abandoned in the warehouse up to date raised when goods are in
warehouse. This is in and ensuring it remains stock resulting in fewer
part due to the backlog of so. This will produce credit notes.
despatch notes to be benefits in the longer
entered into the system. term as less time will be
spent investigating
complaints about late or
part fulfilled orders or
requests for credit notes.
Once processing is up-to-
date the weekly inventory
counts should be
reinstated.
4 There is no proper goods Incorrect information may It is not necessary to Any discrepancies
inwards system in the be entered into the create a new document between the factory
warehouse. This simply warehouse inventory for use in the warehouse. despatch note and the
uses the factory despatch system where the goods The factory despatch goods received at the
note without undertaking received do not note could be amended warehouse will be
any checks. correspond with those to include fields for identified on a timely
specified on the factory completion in the basis allowing
despatch note. warehouse. However, the investigation as to why
goods received at the they occurred.
warehouse should be
counted to confirm that
they agree with the
factory despatch note. A
grid stamp could be used
to document these
checks.

Possible Suggested
5 Checking customer See point 3 See point 3 See point 3
orders against inventory
records prior to producing
invoice/despatch
documentation is
ineffective as the
warehouse records are
out of date.
6 Management accounts Decisions may be based The management Better information will be
are not used effectively. on inaccurate, incomplete accounts should form a available on which to
or misleading key part of how the base decisions.
information. directors manage the
business. The directors
should determine the
information that they
need to manage the
business effectively and
then ensure that this is
reported to them on a
regular basis.
7 There is no record of Invoices could get lost The accounts department Problems with suppliers
invoices sent to and this might not be should have a system for concerning missing
Raymond Chan for picked-up until the logging invoices that are invoices and late
approval. supplier queries the late sent outside the payment will be avoided.
payment or puts a stop department for approval
on the account which to ensure that they are
may disrupt production. not lost.
8 There is no check on the Costing on the job cards The factory manager Accurate information will
pricing of components by may be incorrect which should undertake a more be available from the job
the accounts department may distort the results detailed check of the costing system.
other than the review of shown in the monthly costing of each job card
job cards by Terence Ip. management accounts to ensure that it is
Errors in the costing of and may also result in the correct. This could
components may go selling price being set include checking that the
undetected. either too high or too low. correct component prices
have been used.
9 Valuing components at The results shown in the Adrian Walker should The management
latest invoice price could management accounts review the quantities held accounts will be more
result in overvaluation of may be misleading. when updating reliable.
inventories . component prices to
identify any lines where
there is a sizable quantity
still in stock that was
purchased at a lower
price.

Possible Suggested
10 There is currently no This could result in: A register of other Transactions with related
formal system in place for (a) The company entering business interests should parties will only take
identifying or recording into transactions on be maintained which lists place where authorized
transactions with related terms different to that all other business, by the board.
parties. which would normally be companies and
applied without the investments with which
knowledge of the full the directors and their
board. spouses are involved.
(b) The disclosure of This should be regularly
transactions with related reviewed at board
parties in the company's meetings to ensure that it
accounts being omitted remains up to date.
or incomplete.
11 Accounts department This could and did result If all the warehouse staff The risk of cut off errors
processes sales invoices in cut off errors at the are involved in the year- will be reduced.
on the basis that all year end. end inventory count, then
inventory picked for accounts should not
despatch on a particular process any customer
day will be despatched orders to generate the
on that date. However sales invoice / despatch
proposed despatches for note etc. if they know that
the day are not it will not be processed.
despatched if all
warehouse staff are
involved in an inventory
count.

Manufacturing Company Limited AW A6
31 December 2021 1/4
Potential weaknesses to report JO 4/4
Source Current Procedure Possible Consequences Suggested Improvement Benefit of Control

1 O4 Minutes of directors meetings are Key decisions or agreed actions Recommend that Elizabeth Shen More detailed minutes will provide a
maintained but they are not very may not be properly documented attends meetings to take proper proper record of decisions taken
detailed and do not include all key which may result in them being minutes. and action that is required.
decisions. overlooked.
2 PAF3.4 - P4 Checks from the fixed asset register Plant and equipment may be lost or Checks should be undertaken more Property, plant and equipment will
C5.1 - 2 to the physical assets happen on a stolen without management being regularly, say quarterly, properly be properly controlled.
haphazard basis and are not aware. documented and any matters
properly documented. arising followed up.
3 PAF3.4 - J2 J3 The weekly inventory checks work Warehouse inventory records may Resources should be invested in Reliable inventory records will mean
well in the factory but have been become unreliable. getting all the processing in the that sales invoices will only be
abandoned in the warehouse. This warehouse up to date and ensuring raised when goods are in stock
is in part due to the backlog of it remains so. This will produce resulting in fewer credit notes.
despatch notes to be entered into benefits in the longer term as less
the system. time will be spent investigating
complaints about late or part fulfilled
orders or requests for credit notes.
Once processing is up-to-date the
weekly inventory counts should be
reinstated.
4 PAF3.4 - H2 There is no proper goods inwards Incorrect information may be It is not necessary to create a new Any discrepancies between the
system in the warehouse. This entered into the warehouse document for use in the warehouse. factory despatch note and the
simply uses the factory despatch inventory system where the goods The factory despatch note could be goods received at the warehouse
note without undertaking any received do not correspond with amended to include fields for will be identified on a timely basis
checks. those specified on the factory completion in the warehouse. allowing investigation as to why they
despatch note. However, the goods received at the occurred.
warehouse should be counted to
confirm that they agree with the
factory despatch note. A grid stamp
could be used to document these
checks.
A6 wrkgs Page 59 of 565 APM 2022

5 PAF3.4 - I2 Checking customer orders against See point 3 See point 3 See point 3
C5.1 - 13 inventory records prior to producing
invoice/despatch documentation is
ineffective as the warehouse
records are out of date.
6 PAF 1.1.1 Management accounts are not Decisions may be based on The management accounts should Better information will be available
C8.2 - 3 used effectively. inaccurate, incomplete or form a key part of how the directors on which to base decisions.
misleading information. manage the business. The
directors should determine the
information that they need to
manage the business effectively
and then ensure that this is reported
to them on a regular basis.
7 PAF3.4 - C6 There is no record of invoices sent Invoices could get lost and this The accounts department should Problems with suppliers concerning
C5.1 - 20 to Raymond Chan for approval. might not be picked-up until the have a system for logging invoices missing invoices and late payment
supplier queries the late payment or that are sent outside the department will be avoided.
puts a stop on the account which for approval to ensure that they are
may disrupt production. not lost.
8 PAF3.4 - G4 There is no check on the pricing of Costing on the job cards may be The factory manager should Accurate information will be
components by the accounts incorrect which may distort the undertake a more detailed check of available from the job costing
department other than the review of results shown in the monthly the costing of each job card to system.
job cards by Terence Ip . Errors in management accounts and may ensure that it is correct. This could
the costing of components may go also result in the selling price being include checking that the correct
undetected. set either too high or too low. component prices have been used.
9 PAF3.4 - G5 Valuing components at latest The results shown in the Adrian Walker should review the The management accounts will be
invoice price could result in management accounts may be quantities held when updating more reliable
overvaluation of inventories . misleading. component prices to identify any
lines where there is a sizable
quantity still in stock that was
purchased at a lower price.

10 C8.3 - 22 There is currently no formal system This could result in: A register of other business Transactions with related parties will
in place for identifying or recording (a) The company entering into interests should be maintained only take place where authorized by
transactions with related parties. transactions on terms different to which lists all other business, the board.
that which would normally be companies and investments with
applied without the knowledge of which the directors and their
the full board. spouses are involved. This should
(b) The disclosure of transactions be regularly reviewed at board
with related parties in the meetings to ensure that it remains
company's accounts being omitted up to date.
or incomplete.
11 R6.2 Accounts department processes This could and did result in cut off If all the warehouse staff are The risk of cut off errors will be
sales invoices on the basis that all errors at the year-end. involved in the year-end inventory reduced.
inventory picked for despatch on a count, then accounts should not
particular day will be despatched on process any customer orders to
that date. However proposed generate the sales invoice etc. if
despatches for the day are not they know that it will not be
despatched if all warehouse staff processed.
are involved in an inventory count.

Manufacturing Company Limited Management accounts received from client A8
in February 2022
Income statement AW 10/3
2021 2020
HK$'000 HK$'000
Revenue 112,014 75,775
Cost of sales (59,907) (34,746)
Gross profit 52,107 41,029
Other gains & losses 466 224

Distribution costs (9,163) (8,631)
Finance costs (1,601) (1,444)
Income tax expense (1,127) (2,116)
Profit for the year from continuing operations 8,407 3,839
Loss for the year from discontinued operations (1,806) -
6,601 3,839
Movement on reserves
Reserves brought forward 4,396 557
Revaluation reserve 1,442 -
12,439 4,396
A8 Mngmnt Accs Page 62 of 565 APM 2022

Detailed profit and loss account
2021 2020
HK$'000 HK$'000
Revenue
Sound & graphics 55,860 31,990
Network 24,066 22,156
USB Memory sticks 18,774 20,102
112,014 75,775
Cost of sales
Purchases (adjusted for inventories) 45,595 26,539
Factory rates 120 110
Machine maintenance 1,873 633
Depreciation 2,730 1,967
Direct wages 8,600 4,917
Other direct costs 989 580
(59,907) (34,746)
Gross profit 46.5% 52,107 54.1% 41,029
Other gains and losses

Profit on disposal of plant 266 175
Forex gains 200 49
Direct expenses
Shipping 3,852 3,698
Packaging 3,082 3,011
Labor 1,802 1,425
Other distribution costs 427 497
(9,163) (8,631)
Carried to next page 43,410 32,622

Detailed profit and loss account (continued)
Brought forward from previous page 43,410 32,622
Administrative expenses
Wages 6,845 6,503
Directors pay 2,250 2,100
Pension contributions 934 747
Staff welfare 715 632
Power 2,054 1,773
Insurance 595 542
Cleaning 366 351
Repairs and maintenance 472 568
Motor expenses 1,705 1,437
Advertising 3,592 1,462
Travelling 1,166 849
Entertaining 34 26
Telephone & internet charges 415 402
Computer costs 912 440
General office costs 1,220 1,129
Postage 984 915
Laundry & cleaning 12 11
Telephone and photocopier systems 1,650 1,738
Audit and accountancy 473 452
Legal and professional 1,858 1,711
Bank charges 358 342
Miscellaneous 2,239 506
Charitable donations 79 75
Research and development amortization 147 512
Faulty card provision 1,200 -
(32,275) (25,223)
Finance costs
Lease interest 1,141 1,227
Loan interest 123 79
Overdraft interest 109 138
Losses of Forex FIs 228 -
(1,601) (1,444)
Tax (1,127) (2,116)
Profit after tax 8,407 3,839
Loss on disposal of Memory Stick division assets (1,806) -
Net profit 6,601 3,839

Balance sheet
At 31 December 2021
2021 2020
HK$'000 HK$'000
Non-current assets
Property, plant and equipment 12,153 10,220
Right-of-use assets 9,435 9,646
Goodwill & other intangible assets 1,022 1,022
22,610 20,888
Current assets
Inventories 8,001 8,547
Trade and other receivables 17,549 12,110
Cash and cash equivalents 5,669 42
31,219 20,699
Current liabilities
Trade and other payables 9,680 12,057
Current tax liabilities 1,092 681
Parent company loan 5,000 -
Borrowings 83 79
Lease liabilities 1,153 875
Derivative financial instrument 79 79
Bank overdrafts - 1,501
17,087 15,272
Net current assets 14,132 5,427

Total assets less current liabilities 36,742 26,315
Capital and reserves

Share capital 9,100 8,750
Share premium 875 700
P&L 11,034 4,396
Revaluation reserve 1,442 -
Borrowings 2,587 1,681
Lease liabilities 8,953 9,199
Provisions 1,200 -
Deferred tax 1,552 1,589
14,292 12,469
36,743 26,315

31-Dec-21 B
M0001
B AUDIT COMPLETION
1 Completion memorandum B1
2.1 Engagement partner review (Review notes B2.1) B2.1
2.2 Second partner review / EQCR/ EQR (N/A)
3 Compliance with auditing standards B3
4 File completion B4
5 Review of accounts B5
6 Audit highlights (Audit highlights report B6) B6
6.1 Summary of significant matters B6.1
6.2 Evaluation of accounting estimates B6.2
7 Unadjusted misstatements B7
8 Justification of audit report (Comments noted on B1)
9 Points for partner* B9
10 Points forward to next year* B10
11 Commercial observations on client’s business* (See A6) A6
12 Senior/manager review* B12
13 Cleared audit queries*
14 Notes of meetings with client* T2.1
15 Procedures on anti-money laundering compliance* [Not included in this example file] AML file
* Standard form is not provided
Bi Page 66 of 565 APM 2022

31-Dec-21 B1
M0001
COMPLETION MEMORANDUM
The purpose of this memorandum is to document the audit conclusions and the basis for the audit opinion. Issues
relevant to the completion of each section should be recorded. These can be either free form notes, a reference to the
relevant checklist or a combination of both. See the guidance notes for further information on the completion of this
form.
1. Approval for Issuing Accounts for Signature

I confirm that:
1 We have obtained and documented, on a timely basis, sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit opinion.
2 Sufficient appropriate audit evidence has been obtained to reduce audit risk to an acceptably low level that is
consistent with the audit objectives.
3 All threats to objectivity and independence have been properly addressed in accordance with HKICPA's Code of
Ethics for Professional Accountants.
4 Any differences of opinion amongst the audit team have been resolved in accordance with the firm's procedures.
5 External consultation has been undertaken where required by the firm's procedures and this has been properly
documented on file.
6 All working papers have been reviewed, other than that undertaken by the partner responsible for the audit.
7 An engagement quality control review / quality review has been undertaken where required by HKICPA's Code of
Ethics for Professional Accountants, HKSQC1/HKSQM1 or the firm’s procedures.
8 All matters have been documented that are important in providing audit evidence to:
- support the audit opinion; and
- confirm that the audit was carried out in accordance with HKSAs.
9 A letter of comment has been sent to those charged with governance addressing the matters required by the
HKSAs.
Note. For the requirements under HKSAs please refer to Appendix 3: Letter of comment of the guidance notes.
10 Written representations have been requested from management regarding their responsibility for the accounts
and other matters as appropriate.
11 All work that needs to be undertaken before the audit report is signed is specified below.
There are no matters outstanding other than the letter of representation.
Now received BL 25/4
I authorize the issue of the accounts for approval:

Bob Lee 21/4/2022
Second Partner Review (Where appropriate)

I confirm that:
1 The procedures required by the firm's policies on engagement quality control review / engagement quality review
have been performed.
2 The engagement quality control review / engagement quality review has been completed on or before the date of
the auditor's report.
3 I am not aware of any unresolved matters that would cause me to believe that the significant judgments the
engagement team made and the conclusions they reached were not appropriate.
4 The specific issues requiring a second partner review (see C1 or C12) have been adequately addressed.
Second partner Date
B1 Page 67 of 565 APM 2022

2.1 Engagement Partner Review B2.1 Completed - YES / NO
Review notes filed on B2.1. Not necessary to complete programme B2.1.
2.2 Second Partner Review / EQCR / EQR B2.2 Completed - YES / NO

There are no contentious areas of presentation in the accounts that require review by a second partner.
3. Compliance with Auditing Standards B3 Completed - YES / NO

B3 completed, no points arising.
4. File Completion B4 Completed - YES / NO

B4 completed and all points arising dealt with.
5. Review of Accounts B5 Completed - YES / NO

The numbers are as expected based on our understanding of the client's business. There are no unexplained
variances.
The accounts have been properly prepared and presented.
6. Audit Highlights B6 Completed - YES / NO

An audit highlights report has been prepared on B6 in narrative form. Checklist B6 not used.
B1 Page 68 of 565 APM 2022

6.1 Summary of Significant Matters B6.1 Completed - YES / NO
A summary of the significant audit matters has been prepared at B6.1.
6.2 Evaluation of Accounting Estimates B6.2 Completed - YES / NO

An evaluation of accounting estimates has been prepared at B6.2.
7. Unadjusted Misstatements B7 Completed - YES / NO

Not material, see B7.
The client was asked to adjust for all entries. They have done so for except the overvaluation of components (I5.1)
because it is not material for the financial statements as a whole. It is not adjusted and so it is recognized as an
unadjusted misstatement and included in the representation letter on A5.
8. Justification of Audit Report B8 Completed - YES / NO

No matters arising to suggest that anything other than a clean audit report is required.
9. Group audit issues

N/A
10. Other
B9, B10 and B12 have been completed; all points arising have been dealt with.
B1 Page 69 of 565 APM 2022

11. Audit Administration
Final audit costs are expected to be close to budget and we should be able to bill as already notified once accounts
have been issued.
B1 Page 70 of 565 APM 2022

Manufacturing Company Limited Prepared by: BL Date: 4-Apr Ref:
31-Dec-21 Reviewed by: Date: B2.1
M0001
PARTNER REVIEW
Clearance
1 Disclosure checklist [not included in this example file] to be Now done. AW

completed in due course
2 Why does the profit in the tax computation not agree to the Updated for final journal adjustment.
final accounts? AW
3 A3 Have we agreed all these adjustments with the client? Yes. Schedule now amended to show
this. AW
4 The systems in the warehouse continue to be poor. Does Yes, I think that would be a good idea.
the client need any assistance with implementing improved The point has been included in the letter
controls? of comment. AW
B2.1 Notes Page 71 of 565 APM 2022

Manufacturing Company Limited Prepared by: JO Date: 1-Apr Ref:
31-Dec-21 Reviewed by: BL Date: 4-Apr B3
M0001
COMPLIANCE WITH AUDITING STANDARDS

The auditor shall not represent compliance with HKSAs in the auditor's report unless the auditor has complied with the
requirements of this HKSA and all other HKSAs relevant to the audit. (HKSA 200.20)
HKSA Comments WP Ref
200.11 Have you:
a) Obtained reasonable assurance about whether the financial
statements as a whole are free from material misstatement,
whether due to fraud or error, thereby enabling you to
express an opinion on whether the financial statements are Yes
prepared, in all material respects, in accordance with an
applicable financial reporting framework? And
b) Reported on the financial statements, and communicated as

required by the HKSAs in accordance with your findings? Yes
210.3 Has the firm accepted or agreed to continue an audit engagement

only when the basis upon which it is to be performed has been C1
agreed through: section 2
a) Establishing whether the pre-conditions for an audit are

present? And Yes
b) Confirming that there is a common understanding between

the firm and management and, where appropriate, those PAF2.1
charged with governance of the terms of the audit [Not
engagement? Yes, engagement letter included
obtained and filed in PAF2.1 in this
example
file]
220.6 Has the firm implemented quality control procedures at the

engagement level that provide you with reasonable assurance
that:
a) The audit complies with professional standards and

applicable legal and regulatory requirements? And Yes. Second partner review
not required as MCL is not
listed and the audit has not
been assessed as high risk.
b) An appropriate audit report has been issued? Yes

230.5 Does the file contain documentation that provides:
a) A sufficient and appropriate record of the basis of the
auditor's report? And Yes
b) Evidence that the audit was planned and performed in

accordance with HKSAs and applicable legal and regulatory Yes
requirements?
B3 Page 72 of 565 APM 2022

240.11 Have you:
a) Identified and assessed the risk of material misstatement of
the financial statements due to fraud? Yes C8.3 - 1
b) Obtained sufficient appropriate audit evidence regarding the

assessed risks of material misstatement due to fraud,
through designing and implementing appropriate Yes B6.1
responses? And
c) Responded appropriately to fraud or suspected fraud
identified during the audit? N/A. No fraud or suspected
fraud identified during the B6.1
audit.
250.11 Have you:

a) Obtained sufficient appropriate audit evidence regarding Yes.
compliance with the provisions of those laws and regulations - PAF1.4 updated on laws
generally recognized to have a direct effect on the and regulations applicable to
determination of material amounts and disclosures in the MCL. PAF1.4
financial statements;
- Work performed on non- B6.1 - 9
compliance with health &
safety legislation summarized
on B6.1-9
b) Performed specified audit procedures to help identify
instances of non-compliance with other laws and regulations
that may have a material effect on the financial statements; Yes. Specified procedures
N2.1 - 11
And performed in N2.1 - 11
c) Responded appropriately to identified or suspected non-

compliance with laws and regulations identified during the None noted
audit?
260.9 Have you:

a) Communicated clearly to those charged with governance PAF 2.1
your responsibilities as auditor in relation to the financial [Not
statement audit and an overview of the planned scope and included
timings of the audit? Yes - see engagement letter
in this
example
file]
b) Obtained from those charged with governance information
relevant to the audit? Yes
c) Provided those charged with governance with timely

observations arising from the audit that are significant and Yes. See letter to
relevant to their responsibility to oversee the financial A6
management in A6
reporting process? And
d) Promoted effective two-way communication between the
auditor and those charged with governance? Yes
265.5 Have you communicated appropriately to those charged with

governance and management deficiencies in internal control that
the auditor has identified during the audit and that, in the auditor's Yes. See letter to
A6
professional judgment, are of sufficient importance to merit their management in A6
respective attentions?
300.4 Has the audit been planned and performed in an effective

manner? Yes
B3 Page 73 of 565 APM 2022

315.11 Have you identified and assessed the risks of material
misstatement, whether due to fraud or error, at the financial
statement and assertion levels thereby providing a basis for
designing and implementing responses to the assessed risks of C8.2
Yes
material misstatement? C8.3
320.8 Has an appropriate materiality level been applied when planning C7

and performing the audit? Yes
C7.1
330.3 Have you obtained sufficient appropriate audit evidence regarding
the assessed risks of material misstatement, through designing C8.2
and implementing appropriate responses to those risks? Yes
C8.3
402.7 When using the services of a service organization have you:

a) Obtained an understanding of the nature and significance of
the services provided by the service organization and their
effect on the user entity's internal control relevant to the N/A. Service organization not
audit, sufficient to identify and assess the risks of material used.
misstatement? And
b) Designed and performed audit procedures responsive to
those risks? N/A
450.3 Have you evaluated the effect of identified misstatements on the

audit and uncorrected misstatements on the financial statements? Yes B7
500.4 Have you designed and performed audit procedures in such a

way as to enable you to obtain sufficient appropriate audit C8.2
evidence to be able to draw reasonable conclusions on which to Yes C8.3
base your audit opinion? C8.4
501.3 Has sufficient appropriate evidence been obtained regarding:

a) The existence and condition of inventory? Yes I4.4
b) Completeness of litigation and claims involving the entity? Yes N3
c) Presentation and disclosure of segment information in
accordance with the applicable financial reporting framework N/A
if applicable?
505.5 When using external confirmation procedures, have you designed

and performed procedures that will provide relevant and reliable Yes, external confirmations
audit evidence? used: K4,
- Bank confirmation J3.1, J6
- Trade receivables L3.1, L7
- Trade payables
510.3 In conducting an initial audit engagement, have you obtained

sufficient appropriate audit evidence about whether:
a) Opening balances contain misstatements that materially
affect the current period's financial statements? And N/A. Not an initial
engagement.
b) Appropriate accounting policies reflected in the opening

balances have been consistently applied in the current
period's financial statements, or changes thereto are
appropriately accounted for and adequately presented and N/A
disclosed in accordance with the applicable financial
reporting framework?
B3 Page 74 of 565 APM 2022

520.3 Have you:
a) Obtained relevant and reliable audit evidence when using
substantive audit procedures? And Yes. Substantive analytical
R5.2,
procedures performed on
R.5.2.1
payroll expenses
b) Designed and performed analytical procedures near the end

of the audit that assist you when forming an overall
conclusion as to whether the financial statements are Yes B5.1
consistent with the auditor's understanding of the entity?
530.4 When using audit sampling, does the sample provide a
reasonable basis on which to draw conclusions about the Yes. Standard sampling form
population from which the sample is selected? is used to calculate the
sample size. Final sample
size determined based on
professional judgment and
known facts and
circumstances.
540.11 Have you obtained sufficient appropriate audit evidence about

whether accounting estimates and related disclosures in the
financial statements are reasonable in the context of the Yes B6.2
applicable financial reporting framework?
550.9 a) Irrespective of whether the applicable financial reporting
framework establishes related party requirements, have you
obtained an understanding of related party relationships and PAF1.5
transactions sufficient to be able to:
(i) Recognize fraud risk factors, if any, arising from related
party relationships and transactions that are relevant to
the identification and assessment of the risks of Yes C8.3 - 22
material misstatement due to fraud? And
(ii) Conclude, based on the audit evidence obtained,

whether the financial statements, insofar as they are
affected by those relationships and transactions: B6.1
- Achieve fair presentation (for fair presentation

frameworks); or Yes
- Are not misleading (for compliance frameworks).

N/A
b) Where the applicable financial reporting framework

establishes related party requirements, have you obtained
sufficient appropriate audit evidence about whether related
party relationships and transactions have been appropriately Yes R8.1
identified, accounted for and disclosed in the financial
statements in accordance with the framework?
560.4 Have you obtained sufficient appropriate audit evidence about

whether events occurring between the date of the financial
statements and the date of the auditor's report that require T2
adjustment of, or disclosure in, the financial statements are Yes A1.2 -
appropriately reflected in those financial statements in 2&3
accordance with the applicable financial reporting framework?
B3 Page 75 of 565 APM 2022

570.9 Have you:
a) Obtained sufficient appropriate audit evidence regarding the
appropriateness of management's use of the going concern T2
assumption in the preparation of the financial statements? Yes A1.2 -
5&6
b) Concluded, based on the audit evidence obtained, whether

a material uncertainty exists related to events or conditions
that may cast significant doubt on the entity's ability to No
continue as a going concern? And
c) Determined the implications for your audit report? N/A

d) Reported in accordance with application of this HKSA? N/A
580.6 Have you:
a) Obtained written representations from management, and
where appropriate, those charged with governance that they
believe that they have fulfilled their responsibility for the
preparation of the financial statements and for the Yes A5
completeness of the information provided to the auditor?
b) Supported other audit evidence relevant to the financial

statements or specific assertions in the financial statements
by means of written representations if determined necessary Yes
by you or required by other HKSAs? And
c) Responded appropriately to written representations provided

by management and, where appropriate, those charged with
governance, or if management or, where appropriate, those N/A
charged with governance do not provide the written
representations requested by you?
600.8 Have you determined whether it is appropriate for you to act as

auditor of the group financial statements? N/A. Not a group audit.
If acting as the auditor of group financial statements, have you:

a) Communicated clearly with component auditors about the
scope and timing of their work on financial information
related to the components and their findings? And
b) Obtained sufficient appropriate audit evidence regarding the

financial information of the components and the
consolidation process to express an opinion on whether the
group financial statements are prepared, in all material
respects, in accordance with the applicable financial
610.13 Where the entity has an internal audit function and use is
expected to be made of the work of that function have we: N/A
a) Determined whether the work of the internal audit function or

direct assistance from internal auditors can be used, and if
so, in which areas and to what extent?
b) Where using the work of the internal audit function,
determined whether that work is adequate for purposes of
the audit?
c) Where using internal auditors to provide direct assistance,
appropriately directed, supervised and reviewed their work?
B3 Page 76 of 565 APM 2022

620.5 Have you determined whether to use the work of an auditor's
expert and if using the work, determined whether that work is Not required
adequate for your purposes?
700.6 Have you:

a) Formed an opinion on the financial statements based on an
evaluation of the conclusions drawn from the audit evidence Yes. Unqualified opinion.
obtained? And
b) Expressed that opinion clearly through a written report?
Yes
705.4 Where you conclude, based on the audit evidence obtained, that
the financial statements as a whole are not free from material
misstatement, or you are unable to obtain sufficient appropriate
audit evidence to conclude that the financial statements as a N/A
whole are free from material misstatement, have you clearly
expressed an appropriately modified opinion on the financial
statements?
706.6 Have you drawn attention, where in your judgment it is necessary,

in the audit report to:
a) A matter, although appropriately presented or disclosed in
the financial statements, that is of such importance that it is
fundamental to users' understanding of the financial N/A
statements? Or
b) Any other matter that is relevant to the users' understanding
of the audit, the auditor's responsibilities or the auditor's N/A
report?
710.5 Have you obtained sufficient appropriate evidence about whether
the comparative information included in the financial statements
has been presented, in all material respects, in accordance with Yes, we audited the previous
the requirements for comparative information in the applicable year's financial statements
financial reporting framework? And
Is that audit evidence sufficient for you to report in accordance

with your reporting responsibilities? Yes
B3 Page 77 of 565 APM 2022

720.11 Where other information is included in the annual report, having
read that information, have we:
a) Considered whether there is a material inconsistency
between the other information and the financial statements? We have read the director's
report accompanying the
financial statements. Its
b) Considered whether there is a material inconsistency information is consistent with
between the other information and our knowledge obtained those in the financial
in the audit? statements and our
knowledge obtained in the
audit.
c) Responded appropriately when we identified that such

material inconsistencies appeared to exist, or when we
otherwise become aware that other information appeared to N/A
be materially misstated?
d) Reported in accordance with HKSA 720 (Revised)? N/A
B3 Page 78 of 565 APM 2022

Manufacturing Company Limited Prepared by: JO Date: 1/4 Ref:
31-Dec-21 Reviewed by: BL Date: 4/4 B4
M0001
FILE COMPLETION
Comments WP Ref
1 Does the file contain programmes on all relevant sections and have
they been properly completed? Yes
2 Has each audit objective on the summary sheets been addressed

and cross-referenced to the working papers? Yes
3 Have all the queries and problems been properly cleared or carried
forward to schedule B9 (points for partner) or B6 (audit highlights)? B6
Yes
B9
4 Have we investigated and documented fully all instances where

responses to inquiries of management or those charged with None arising
governance were inconsistent?
5 Have substantive procedures been performed for each material class C8.3
of transaction, account balance, and disclosure? Yes
C8.4
6 In respect of key audit areas:
(a) Has an audit highlights report (B6) been prepared? Yes B6
(b) Has a summary of significant audit matters (B6.1) been
prepared which sets out the work undertaken and conclusion on Yes B6.1
all risks identified?
7 Have the budget and actual time summaries been completed, along
Yes, on billing file
with explanations of variances?
[not included in this example
file]
8 Has the Permanent audit file been updated? Yes
9 Have all unadjusted misstatements been summarised on B7 and
adjusted where necessary? Yes
10 Where the unadjusted misstatements recorded on B7 are considered

to be material and management refuses to adjust has their effect on N/A
the audit opinion been documented on B8?
11 Have we agreed the financial statements to the underlying accounting
records? Yes
12 Do we have a final version of any other information to be included in

the annual report? Yes - Directors' report
13 In respect of journal adjustments:

a) Has the client approved all journals raised during the course of
preparing the financial statements? Yes A3
b) Have we examined material journal entries and other

adjustments made? Yes V4
14 Has the checklist B3 Compliance with Auditing Standards been

completed? Yes B3
B4 Page 79 of 565 APM 2022

Comments WP Ref
15 Has the B8 Justification of Audit Report been completed?
No, not necessary. The
uncorrected misstatements
are acknowledged by
management in
representation letter (A5) and
are not material to the F/S as
a whole. No other issues
arising from the audit which
would indicate the need for a
modified opinion.
16 Has a review of subsequent events been completed (Section T)? Yes T2

17 Have any commercial observations on the client’s business been
recorded on B11? Yes. Observations
[Note: Standard form is not provided to B11] summarized and provided to A6
client in the comment letter.
18 Has the partner responsible for professional indemnity insurance

matters been advised of any complaints or problems on the job that No
could give rise to a complaint?
19 Has a draft letter of representation, addressed to the auditor, been

prepared? Yes A5
Note 1. HKSA 580.15 specifically requires that the letter must be

addressed to the auditor from the client.
Note 2. A specimen letter of representation is included as Appendix 2
to the Guidance Notes.
20 If management will not provide one or more of the requested written
representations: N/A
a) Discuss the matter with management.

b) Re-evaluate the integrity of management and evaluate the
effect that this may have on the reliability of representations
(oral or written) and audit evidence in general.
c) Take appropriate actions, including determining the possible

effect on the opinion in the auditor's report .
21 Have relevant issues arising from the audit been communicated to
those charged with governance on a timely basis? Yes A6
Note 1. HKSA 260.19 allows oral communication where this would be

adequate. In these circumstances it is recommended that a letter of
comment is still drafted for use as an agenda for a meeting or
telephone call as HKSA 260.23 requires a note to be made of all
matters communicated orally to the client.
Note 2. A specimen letter of comment is included as Appendix 3 to
the Guidance Notes.
22 Have you confirmed that there have been no changes to the firm ’ s
independence during the course of the audit, which would prevent re-
appointment of the firm as auditors for the next financial period? Yes
23 Have you considered whether there is any other reason why the
practice would not wish to seek re-appointment, for example, No reasons not to accept
recurrent under recoveries? reappointment
24 Has consultation been undertaken in all circumstances, where it is

required by the firm’s procedures? N/A
B4 Page 80 of 565 APM 2022

Comments WP Ref
25 Where any fraud, error or breaches in laws and regulations have
been identified, have the implications for the audit been fully NA. None noted
considered including any need to report to regulatory authorities?
26 Have the firm's procedures on anti-money laundering been complied

with? Yes
Note: For more guidance please refer to Guidelines on

Anti-Money Laundering and Counter-Terrorist Financing for
[Procedures not illustrated in
Professional Accountants issued by the HKICPA (Chapter F of the
this example file]
HKICPA Code of Ethics for Professional Accountants):
https://www.hkicpa.org.hk/-/media/HKICPA-
Website/HKICPA/section5_membership/Professional-
Representation/aml/HKICPA_AML_Enforceable_GLs_Feb2018_2018
0228.pdf
27 Review C1 and supporting schedules. Where there have been

adjustments to the level of materiality, risk or the extent of reliance on Yes for related party
controls, has the impact on the level of work already undertaken been C7
transactions
considered?
28 Have all necessary points forward to next year been recorded on
B10? Yes B10
29 Has a budget for next year been prepared? Yes

[not included in this example
file]
30 Have the following planning forms been reviewed and signed-off as
part of the audit completion?
a) Review of planning at the completion stage (C1) Yes

b) Justification of final materiality (C7.1) Yes
31 Has the work performed addressed the audit risks identified on the
risk action plans (C8.2 and C8.3) and have the outcome columns on
Yes
B6.1 been completed and cross-referenced to C8.2 and C8.3?
B4 Page 81 of 565 APM 2022

Manufacturing Company Limited Prepared by: AW Date: 1/4 Ref:
31-Dec-21 Reviewed by: JO Date: 4/4 B5
M0001
REVIEW OF ACCOUNTS
Comments WP Ref
Reasonableness of accounts
1 Consider comparison of the results for the current period with:
a) information for prior periods; Yes B5.1
b) those expected in budgets or forecasts; No
c) the auditor's expectation; No
d) other companies of comparable size in the same industry; No
e) overall industry or sector statistics. No
2 Consider relationships between:
a) elements of financial information that would be expected to
conform to a predictable pattern based on the company's Yes B5.1
experience, such as gross margin percentages.
b) financial information and relevant non-financial information,

such as payroll costs to number of employees. See payroll section R5.1
3 Consider the reliability of the information used to perform substantive Based on management
analytical procedures and whether this has been verified as part of accounts. Reliability of
the audit process. information used by client in
producing the M/A is
considered and evaluated in PAF3.4
the Systems Notes in PAF3.4;
selected controls on PAF3.4
are tested.
4 Consider whether any expectations or comparisons used are

sufficiently precise to identify material misstatements. Yes
5 In respect of accounting estimates consider whether:

a) They appear reasonable in the context of the applicable
financial reporting framework. Yes B6.2
b) They are consistent with other audit evidence obtained during

the audit. Yes
c) There is any indication of management bias. No

d) They are disclosed in accordance with the applicable
accounting framework. Yes
e) For high risk estimates, there is adequate disclosure of

estimation uncertainty. The only high risk areas are
the provisions for recall costs
and claim re a computer fire.
The recall provision HK$1.2m
N3, N3.1
is assessed as reasonable
and adequately disclosed in
note 21 of the financial
statements
6 Consider whether any unusual or unexpected relationships that have

been identified, including those related to revenue accounts, may
indicate risks of material misstatement due to fraud. None identified
B5 Page 82 of 565 APM 2022

Comments WP Ref
Presentation and applicable financial reporting framework
7 Review accounting policies to determine whether they:
a) are in accordance with the applicable accounting framework;
Yes. Significant accounting
policies summarized on PAF
1.6 and are assessed as in
accordance with relevant
HKFRS.
PAF1.6
Also see F1a, F4.4 on F1a
assessment of PP&E or F4.4
leases classification, and R6.7
R6.7 on revenue recognition
assessment against relevant
HKFRSs [F1a, F4.4 and R6.7
not included in this example
file]
b) are consistent with those of the previous period; Yes

c) are consistently applied to all like transactions; Yes
d) are appropriate to the nature of the client’s business; Yes
e) are properly disclosed in accordance with the requirements of
relevant accounting standards.
Yes. Disclosure checklist [not
included in this example file]
completed. Noted the proper
disclosure by the client.
8 Consider whether the accounts adequately reflect:

a) the substance of underlying transactions and balances and not
merely their form; Yes
b) the information and explanations obtained and conclusions

reached on particular aspects of the audit; Yes
Document points of interest on ‘audit highlights’ (B6). Yes B6

9 Did the substantive procedures undertaken include agreeing the
financial statements to the underlying records and a review of V2
Yes
material journal entries? Z1.1
10 Consider whether the review reveals any new factors, which may
affect the presentation of information or disclosures in the financial No matters arising
statements.
11 Review the financial statements for proper preparation in accordance

with the applicable accounting framework. Yes. Significant accounting
policies summarized on PAF
1.6 and are assessed as in
accordance with relevant
PAF 1.6
HKFRS. Noted that they are
properly applied by
management in the financial
statements.
12 State whether or not a disclosure checklist has been completed in Completed this year
respect of the current year. [Not included in this example
file]
B5 Page 83 of 565 APM 2022

Comments WP Ref
13 Where a checklist was not completed in the current year explain how
sufficient appropriate evidence concerning the disclosure objectives N/A
has been obtained.
14 Review any other information (including the directors' report) to be

included in the annual report and consider consistency with the Directors' report reviewed. No
financial statements and our understanding of the business. inconsistency noted.
15 Conclude on the overall reasonableness and presentation of the

financial statements and other information included in the annual Yes B1
report.
B5 Page 84 of 565 APM 2022

Manufacturing Company Limited B5.1
Income statement - Final analytical review
2021 2020 Commentary
HK$'000 HK$'000
Revenue 92,096 55,673 Sales have increased due to growth in sound & graphics and WiFi &
Bluetooth and new contracts with some bigger computer suppliers. Analysis
of sales is shown on R1.4. Increased advertising expenditure has also
driven sales growth.
Cost of sales (39,396) (15,979)
Gross profit 57% 52,700 39,694 71% Margin has dropped as there is greater competition in the market. Margins
were cut to win new business
Other gains & losses 241 224 Profit on sale of plant (HK$266)
Forex gains (HK$203) and losses (HK$228k)
Net reversal / (recognition) of impairment losses on trade receivables 56 (75)
Administrative expenses (31,149) (24,116) See below for explanation of increase in administrative expenses.
Finance costs (1,536) (1,444) Interest payable on new group loan (HK$164)
Income tax expense (1,522) (2,116) Reduction due to additional deferred tax provision required in prior year
Profit for the year from continuing operations 11,006 5,088
Loss for the year from discontinued operations (4,762) (1,249) Results of the Memory Stick division which was sold during 2021.
Increase in admin expenses of HK$7m can be analyzed as follows:

Increase in advertising expenditure 2.2 Q7
Faulty card provision 1.2 N3.1
Increase in miscellaneous expenses 1.8 [Not explained as part of this example file]
Other smaller increases 1.8 Including wages, power, motor expense, travelling, computer costs and legal & professional expenses (see C6.1)
7.0
B5.1 Page 85 of 565 APM 2022

Balance sheet - Final analytical review
At 31 December 2021
2021 2020
HK$'000 HK$'000
Non-current assets
Property, plant and equipment 12,153 10,220 Mainly due to revaluation plus additions in year
Right-of-use assets 9,435 9,646
Goodwill & other intangible assets 1,022 1,022
Total non-current assets 22,610 20,888
Current assets
Inventories 10,795 8,547 Increase in inventories was reasonable given increase in turnover. In fact
inventory turnover in the year increased from 6.5 times to 8.5.
(2021 - 92,096/10,795. 2020 - 55,673/8,547)
Trade and other receivables 14,865 12,052 Similarly receivables, whilst increased debtors, debtor days has fallen from
71 to 57. The main customers are good payers as evidenced by work on
subsequent settlement on J3.2.
Note - Debtor days (gross trade receivables from J1)
2021: 14,417/(92,096/365) and
2020: 10,808/(55,673/365)
Amount due from a director 126 58
Cash and bank balances 5,669 42 Loan from parent company of HK$5m received in year
Total current assets 31,455 20,699
Current liabilities
Trade and other payables 9,716 12,057 Payables have fallen as company is profitable and has been paying
suppliers promptly.
Current tax liabilities 1,377 681
Borrowings 83 1,580 Loan from parent used to clear overdraft
Lease liabilities 1,153 875
Derivative financial instrument 76 79
Provisions 1,200 - New provision for faulty cards recall costs in year
13,605 15,272

Total assets less current liabilities 40,460 26,315
B5.1 Page 86 of 565 APM 2022

Share capital 9,975 9,450 New shares issued
Other reserves 2,094 - Includes revaluation of property in year
Reserves 10,640 4,396
Borrowings 2,587 1,681 New loan in year
Loan from parent company 4,274 - New HK$5m loan from parent company in year, included at MV
Lease liabilities 8,953 9,199

Deferred tax 1,937 1,589
17,751 12,469
40,460 26,315
B5.1 Page 87 of 565 APM 2022

Manufacturing Company Limited B6
31 December 2021 AW 1/4
Audit Highlights Report JO 4/4
Intangible Assets
The sale of the Memory Stick division in December 2021 means that the related goodwill has also
disappeared eliminating that particular valuation problem.
The remaining intangible assets are R&D expenditure in respect of all of the company's current products. A
summary of the unamortized expenditure is shown on E4; there are no indications of impairment.
Property Plant & Equipment

The company's warehouse on the Hong Kong Island has been included in the accounts at valuation. This
does not represent a change in accounting policy, the property has previously been carried at fair value,
which was the same as cost. We have a copy of the valuation report on the permanent file. The adequacy of
the report as a basis for incorporating the valuation in the accounts has been considered on F3.1a [not
included in this example file] . There are no problems in this regard.
Title to the warehouse was agreed to the lease on the permanent file. The factory is held under a short term
lease.
The other tests on PPE were carried out as planned with no problems arising. See Section F.
Inventories
There were problems with warehouse inventories as identified at the planning stage. Adjustments were
required for the following (work on I7.4):
- Finished goods despatched from the factory but not recorded as received in the warehouse.
- Goods actually in transit from the factory to the warehouse had not been identified.
These errors arose from a processing backlog in the warehouse which meant that the inventory records
could not be relied upon.
Recommendations concerning these issues have been included in the letter of comment (A6).
There is an overvaluation of component inventory. In the year-end purchases of component G210, the
vendor provided an one-off discount to MCL. However, MCL had not adjusted its FIFO calculation to reflect
the discount since it was not material (both pricing and quantity) and the subsequent purchases resumed to
the original price. The quantified effect of HK$15K is added to B7 as an unadjusted misstatement.
Receivables
Receivables have increased as a result of the increased turnover in the year. However, this has not meant
an increased risk from bad debts and in fact the number of debtor days has fallen from 71 to 57.
Verification has been carried out by circularization supplemented by subsequent cash (J3.1, J3.2 & J3.3).
Assessment has performed on client's expected credit losses calculation by reviewing and testing their
assumptions (J4 & J4.1 [Note: J4.1 not included in this example file] ). Overall no material concern on the
existence and recoverability of receivables.
B6 Highlights Page 88 of 565 APM 2022

Bank and cash
The bank confirmation letter was received and agreed and is filed on K4. There are no other matters arising.
As in previous years cash in hand of HK$7k is not material and has not been considered.
Borrowings
A new loan was taken out in the year and used in part to repay an existing loan. All loan accounts including
the new loan were agreed to the bank letter on K4.
Payables
The work on payables was completed as planned with no problems arising. The planned reliance on
controls in this area was justified. Work on payables are in Section L; control testing performed on L3.1.
Circularization replies and / or supplier statements were available for all the major suppliers and these had
been properly reconciled by the client and appropriate adjustments made. See L3.1, 3.2, 7 and 7.1.
Provisions
The directors have made a provision for the estimated cost of recalling faulty ethernet cards. This has been
reviewed on N3.1

350,000 shares were issued in the year to a new investor Tiffany Wai-yin, the warehouse manager.
Work in this area was completed on O3 as planned and no problems arose.
Income statement
Adjustments were required because of cut-off errors on sales from the warehouse. Because of the
processing problems in the warehouse sales were being recorded in accounts before the goods could be
despatched from the warehouse. Recommendations concerning the problems have been included in the
letter of comment (Nos. 3 and 11 on A6 workings).
Testing in respect of purchases (see R7) and payroll (see R5) proceeded as planned and the reliance on
controls over purchases and payroll was justified.
Related parties
At the planning stage the risk of undisclosed related party transactions was assessed as low. This was
based on the previous operations of the company and our confidence that the directors would have
informed us of any such transactions.
The fact that Mrs. Chan runs a separate business, Chan Computers Limited, was known to us. However, in
the past there were no transactions, balances or other links of any kind between the two businesses and in
terms of Chan Computers Limited that continues to be the case.
A problem arose in that in January this year Chan Computers purchased 100% of the shares capital of Reca
Limited, a customer of MCL. The 100% interest of Mrs. Chan in Chan Computers and Reca Limited means
that Reca Limited is now a related party of MCL. However, as Reca also trades under a trading name, Byte
Size, this fact was not appreciated by neither Mr. or Mrs. Chan.
The relationship was spotted as Reca Limited's accounts function was combined with that of Chan
Computers and now operates from the same address.
Additional procedures were carried out in respect of undisclosed related parties and these were completed
satisfactorily. In addition, as discussed with Mr. & Mrs. Chan and other management, it appeared that the
failure to disclose the relationship with Reca Limited was due to the confusion over the company names
rather than any deliberate attempt to deceive us.

The assertion risk action plan (C8.3) and risk response summary (C8.4) have been updated in respect of
the changed audit approach for related parties, although no change to the overall risk assessment for the
financial statements as a whole was considered necessary. The permanent file information on PAF1.1.1
and the register of related parties on PAF1.5 have also been updated.
Risk
Planned work in response to the identified risks set out on C8.3 was completed satisfactorily. The outcome
of the work has been noted on the schedule. In all cases the results of the work undertaken reduce the audit
risk to an acceptably low level.
Going Concern
The company continues to trade profitably, there are no going concern issues with this company.
Unadjusted misstatements
There is one unadjusted misstatement shown on B7. The amounts are not material and the client has not
processed the adjustments for the reasons noted on B7.
Subsequent events review

A subsequent events review has been undertaken to the date of this report and no matters were identified
that might require adjustment or disclosure in the accounts. See A1.2
Final accounts review

A final review of the accounts is set out on B5.1. The figures align with our understanding of the client and
evidence obtained and there are no unexplained variances.
Justification of audit report
Justification of the audit report is noted on B1. There are no grounds to consider qualification of the opinion.

31-Dec-21 Reviewed by: BL Date: 4/4 B6.1
M0001
SUMMARY OF SIGNIFICANT AUDIT MATTERS
The work undertaken should include the evidence obtained, The conclusion should address any inconsistent
technical references and any discussion with the client. information as part of justifying the conclusion reached.
Ref to
Ref Description of matter C8.2 / Work undertaken Conclusion
C8.3
1 Fraud concerning revenue recognition C8.3.1 Performed tests of controls and substantive work over No issues identified concerning revenue
sales invoice, despatch of goods etc. on R6. recognition.
2 Management override of controls (C8-15) C8.3.2 Reviewed year end journals and estimates for bias on No indications found of any unusual journals,
V2. bias in any accounting estimates or
transactions outside the ordinary course of
Reviewed accounting estimates for biases and consider business.
any indication of fraud. Work on V3.
While performing various audit tests, considered

whether any samples or instances are contrary to
MCL's business, appear unusual or against other audit
evidence obtained.
3 The company is reliant on a relatively small C8.2.1 Discussed with directors as part of subsequent events The directors are happy that they are in
number of products. Technological review. See T2 Test 3 and notes of meeting with client touch with technological developments and
advances could render the company's on T2.1. trends in the market. There is no reasons to
existing products obsolete very quickly. doubt that this will continue.
(PAF 1.1.2)
4 In the past the directors have been very C8.2.2 Discussed with directors as part of subsequent events The directors see no reason for this to
good at spotting opportunities in the market review. (T2 Test 3 and T2.1). change and there are no indications to date
and have also moved out of older that it has.
technologies at the right time. There is no
guarantee that this will continue in the
future. (PAF 1.1.2)
B6.1 Page 91 of 565 APM 2022

Ref to
C8.3
5 The directors are managing the business C8.2.3 Addressed by preliminary (C6.1) and final (B5.1) No particular problems identified, but matter
mainly by reference to the key performance analytical reviews. referred to in letter of comment (A6 - 6)
indicators and are not using the
management accounts to the full. This may
result in focus on too narrow a range of
indicators. (PAF 1.1.2)
6 The company's expansion plans are C8.2.4 Discussed with directors as part of subsequent events The directors have a good relationship with
ambitious and, notwithstanding the review. (T2 tests 2 & 3) the bankers and the company is currently
company's good relationship with its growing in a manageable way.
bankers, could lead to financing problems.
(PAF 1.1.2)
7 What would happen if directors or key staff C8.2.5 Discussed with directors as part of subsequent events Key person insurance is in place but, the
became ill or resigned? (PAF 1.1.2) review. (T2 test 2 & 3) loss of one of the directors would have very
serious implications for the company.
However, there are no indications that this
will occur.
8 The results of the Memory Stick division C8.3.3 Tested management's controls on identifying and Memory Stick division results properly
must be disclosed as a discontinued classifying Memory Stick division transactions in the identified.
operation (C6) ledger correctly. Also selected samples from the
Memory Stick division to checked whether they did not Appropriate disclosures made.
relate to the division.
Considered results of sales and purchases tests on

continuing operations and whether any samples
tested or instances noted relate to the Memory Stick
division.
Completed the disclosure checklist against client's

disclosure made [Note: The disclosure checklist is not
included in this example file] .
B6.1 Page 92 of 565 APM 2022

Ref to
C8.3
9 Non-compliance with health & safety C8.3.5 1. Discussed with directors (N2.1 test 10 and on N3) No apparent breaches of health & safety
legislation (PAF 1.4) 2. Reviewed accident book for material or systematic legislation
problems (N2.1 test 21)
3. Review of the company's minutes on O4
10 Sales invoices may be processed as a sale C8.3.6 1. Reviewed credit notes issued in 2022 for any that Cut-off errors identified and corrected.
this year but the goods will not be delivered relate to 2021 (R2.1 test 8(a)). Work on R6.5.
until next year (C9) 2. Followed-up unprocessed picking lists and despatch
notes recorded at the inventory count. (R2.1 test 8(b)).
Work on R6.2.
11 Why the increase in advertising C8.3.7 Advertising expenditure analyzed (test 20 of R2.1 and Deliberate decision by directors.
expenditure (C6)? work on Q7).
Expenditure supported by invoices and
Agreed expenditure to supplier invoices. related adverts seen in relevant directories
and magazines.
Confirmed nature of expenditure by review of adverts
placed in directories and magazines.
12 What is the increase in miscellaneous C8.3.8 Miscellaneous expenses analyzed (R2.1 test 20, Q20). Analyzed on Q20. All appear reasonable.
expenditure (C6)?
Audit tests on purchases covered miscellaneous Audit tests on purchases did not note
expenses. See R7. irregularities on miscellaneous expenses.
13 The overall gross profit margin has fallen, C8.3.9 Performed audit tests on sales and purchases Fall in gross margin explained (B5.1) -
but the fall is bigger than expected (C6) respectively (R6 and R7). Margin has dropped as there is greater
competition in the market. Margins were cut
Discussed with directors as part of final analytical to win new business.
review (B5.1)
B6.1 Page 93 of 565 APM 2022

Ref to
C8.3
14 Why the large increase in receivables C8.3.10 Analytical procedures on C6.2 plus review of Results satisfactory, receivables appear
(C6)? subsequent settlement on J3.2. recoverable. Increase due to increased
monthly sales, particularly towards year end.
15 Cut-off between the factory and the C8.3.11 Checked the sequence of job numbers despatched Errors found and adjusted.
warehouse appears to be wrong (C9) from the factory and ensured that all were received at Recommendations on systems added to A6-
the warehouse. (I2 test 22.1, I7.4) 4
16 The inventory records for components C8.3.12 Tested component costs to specifically consider There were small differences found on I5.2;
values on a FIFO basis (PAF 3.4 - G5) whether the FIFO inventory costing was applied. (I2 test however, the effect is not material and
12). Work on I5.1, 6.1 and 7.1. considered as an isolated event. Added to
B7 as an unadjusted misstatement.
17 Why the large increase in machinery C8.3.13 Analyzed machinery maintenance costs. R2.1 Test 20, Results satisfactory: Two major machines
maintenance costs given the investment in Q22. were out of order frequently - maintenance
new plant in the year (C6) costs increased accordingly.
Audit tests on purchases on R7 covered machinery and
maintenance costs.
18 Why the fall in trade payables? These C8.3.14 Tested increased sample for circularization / reviewed Results satisfactory. Have fallen as paying
would be expected to increase given supplier statement reconciliations (L2.1 test 7, L7, L7.1) suppliers faster as explained on L3.1
increased production levels(C6)
Review all purchase ledger invoices processed in
January 2022 for any relating to 2021 that have not
already been accrued.
Test the operating effectiveness on the posting of

purchases to ledger, and the preparation and review of
supplier reconciliation.
See L3.1 for summary of work.
B6.1 Page 94 of 565 APM 2022

Ref to
C8.3
19 Depreciation rates may be too high C8.3.15 Reviewed the gains and losses on disposal of plant and Depreciation rates may be slightly high,
resulting in consistent gains on disposal of equipment for the year (F4.3) however, the effect is not material.
plant (C6.1)
Review management's assessment of UEL (F4.4a)
20 A provision for recall costs is required C8.3.16 Reviewed the need for and the client's estimation of the A provision is required and the method for
(C6.1) provision. (N3.1) determining the estimate is appropriate and
the amount appears reasonable.
21 A provision may be required following a fire C8.3.17 Reviewed the need for and the client's estimation of any No provision required based on advice from
in a computer that included one of MCL's provision. (N2.1 tests 14a) company's lawyers filed on T2.2.
WiFi Express Extenders (O4)
22 Revaluation of property C8.3.18 Programme for reliance on management's expert Valuation is assessed as reasonable.
completed (filed as F3.1)
Reviewed surveyor's valuation report and test the

assumptions used on F3.1a [not included in this
example file]
23 Appropriateness of discount rate applied to C8.3.19 Reviewed the client's basis of calculation including Rate used by client is assessed as
loan from parent external sources for the discount rate (M5) reasonable.
24 What is the amount owed by the C8.3.20 Addressed by J2.1 test 13. Performed vouching on J5.1 Identified as finished goods that have been
warehouse (C6)? to test the nature of the balance. despatched by the factory but which had not
been received in the warehouse at the time
of the stock take (J5.1). Moved to finished
goods stock by audit journal 4 on A3.
B6.1 Page 95 of 565 APM 2022

Ref to
C8.3
25 Existence of warehouse stocks C8.3.21 Followed-up items counted at the stock take attendance Results satisfactory. No indication of either
on I4.4. over or under statement.
26 Undisclosed related party transactions (C9) C8.3.22 Programme on related parties which included specific No suggestion of deception.
procedures required by HKSA 550 completed. Appropriate disclosures made in accounts
(R8.1) Deficiencies in internal control identified and
included in letter of comment. See A6 - 10.
B6.1 Page 96 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 4/4 B6.2
M0001
EVALUATION OF ACCOUNTING ESTIMATES
The work undertaken on estimates identified on C4.1 should be summarised and evaluated on this form
(Insert description and ref to C4.1) (Insert description and ref to C4.1) (Insert description and ref to C4.1)
Evaluation procedures Depreciation Amortization Valuation of property
1 The assessments of the risks of material misstatement at

the assertion level remain appropriate? Yes Yes Yes
2 Possible indicators of possible management bias have been

identified? (V3) None identified None identified None identified
3 Management’s decisions relating to the recognition,

measurement, presentation and disclosure of the accounting
estimate are in accordance with the applicable financial Yes Yes Yes
4 Sufficient appropriate audit evidence has been obtained,

taking into account all relevant audit evidence obtained Yes. Reviewed of valuer's work on
Yes. Re-calculation of selected PPE
whether corroborative or contradictory? Yes. Re-calculation performed on E4 F3.1a [Not included in this example
performed on F4.1
file]
5 Management has addressed estimation uncertainty by

including appropriate disclosure in the financial statements, Yes - basis for estimate is clear. Yes - basis for estimate is clear. Yes - basis for estimate is clear.
including those necessary to achieve fair presentation, in Accounting policies applied disclosed Accounting policies applied disclosed Accounting policies applied disclosed
accordance with the applicable financial reporting in note 3 of the financial statements. in note 3 of the financial statements. in note 3 of the financial statements.
framework?
6 Sufficient appropriate audit evidence has been obtained that Yes. Yes. Yes.
the disclosures relating to the accounting estimate are free (1) Amount disclosed in the financial (1) Amount disclosed in the financial (1) Amount disclosed in the financial
of material misstatement, other than those related to statements agreed to audit work statements agreed to audit work statements agreed to audit work
estimation uncertainty? performed. performed. performed.
(2) Disclosure checklist completed (2) Disclosure checklist completed (2) Disclosure checklist completed
against management's disclosure against management's disclosure [Not against management's disclosure [Not
[Not included in this example file] included in this example file] included in this example file]
B6.2 Page 97 of 565 APM 2022

(Insert description and ref to C4.1) (Insert description and ref to C4.1) (Insert description and ref to C4.1)
Trade receivables - allowance for

Evaluation procedures Recall provision Claim re faulty component
collectability
1 The assessments of the risks of material misstatement at
the assertion level remain appropriate?
Yes Yes Yes
2 Possible indicators of possible management bias have been

identified? (V3)
None identified None identified None identified
3 Management’s decisions relating to the recognition,

measurement, presentation and disclosure of the accounting Yes. The legal advisor considered
estimate are in accordance with the applicable financial highly unlikely that any claim would
reporting framework? succeed (T2.2). There have been no
Yes Yes new developments since the date of
the letter. On this basis it was agreed
that no disclosure of the matter was
required in the accounts.
4 Sufficient appropriate audit evidence has been obtained, Yes. The matter discussed with
taking into account all relevant audit evidence obtained Yes. Work performed on J3.2, J4,
management and assessed against
whether corroborative or contradictory? J4.1 [J4.1 not included in this Yes. Work performed on N3.1.
legal advice obtained (N3, T2.1 and
example file]
T2.2)
5 Management has addressed estimation uncertainty by
including appropriate disclosure in the financial statements, Yes - basis for estimate is clear.
Yes - basis for estimate is clear.
including those necessary to achieve fair presentation, in Relevant disclosure on the recall No disclosure of the matter is required
Accounting policies applied disclosed
accordance with the applicable financial reporting provision disclosed in note 21 of the in the accounts. See above.
in note 3 of the financial statements.
framework? financial statements.
6 Sufficient appropriate audit evidence has been obtained that Yes. Yes.
the disclosures relating to the accounting estimate are free (1) Amount disclosed in the financial (1) Amount disclosed in the financial
of material misstatement, other than those related to statements agreed to audit work statements agreed to audit work
estimation uncertainty? performed. performed. No disclosure of the matter is required
in the accounts. See above.
(2) Disclosure checklist completed (2) Disclosure checklist completed
against management's disclosure against management's disclosure [Not
[Not included in this example file] included in this example file]
B6.2 Page 98 of 565 APM 2022

M0001
UNADJUSTED MISSTATEMENTS
Final materiality: HK$ 1,120k Considered clearly trivial if below: HK$ 10k
Extrapolated errors Actual errors Profit and Balance

Narrative
loss sheet
DR CR DR CR
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
1 Inventory - finished goods 1,044 1,044

Cost of sales 1,044 1,044
Being stock omitted from finished goods listings (I7.4)
Agreed with AL - see Jnl 3 on A3
2 Inventory - finished goods 1,750 1,750

Other receivables 1,750 (1,750)
Being goods in transit from factory to warehouse (J5.1)
3 Cost of sales 15 (15)

Inventory 15 (15)
Being overvaluation of components (I5.1).
4 Cost of sales 56 (56)

Net reversal of impairment loss on trade receivables 56 56
Being reclassification of doubtful debt expense (R1.5) from cost of sales to a separate line item on P/L
Total of potential adjustments (15) (15)
Conclusion
1. The client has been asked to adjust for all misstatements noted above.
2. Where the client has not adjusted for misstatements drawn to their attention, the letter of representation explains the directors’
reasons for not adjusting as required by HKSA 450.14.
3. None of the potential adjustments listed above are considered to be indicative of fraud.
4. None of the potential adjustments listed above individually or in total indicate that the overall strategy and audit plan need to be
revised.
5. The effect of the unadjusted misstatements on our audit report is not material.
The client does not intend to adjust #3 because the amounts are not material for the financial statements as a whole. It is
recognized as unadjusted misstatements and included in the representation letter on A5.
B7 Page 99 of 565 APM 2022

M0001
Points for partner
1 J3.3. Reca Limited appears to be an Discussed with BL [audit partner] and agreed that undisclosed
undisclosed related party. related parties is a high risk area. C8.3 and C8.4 have been
updated to this effect and related parties programme in section
When looking at remittance advices it was R completed.
noted that Reca has the same business
address as Chan Computers Limited (owned
by Mrs. Chan). On checking the website for
Chan Computers it was discovered that Reca
Limited has become a wholly owned
subsidiary of Chan Computers since January
2021.
As both Chan Computers Limited and Reca

Limited are now controlled by Mrs. Chan,
under HKAS 24 Reca Limited is a related
party of MCL.
ŜŕũŦġųŦŮŢŪůŪůŨġŪŵŦŮŴġŪůŤŭŶťŦťġŪůġőŰŪůŵŴġŧŰųġűŢųŵůŦųġŢųŦġůŰŵġųŦűųŰťŶŤŦťġŪůġŵũŪŴġŤŢŴŦġŴŵŶťźįŞ
B9 Page 100 of 565 APM 2022

M0001
Points forward to next year
1. Review results of weekly inventory counts at the factory.
2. Discuss any improvements to the warehouse systems that have been implemented
For details, please refer to (A6)
B10 Page 101 of 565 APM 2022

Manufacturing Company Limited B12
31 December 2021 JO
All cleared
Manager Review 4/4
JO
21/4
1 Draft accounts to complete in due course. Done
2 Have the draft tax computations been discussed Yes, done
with the client?
3 Disclosure checklist to be completed. Done [Not included in this example file]
4 A number of potential management letter points Done
have been identified. Please draft
recommendations to add to the letter of comment.
5 Has the draft letter of representation been Yes, done

discussed with the client?
6 Please discuss the unadjusted misstatements with Done
AL and conclude on the schedule.
7 C8.3. Please update the outcome column for all Done
identified risks.
8 E2.1&2. Complete all tests. Some are blank at the Done
moment.
9 E4. What does the expenditure of $497k Schedules added at E4.1&2
comprise? How have we audited this?
10 F3.2. Did the surveyors split the value of land and No, in fact the report says that it is not practicable to
buildings in the valuation? split the valuation. Copy of the report placed on PAF
11 I2.3. Risk was assessed as high for finished goods. Schedule amended and sample tested
Please amend the sample calculation accordingly
and test any additional items.
12 Have we followed-up on the cut-off information on Now referenced. See work on R6.2 and I7.4
I4.4?
13 J3.2 Have we checked remittance advices when Cash received checked to remittance advices and
looking at after date cash? This is essential as it documented
confirms allocation of cash in the ledger and hence
the ageing.
14 Have we obtained directors loan certificates? Yes, see J5.3
15 Has the bank confirmation been received yet? Now received see K4
Please chase.
16 L3.1 Please add an explanation as to why trade Done
payables have fallen when we were expecting an
increase.
[Remainder of manager review is not produced]
B12 Page 102 of 565 APM 2022

31-Dec-21 C
M0001
C AUDIT PLANNING
1 Planning memorandum C1
2 Preliminary engagement activities
2.1 Independence questionnaire
2.2 Accounting & tax compliance: safeguards applied
3 Audit strategy
3.1 General
3.2 Group audits
4 Understanding the entity C4
4.1 Review of accounting estimates C4.1
5 Internal controls C5
5.1 Review of design & implementation of internal controls C5.1
5.2 Internal control questionnaire C5.2
6 Preliminary analytical procedures C6
7 Materiality summary C7
7.1 Determining materiality C7.1
7.2 Materiality summary - group components
8 Risk assessment C8
8.1 Detailed risk assessment C8.1
8.2 Financial statement risk action plan C8.2
8.3 Assertion risk action plan C8.3
8.4 Risk response summary C8.4
9 Notes of engagement team planning meeting C9
9.1 Fraud risk factors
9.2 Engagement team planning meeting checklist
Ci Page 103 of 565 APM 2022

31-Dec-21 C
M0001
C AUDIT PLANNING
10 Other planning issues C10
11 Audit administration
12 Engagement quality
13 Other planning schedules
13.1 Accountancy work planning
13.2 Sample size planning
13.3 Assignment planning – timetable
13.4 Budget and performance summary
13.5 Job progress report
Capp C Section optional programmes
01 Checklist for reporting exemptions (company incorporated in Hong Kong)
02 Requirements to prepare annual consolidated financial statements (company incorporated in

Hong Kong)
03 Requirements to prepare business review in directors' report (company incorporated in Hong Capp03
Kong) [not included in this example file]
Ci Page 104 of 565 APM 2022

31-Dec-21 C1
M0001
PLANNING MEMORANDUM
The purpose of this memorandum is to document fully the audit strategy and plan such that the audit can be performed in
an effective manner and in accordance with the HKSAs. In each section issues relevant to the planning should be
recorded. These can be either free form notes, a reference to the relevant checklist or a combination of both.
Where the company is a parent preparing group accounts the memorandum should address both single company and
group perspectives.
See the guidance notes for further information on the completion of this form.
1. Approval of planning
I confirm that:
1 The preconditions for an audit are present and there is a common understanding of the terms of the audit
engagement with management / those charged with governance .
2 An overall strategy has been established for the audit.
3 An audit plan has been developed in order to reduce risk to an acceptably low level.
4 The planned audit procedures have been determined having regard to the requirements of the HKSAs, relevant
professional bodies, legislation, regulations, the terms of the audit engagement & reporting requirements, and
where appropriate, the auditor's professional judgment.
5 The audit has been planned effectively, and that it is adequate to meet the financial statement assertions as stated
in the HKSAs.
6 In particular the risks of material misstatement in the financial statements due to fraud have been considered.
7 The overall strategy and audit plan have been properly documented in a planning memorandum.
8 The audit has been planned having regard to the relevant ethical requirements.
9 The audit has been planned with an attitude of professional skepticism recognizing that circumstances may exist
that cause the financial statements to be materially misstated.
10 Audit procedures have been designed that are appropriate in the circumstances for the purpose of obtaining
sufficient appropriate audit evidence.
11 Based on the anticipated results the initial materiality that has been determined is appropriate.
12 Where applicable:
a) Sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the
consolidation process and the financial information of the components on which to base the group audit
opinion.
b) The group engagement team will be able to be involved in the work of the component auditors to the extent
necessary to obtain sufficient appropriate audit evidence.
13 The engagement team collectively has the appropriate capabilities, competence and time to perform the audit
engagement in accordance with professional standards and regulatory and legal requirements, and to enable an
auditor’s report that is appropriate in the circumstances to be issued.
14 The staff assigned have been adequately briefed.
B Lee 11 March 2022

C1 Page 105 of 565 APM 2022

Review of planning at completion stage
I confirm that:
1. The overall strategy and audit plan were updated as necessary during the course of the audit.
2. All issues arising from the audit plan have been addressed on the file.
3. The audit plan has been cross-referenced to where the relevant work was performed.
4. The assessments of materiality and risk have been reviewed and amended where necessary.
B Lee 4 April 2022

Audit team
I confirm that I have read and understood the audit plan (Section C). Initials Date
Audit engagement Bob Lee BL 11/3/22
partner
2nd Partner
Manager Jeffrey Ong JO 11/3/22
Senior An Wang AW 11/3/22
Daniel Tsui DT 11/03/22
2. Preliminary engagement activities C2 Completed - YES / NO

2.1 Acceptance / continuance procedures
This is a recurring audit with no changes that impact on our ability to act. This was confirmed by completion of the
independence questionnaire which has been filed on the PAF (see PAF 1.9).
The firm prepares financial statements based on information in the client-approved trial balance and preparing related
notes based on client-approved records. The affairs of the client are routine, there are no contentious areas. There is
therefore no significant threat to the firm's independence from the provision of tax and accounting services and specific
safeguards are not required. The firm assists the client in the routine exercise of preparing the tax return and no tax
advisory services are provided.
Raymond Chan and Adeline Leung are considered to be informed management in respect of routine accounting and tax
matters. Our review processes are considered to provide sufficient safeguard in respect of the self review threat arising.
There are no events which cast doubt on the integrity of management and the firm has sufficient resources to carry out
the audit.
C1 Page 106 of 565 APM 2022

2.2 Scope of engagement
The engagement comprises an audit of HKFRS statutory accounts prepared under the Companies Ordinance (Cap.
622); there are no imposed limitations of scope.
A new engagement letter with standard terms of business was obtained on 7 March 2022 and filed on PAF 2.1 [Not
included in this example file] . At the time the directors were advised of the changes and reminded of their responsibilities.
3. Strategic considerations
3.1 General C3.1 Completed - YES / NO
The financial statements are prepared under the Companies Ordinance (Cap. 622) and HKFRS, as applied by the
management in their daily accounting and bookkeeping. There are no specific industry requirements.
The audit work will be performed at the company's offices attached to the warehouse in Hong Kong with visits to the
Kowloon factory; Adeline Leung and Adrian Walker are based at the offices; Raymond Chan is based at the factory.
There have been no changes in key personnel in the year.
Review of the design and implementation of controls has identified weaknesses in procedures for recording transfers of
inventory between factory and warehouse; these are set out on C8.3-11 together with the audit approach to be adopted.
The audit work will be performed by An Wang, who is a qualified senior, with assistance from Daniel Tsui; no additional
resources will be required. The audit work on site should be finished by the end of March; the client would like the
financial statements signed off by the end of April although there is no external deadline.
3.2 Group Audits C3.2 Completed - YES / NO

Not applicable. This is not a group audit engagement.
4. Understanding the entity

4.1 Background information C4: 4.1 Completed - YES / NO
A new Know Your Client checklist has been completed for 2021 and filed on PAF 3.1.
A list of known related parties is included on 1.5 in the PAF. This has not changed from previous year.
There are no points forward from 2020.
The following matters were noted from a review of the correspondence file:
1. The sale of the Memory Stick division went through in December just before the year-end. The results of the division
will need to be shown separately as discontinued.
2. Shares were issued to the parent company during the year. This has no impact on the control of the company.
3. There are a couple of potential claims against the company that must be investigated and provision made where
necessary.
Points 1 and 3 are addressed on C8.3.
The client's inventory count was attended on 31 December 2021 at both the factory and the warehouse. There were no
particular problems arising in relation to the mechanics of the count itself (see I4 for details). However, a number of
issues were found at the warehouse that suggest there may be problems with cut-off. These are explained on I4.4 and
also appear as risks on C8.3-11.
C1 Page 107 of 565 APM 2022

4.2 Applicable financial reporting framework and accounting policies C4: 4.2 Completed - YES / NO
1.6 on the PAF sets out all significant accounting policies; there are no changes from the previous year. There are no
policies where the applications create a risk of material error in the financial statements.
The applicable accounting framework is HKFRS.
4.3 Laws and regulations C4: 4.3 Completed - YES / NO

The register of laws and regulations on 1.4 of the PAF has been reviewed; there are no changes. Other than health &
safety (see C8.3 - 5), there are none where non-compliance could have a material impact on the financial statements.
4.4 Evaluation of control environment C4: 4.4 Completed - YES / NO

Section 4.4 on C4 completed; the control environment is strong. Management are highly involved in the day-to-day
operations and business.
4.5 Evaluation of the entity's risk assessment process C4: 4.5 Completed - YES / NO
Section 4.5 of C4 completed.
Business risk has been discussed with the directors and is set out on PAF 1.1.2. The directors have no formal
procedures for the identification of business risks and do not carry out a formal risk assessment. However, the directors
do know the business as they are very involved in the day-to-day operations and business. This is not unusual for a
business of this size and nature.
4.6 Evaluation of the entity's process to monitor the system of internal control C4: 4.6 Completed - YES / NO
Section 4.6 of C4 completed.
Understanding of the entity's system and monitoring is performed on PAF3.4. Considered them appropriate to the entity's
circumstances.
4.7 Evaluation of the entity's information system and communication C4: 4.7 Completed - YES / NO
Section 4.7 of C4 completed. Appropriate system.
Monthly management accounts are prepared by Adrian Walker from a standard report on the A+ package. Routine/ non-
routine journals are approved by Adeline Leung.
Adeline Leung is an informed management in respect of routine accounting and tax compliance services.
The process is considered to support the preparation of the financial statements in accordance with HKFRS.
See PAF 3.4 for Systems Notes.
4.8 Accounting estimates C4: 4.8 Completed - YES / NO

Section 4.8 on C4 completed; accounting estimates reviewed on C4.1
C1 Page 108 of 565 APM 2022

5. Review of design and implementation of internal controls C5 Completed - YES / NO
The client's controls over purchases at the factory in Kowloon are good and the approach will be to place reliance on
those controls on purchases (S3 - 1 & 2 & 6) to reduce the detailed testing undertaken on overstatement of purchases
and understatement of liabilities.
The controls over sales and the inventory held in the warehouse at Hong Kong are not so effective and no reliance will be
placed on their operation. In fact, as already noted weaknesses in the systems at the warehouse mean there is a risk of
cut-off errors in relation to sales and the recording of inventories. These are addressed on C8.3-6.
6. Preliminary analytical procedures C6 Completed - YES / NO

Performed using client's management accounts. See C6 and C6.1 for results.
Matters identified from the preliminary analytical procedures requiring further investigation and have been added to C8.3.
ADAs not be used.
7. Materiality and what is clearly trivial C7 Completed - YES / NO

Materiality is set at HK$1,120,000 as set out on C7.1.
Performance materiality for low risk areas is set at HK$933,000
The amount below which matters are considered trivial is set at HK$10,000 (1% of materiality rounded down).
8. Risk Assessment C8 Completed - YES / NO

8.1 Financial statement level risk/response C8.2 Completed - YES / NO
Financial statement level risks are set out on C8.2.
The overall risk assessment at the financial statement level is: Low* Medium* High*
* Delete as appropriate
8.2 Assertion level risk/response C8.3 Completed - YES / NO

The main risks and responses are set out on C8.3. These primarily relate to inventories and sales cut-off and risks have
been assessed as high in these areas.
Revenue is recognized when goods are despatched and poor controls over this area mean that there is a high risk of
error as explained on C8.3-6.
Management override of controls has been identified as a high risk as required by HKSA 240 and is addressed on C8.3-
2.
As noted on PAF 1.1.1(16), the directors regard the risk of fraud to be low. They have therefore not undertaken any
formal assessment. According to Adeline Leung the directors are not aware of any actual or suspected fraud.
C1 Page 109 of 565 APM 2022

9. Engagement team planning meeting C9.2 Completed - YES / NO
The audit team is set out above. AW is a qualified senior and has experience in manufacturing clients similar to MCL. DT
is a trainee and this job will provide good experience of a manufacturing company for him.
Points arising from the planning meeting are noted on C9. The fraud risk factors on C9.1 were reviewed; none were
considered to apply and therefore C9.1 has not been completed for the file.
10. Other planning issues C10 Completed - YES / NO

C10 has been completed; there were no points arising that had not already been reflected in audit planning or which
required a change to the audit approach.
11. Audit administration C11 Completed - YES / NO

A meeting to discuss the audit was held with Raymond Chan and Adeline Leung on 4 March. This planning memorandum
and supporting schedules incorporates notes from that meeting. It was agreed with Adeline Leung that on site work
would start on 17 March and finish on 28 March. The client would like the accounts signed off by the end of April, but
there is no particular reason for this other than wanting to get them out of the way!
12. Engagement quality C12 Completed - YES / NO

There is no requirement for second partner or external review as MCL is not listed and has not been assessed as a high
risk audit.
C1 Page 110 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 11/3 C4
M0001
UNDERSTANDING THE ENTITY

Comments WP Ref
4.1. Client background
1 Confirm that there is a completed copy of the 'Know your client New checklist completed this
checklist' on the permanent file (PAF04). PAF 1.3
year
2 Where the checklist was completed in an earlier year review its
completion with the client and update the information on the Completed this year
permanent file as necessary.
3 Ensure that the details of related parties and transactions on the

permanent file (PAF06) have been reviewed and updated. Done PAF 1.5
4 Review points forward schedule from previous year (B10 on previous None. No points forwarded
file). File on current year's working paper file. from previous year.
5 Review correspondence file and note relevant points arising during
the year. Points noted on C1
4.2 Applicable financial reporting framework and accounting policies
1 Ensure that the review of significant accounting policies on the

permanent file (PAF07) has been updated. No changes in policies PAF 1.6
2 Ensure that the questions relating to accounting policies in the

financial reporting section of the Know Your Client Checklist (PAF04) Done PAF 1.3
have been addressed and updated.
3 Ensure that an understanding of reasons for any changes to
accounting policies is obtained and the Know Your Client Checklist No changes in policies
(PAF04) has been updated.
4.3. Laws and regulations
1 Ensure that in determining our overall audit approach that we
consider the effects of non-compliance with relevant laws and Health and safety risks noted
C8.3-5
regulations. on C8.3-5
2 Ensure that the register of significant laws and regulations contained

on the permanent file (PAF05) is up-to-date. No changes PAF 1.4
C4 Page 111 of 565 APM 2022

Comments WP Ref
4.4 Evaluation of control environment
The evaluation of the control environment is based on the understanding
obtained on PAF04 .
1 Evaluate whether management, with the oversight of those charged Yes. Our observations and
with governance, has created and maintained a culture of honesty evaluation:
and ethical behavior. (1) Management consistently
reinforce the need for safety
and ethical standards through
daily communication with
employees. We verified this
through interview with two
warehouse staff on 10 March
who confirmed the message
delivered by management
and agreed that management
act as an ethics role model for
them to follow.
(2) Management would not
tolerate improper behavior.
According to Adeline Leung, a
new employee was fired in
Feb-21 after being caught
abusing a paid sick-leave. We
verified this incident by
reviewing the HR record and
noted detailed disciplinary
procedure was undertaken
before directors' conclusion
on the staff dismissal.
2 Evaluate whether the control environment provides an appropriate Yes. See understanding
foundation for the other components of the entity’s system of internal obtained in PAF1.1.1 and
control considering the nature and complexity of the entity. PAF 3.4. Also see the
PAF1.1.1
evaluation to control
PAF3.4
environment documented in
4.4(1) above.
3 Evaluate whether control deficiencies identified in the control Limited and confined
environment undermine the other components of the entity’s system deficiencies noted on cut-off
of internal control. to sales and the recording of
inventories. Added as a high
risk in C8.3-6 and 21. Not
expected to undermine other
components of the entity's
system of internal control.
C4 Page 112 of 565 APM 2022

Comments WP Ref
4.5 Evaluation of the entity's risk assessment process
The evaluation of the entity's risk assessment process is based on the
understanding obtained on PAF04 .
1 Evaluate whether the entity’s risk assessment process is appropriate
to the entity’s circumstances considering the nature and complexity of The directors have no formal
the entity. risk assessment process but
they know the business and
PAF1.1.1
are very involved in the day-
(15)
to-day operations and
business, as noted in our
C8.1
communication with them.
(14.1)
This is not unusual for a
business of this size and
nature.
Note: Whether the entity’s risk assessment process is appropriate to

the entity ’s circumstances considering the nature and complexity of
the entity is a matter of the auditor’s professional judgment.
4.6 Evaluation of the entity's process to monitor the system of internal

control
The evaluation of the entity's process to monitor the system of internal
control is based on the understanding obtained on PAF04 .
1 Evaluate whether the entity ’ s process for monitoring the system of Understanding of the entity's
internal control is appropriate to the entity ’ s circumstances system of internal control and
considering the nature and complexity of the entity. the monitoring is performed
Note: The auditor’s evaluation of the appropriateness of the entity ’s on PAF 3.4. Considered them PAF 3.4
process to monitor the system of internal control is based on the appropriate to MCL's size and
auditor’s understanding of the entity’s process to monitor the system nature.
of internal control.
4.7 Evaluation of the entity's information system and communication
The evaluation of the entity's information system and communication is

based on the understanding obtained on PAF04 .
1 Evaluate whether the entity’s information system and communication Monthly management
appropriately support the preparation of the entity ’ s financial accounts are prepared by
statements in accordance with the applicable financial reporting Adrian Walker from a
framework. standard report on the A+
package. Routine/ non-
routine journals are approved
by Adeline Leung, who is an
informed management and
very experienced in
PAF 3.4 -
accounting and taxation. Our
O1 to O9
understanding, evaluation
and testing on PAF3.4 and S3
S3
show that the process is able
to support the preparation of
financial statements under
HKFRS and appropriate to
the size and nature of MCL.
C4 Page 113 of 565 APM 2022

Comments WP Ref
Note: In larger, more complex entities, information the auditor may
consider when understanding the entity’s communication may come
from policy manuals and financial reporting manuals. In less complex
entities, communication may be less structured (e.g., formal manuals
may not be used) due to fewer levels of responsibility and
management’s greater visibility and availability.
4.8 Accounting estimates

1 Ensure that the permanent file (PAF13) documents sufficient
understanding of the entity and its environment, including internal
control, to identify and assess risk in relation to accounting estimates, Included. PAF 1.7
including fair value accounting estimates, made by the entity.
2 Review the outcome of accounting estimates included in the prior

period; or where applicable, their subsequent re-estimation for the Completed. C4.1
current period.
3 Consider whether specialized skills or knowledge in relation to an

accounting estimates are required in order to: C4.1
Specialist required to aid in
a) identify and assess the risks of material misstatement; valuation of building -
management's expert.
b) design and perform audit procedures to respond to those risks;
Otherwise not considered
or
necessary.
c) evaluate the audit evidence obtained.
4 Assess the risk of material misstatement of each accounting estimate
and related disclosures at the assertion level, assessing separately
C4.1
inherent and control risk, by considering the following:
a) The degree to which the accounting estimate is subject to

estimation uncertainty.
b) The degree to which the following are affected by complexity,
subjectivity, or other inherent risk factors: See C4.1
i) The selection and application of the method, assumptions and

data in making the accounting estimate; or
ii) the selection of management ’ s point estimate and related

disclosures for inclusion in the financial statements.
5 Based on the above risk assessment specify the audit approach for
each accounting estimate. Consider the following: C4.1
a) Reference to a tailored version of the D3 work programme

(specify where filed ). See C4.1
b) Specifying the procedures to be undertaken and where they will

be recorded where D3 is not used. See C4.1
c) Recording assertion level risks, other than those assessed as

low, on C8.3 to maintain the completeness of this schedule. Included C8.3
C4 Page 114 of 565 APM 2022

Comments WP Ref
HKSA 315 (Revised 2019) requires an understanding of the components of the entity's system of internal control to be
obtained. The components of an entity's system of internal control are:
- The control environment;
- The entity's risk assessment process;
- The entity's process to monitor the system of internal control;
- The entity's information system and communication;
- Control activities.
In this schedule, points 4.4 to 4.7 only cover the evaluation of certain controls specified in HKSA 315 (Revised 2019),
while PAF04 provides assistance to obtain a relevant understanding over them. If either C4 or PAF04 is not used, it is
still necessary to obtain an understanding of, evaluate the design of, and determine implementation of certain controls
specified in HKSA 315 (Revised 2019) and document this in the audit file.
HKSA 315 (Revised 2019) also includes specific requirements where the auditor identifies risks of material
misstatement that management has failed to identify. These are addressed by C8 point 4.
C4 Page 115 of 565 APM 2022

Manufacturing Company Limited Prepared by: AW Date: 10/3
31-Dec-21 Reviewed by: JO Date: 11/3 C4.1
M0001
REVIEW OF ACCOUNTING ESTIMATES
In this APM, a risk assessed as a high risk equates to a significant risk per the HKSAs.
Overall assessment of risk of

Use of Accounting Estimate Work
Assessment of inherent risk Assessment of control risk material misstatement and audit
Accounting estimate Outcome of previous year Programme (D3)
(Note 1) (Note 2) approach in response to that risk
(Note 4)
(Note 3)
1 Depreciation The outcome of the previous year's MEDIUM HIGH - controls not tested. MEDIUM No
estimate was reviewed and no Depreciation rates are not complicated.
significant variations in assumptions or However, profit on disposal in last 2 years A wholly substantive approach is most Risk of over-depreciation added to C8.3- This estimate is not complex and
indicators of bias were identified. The suggests the risk of over depreciation. appropriate taking into account: 15. assessment on management's UEL
previous estimate was found to be Also, the amount is material (HK$2.7m) (1) the relatively simplicity of the method performed on F4.4a. Hence, D3 is not
reasonable. and is over OM. used by management Rates to be reviewed as part of standard used.
[Review not included in example file] (2) the nature and availability of the data procedures on PPE. Also review the
While there is subjectivity in determining used reasonableness of management's UEL
the useful economic life (UEL), assessment.
management review the UEL annually
based on historical and latest PPE
usage, maintenance incurred, remaining
period of the warranty, the UEL
suggested by the supplier and the latest
technology/machine models in the
market.
See F4.4a for management's UEL

assessment and our review [Not
included in this example file] . We
consider management's review on PPE
UEL has reduced the subjectivity of
depreciation.
There has not been any significant

change in client's use of PPE or expected
UEL.
C4.1 Page 116 of 565 APM 2022

(Note 4)
(Note 3)
2 Amortization The outcome of the previous year's MEDIUM HIGH - controls not tested. MEDIUM No
estimate was reviewed and no
significant variations in assumptions or The company amortizes development A wholly substantive approach is most Review of estimated useful life. - The nature of amortization is straight
indicators of bias were identified. The expenditure over 12 years. This seems appropriate taking into account: forward and management has not
previous estimate was found to be long for IT products world but the (1) the relatively simplicity of the method The amount is not material (HK$147K) changed the method of estimation.
reasonable. company is still selling the relevant used by management hence the risk is not added to C8.3.
[Review not included in example file] products to which the expenditure relates. (2) the nature and availability of the data - The review of UEL of development
Also, management reviews the UEL used expenditures, and whether the
policy annually and we noted the review (3) controls are not designed to address expenditures are properly capitalized, are
is comprehensive and had considered the risk of management bias performed on E4, E4.1 and E4.2 using
internal and external factors to support tailored procedures, so D3 is not utilized.
the use of 12 years UEL [Review work
not included] , hence the subjectivity has
reduced.
There has not been any significant

change in use of intangibles or expected
UEL.
Related disclosures are relatively simple.
3 Valuation of property There have not been any indicators that HIGH HIGH - controls not tested. A wholly HIGH Yes
the value in the PY was inappropriate - substantive approach will apply to assess
no sales of similar properties to There is considerable estimation the valuation of management's expert. Risk of revaluation of property added to The assessment of property valuation
compare with. uncertainty in the assumptions used in C8.3-18. including assumptions and judgments
the valuation. Management makes use of used by the expert is assessed on F3.1a
an independent expert to undertake the Review of surveyors work as a [Note: F3.1a not included in this example
valuation. management appointed expert. file] .
Related disclosures are not complex but Given that the valuation is material and
require some effort to prepare. significant to the client, D3 is used and
filed on F2.5 to ensure completeness of
procedures performed on this estimate.
C4.1 Page 117 of 565 APM 2022

(Note 4)
(Note 3)
4 Trade receivables - The outcome of the previous year's LOW HIGH - controls not tested. Control LOW No
allowance for collectability estimate was reviewed and it was found activities exist but are limited in nature,
to be in line with debts which are still An aged analysis of receivables is which is not unusual given the size and Apply substantive test on management's The review of previous year's estimate
unrecovered as at 2021, hence produced every month and is reviewed nature of MCL. assumptions and data used in its ECL noted that it was in line with the
appears reasonable. by Adeline Leung. This provides timely calculation. subsequent outcome. The inherent risk is
[Review not included in example file] and accurate information for Apply a wholly substantive approach to low and no change in management's
management to estimate the expected review the ECL developed by Assess the reasonableness of estimation method. Tailored procedures
credit losses (ECL) on trade receivables. management to provide evidence on the management's ECL methodology. on this estimate performed on J4. Hence
integrity of management's assumptions D3 is not considered necessary.
MCL's major debtors remain stable over and the data used. Reasonableness of
the last 5+ years, hence, the risk of management's ECL methodology will
inaccurate ECL on material trade also be assessed.
receivables is relatively low because MCL
knows most of its major debtors well and The subsequent settlement post year-
have established working relationship end also provides evidence on the
with them. accuracy of management's ECL
estimation.
MCL does not have a lot of debtors and
management assess ECL for each
individually would increase the accuracy
in estimation.
MCL's average credit period on sales of

goods is ~50 days; credit terms offered
are 30 days. The relatively short credit
terms reduce the uncertainty of the ECL
estimation.
Related disclosures are not complex.
5 Recall provision N/A - new this year. MEDIUM HIGH - controls not tested because: MEDIUM No
(1) controls are limited Specific risk added to C8.3 - 16.
While the recall provision includes (2) controls are not designed to address The provision is specific to the entity and
significant assumptions and scope for the risk of management bias D3 not considered necessary for this a wholly substantive approach to be
management bias, the inherent risk is estimate. performed on N3.1 using tailored
considered moderate because: A wholly substantive approach is most procedures. Hence D3 not considered
(1) underlying figures used within the appropriate taking into account: necessary for this estimate.
calculation can be corroborated (1) the relatively simplicity of the method
(2) management's method to calculate used by management
the provision is straight forward and (2) the nature and availability of the data
simple used
(3) The required disclosure is limited and (3) limited use of controls by
easy to determine/prepare management
C4.1 Page 118 of 565 APM 2022

(Note 4)
(Note 3)
6 Claim re faulty component N/A - new this year. MEDIUM HIGH - controls not tested. Management MEDIUM No
There is considerable estimation relies on the legal advice Specific risk added to C8.3 - 17.
uncertainty in this estimate which is The provision is specific to the entity and
based on legal advice. The estimate is, Review legal advice and assess the use tailored procedures will be performed on
however, not particularly complex and of the lawyer, i.e. use of management's N3. Hence D3 not considered necessary
given the involvement of legal advice, expert. for this estimate.
there is limited scope for management
bias.
7 Derivatives valuation [Not reproduced for the purpose of this model file]
8 Market value of loan from [Not reproduced for the purpose of this model file]
parent
Note 1
i) The degree to which the accounting estimate is subject to estimation uncertainty.
ii) The degree to which the following are affected by complexity, subjectivity, or other inherent risk factors:
- The selection and application of the method, assumptions and data in making the accounting estimate; and
- The selection of management's point estimate and related disclosures for inclusion in the financial statements.
Note. Where there is a high risk any relevant control activities must be recorded on PAF13 and C5.1
Note 2
i) Likely effectiveness of controls implemented by management (See PAF13).
ii) If effectiveness of controls not tested then control risk must be the same as inherent risk.
Note 3
To give a summary of the approach.
Note 4
To document whether Accounting Estimate: Work Programme (D3) is used with respect to the accounting estimate.
In general, D3 should be used for each estimate that is material, or where there is a risk it may have a material impact. The programme is tailored for each particular estimate to ensure it is relevant. A copy of completed
D3 should be filed in the section to which the accounting estimate relates.
C4.1 Page 119 of 565 APM 2022

M0001
INTERNAL CONTROLS
Comments WP Ref
1 Complete the basic controls questionnaire or otherwise
identify the company's system of internal control relevant to Yes C5.2
the audit.
2 Document relevant systems and controls sufficient to

demonstrate our understanding of the design of the system. Yes C5.1
3 Perform the procedures to evidence review of the

implementation of controls. Yes C5.1
4 Ensure that all weaknesses noted in the review of the design

and implementation of controls are noted in the draft letter of
comment. Note whether any constitute significant Noted on C5.1 and C5.2 A6
deficiencies.
5 Based on the evaluation of each of the components of the

entity's system of internal control, determine whether one or
more control deficiencies have been identified, and whether Warehouse inventories and cut- C5.1-13
individually, or in combination, the deficiencies constitute a off
significant deficiency.
6 Where the evaluation of the design and implementation of
internal controls identifies significant deficiencies, ensure C8.3-20
these have been taken account of in the Assertion Risk Yes
C8.3-21
Action Plan.
7 Where testing of internal controls will be undertaken prepare
the necessary internal control evaluation schedules. Yes S3
Note. Specific testing of the operating effectiveness of

controls is required where:
(a) substantive tests alone are not expected to provide
sufficient evidence of operation; or
(b) our risk assessment includes an expectation that
controls will be operating effectively.
C5 Page 120 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 11/3 C5.1
M0001
EVALUATE THE DESIGN AND IMPLEMENTATION OF CONTROL ACTIVITIES

Notes
1. Inquiry alone is not sufficient to evaluate the design of a control relevant to the audit and to determine whether it has been implemented. Further work such as inspecting documents
or tracing transactions through the system is required.
2. Completion of this schedule does not constitute tests on the operating effectiveness of controls.
3. Where the design of an identified control is not effective or the control is not properly implemented, consider whether this amounts to a deficiency in internal control and update C5 as
appropriate.
4. Review of design and implementation of certain controls is mandatory - see section 4.3, guidance to C5 of the guidance notes.
Determine whether the control has been Is this a Further If

Evaluate whether the control is designed implemented key testing applicable,
Ref Business area Brief description of control
effectively (Specifying documents inspected as part of control? required? Ref to ICE
the review of implementation) Y/N Y/N (S3)
1 Property, plant and Physical control: All assets have a label This is an effective means of identifying From assets seen when touring the factory Y N N/A
equipment with a unique number that corresponds to specific assets (existence) & offices the system is being used.
the entry in the fixed asset register. (PAF
3.4-P2)
2 Adrian Walker periodically verifies and The control would be effective if carried out Adrian Walker was unable to state when N N N/A
checks a sample of assets from the on a regular basis (accuracy) checks were last performed and he did not
register to the physical assets. However, have any notes of checks undertaken.
this is not done on a regular basis and the
records are not always retained. (PAF 3.4-
P4)
3 Inventories - factory Goods received are verified and checked There is segregation of duties between the An inspection of a GRN #215783 on goods Y Y S3-1
against the GRN and this is noted on the receipt of goods by the logistic team and received on 15 June 2021 showed that the
GRN and signed by the stores manager. checking of the receipt by the stores goods were firstly received by the logistic
Stock records are updated from the GRN. manager. The design of this control is team, then verified and signed by the
(PAF 3.4-B2-B5) considered as effective. (occurrence, stores manager. Also checked that the
accuracy) stock records were updated based on the
verified GRN.
C5.1 Page 121 of 565 APM 2022

4 Physical control: There is a separate The store is secure and access to the key is The more valuable components were found Y N N/A
lockable store for the more valuable sufficiently restricted. (existence) in the store (opened by the store manager)
components to which only the directors, during the inventory count.
the store manager and the factory However, there is no procedure to ensure
manager have a key. (PAF 3.4-B10) the valuable components are store in that
separate lockable store.
5 Each batch of cards is given a job This control enables the identification of The job listing shows that all jobs have a Y N N/A
number. All card types use the same cost type for proper classification and input sequential number.
number sequence. A suffix is added to into the ledger. It is considered to be an
denote the card type. The numbering effective control. (presentation,
serves as a logical control and verify classification)
completeness of cards. (PAF 3.4-F1)
6 Terence Ip reviews and approves the job The scope of this review is not clear. In Job cards are priced at the same time so N N N/A
cards for all completed jobs to ensure that particular it is not clear whether the pricing some element of review must occur.
the materials and labor booked to each of components is checked.
job appear reasonable. (PAF 3.4-F8)
7 Any discrepancies as reconciled in the Sampled counts are carried out with For factory, the weekly count summaries Y Y S3-3
weekly inventory counts are investigated sufficient regularity to avoid discrepancies for June 2021 was extracted from the file of
by the stores manager. (PAF 3.4-G7) between the inventory record and the actual weekly counts with 4 count summaries
inventory quantity. Hence, it is considered to were found. Specifically checked the count
be an effective control. (accuracy, carried out on 18 June 2021 which noted a
existence, completeness) discrepancy. Also inspected evidence
(queries and follow-up work) supporting the
reconciliation, and the inventory record and
inventory ledger updated.
For warehouse, see A6 point 3.
8 Trade & other The aged analysis of receivables is Adeline Leung knows all the major The review often takes place on screen so Y N N/A
receivables reviewed and approved every month by customers and understands their payment there is no direct evidence as such.
Adeline Leung. (PAF 3.4-K4) pattern. This control enables Adeline Leung However, correspondence with customers
to follow up receivables with identified risk. about overdue accounts (correspondences
The company's normal credit terms are 30 in June 2021 inspected) suggests they are
days so a monthly review is of sufficient reviewed and identified.
regularity. Hence, it is considered to be an
effective control. (accuracy, existence,
cutoff)
C5.1 Page 122 of 565 APM 2022

9 Any late payment on larger accounts is This is an effective control. See (8) above. Correspondence with customers Y N N/A
dealt with directly by Adeline Leung. concerning overdue accounts is kept in a
Smaller accounts are passed to Adrian separate file. An inspection of the file
Walker to chase. (PAF 3.4-K5) during the planning visit (correspondences
in June 2021 inspected) showed that letters
and emails were sent to follow-up late
payments.
10 Bank & cash All bank accounts are reconciled monthly There is proper segregation of preparation The year end reconciliation was signed by Y N N/A
by Adrian Walker and the reconciliations and review. The reconciliation enables any Adeline Leung and did not have any old or
reviewed by Adeline Leung. (PAF 3.4-N2, irregularities with cash and bank be unusual reconciling items.
N3) identified. Hence, it is considered to be an
effective control. (accuracy, cutoff,
existence)
11 Trade & other The purchase ledger is posted weekly There is proper segregation of preparation Reconciliations in June 2021 showed Y Y S3-4
payables from the purchase day book and cash and review. The reconciliation enables any evidence of review by Adeline Leung (no
book. The posting is reviewed and irregularities with trade payables be adjustments needed). Also noted the
approved by Adrian Walker. identified and be addressed by adjustments. purchase ledger for the first week of June
Hence, it is considered to be an effective 2021 was posted on 4 June 2021.
All supplier reconciliations are prepared control. (accuracy, cutoff, existence)
by Adrian Walker and reviewed by Adeline
Leung. Any adjustments to a purchase
ledger account as a result of a
reconciliation must be approved by
Adeline Leung. (PAF 3.4-E1 to E5)
12 Income All customer orders are approved by This control reduces the risk of bad debt We inspected customer orders on 16 June Y Y S3-5
Adeline Leung in terms of their and avoid transactions with suspicious 2021 and noted their background and credit
background, credit worthiness, ability to customers which might affect MCL's worthiness were reviewed with evidence of
satisfy order etc. (PAF 3.4-I1) reputation. Hence, it is an effective control. authorization by Adeline Leung.
(All assertions)
13 Accounts dept. check the order against This would be an effective control if the We inspected customer orders approved by N N N/A
the inventory records to confirm that the inventory records were up-to-date. However Adeline Leung on 16 June 2021. There
items required are in stock. (PAF 3.4-I2) the inventory records were not up-to-date so were no indication from the order that this
the control might not be reliable. (existence, check by the accounts dept. had taken
accuracy) place.
C5.1 Page 123 of 565 APM 2022

14a The picking list, despatch note and sales This control ensures alignment between We inspected the sales invoice #129087 Y Y S3-5
invoice are part of the same 5 part sales records and inventory records. Hence, with invoice date 14 June 2021 and traced
document for verification and it is an effective control. (accuracy, to the corresponding picking list and
reconciliation against each other. completeness, occurrence) despatch note. Agreement noted.
Therefore goods cannot be despatched
without an invoice being raised. (PAF 3.4-
I5)
14b Sales are recorded on a daily basis in the This control ensures sales are recorded We traced the selected sales on 14 June Y Y S3-5
sales day book and sales ledger in the properly. Hence, its design is considered 2021 to the record in the sales day book
proper period accounting to the terms. effective. (accuracy, cutoff, classification, and sales ledger. Agreement noted on the
The posting is reviewed and approved by presentation) amount and period.
Adrian Walker. (PAF 3.4-I11 and K1 / S3-
5)
15 Purchases and Terence Ip authorizes purchase orders. Raymond Chan is one of the directors and Inspection of purchase orders on 14 June Y Y S3-6
other expenses Those above HK$ 15,000 are authorized is considered having sufficient authority to 2021 showed that they were signed by
by Raymond Chan. (PAF 3.4-A2) approve purchases with a larger amount. Terence Ip or Raymond Chan according to
Hence, the design of this control is their level of authorization.
considered effective. (accuracy)
16 Orders with new suppliers are authorized Raymond Chan is one of the directors and Order no. 10X2234 on 14 June from Y N N/A
by Raymond Chan. (PAF 3.4-A3) is considered having sufficient authority to Gnihceeb, a new customer was inspected
perform the authorization. Hence, the and found to be signed by Raymond Chan.
design of this control is considered
effective. (accuracy)
17 The outstanding orders file is periodically This would be an effective control if the There is no evidence that the review N N N/A
reviewed and approved by Raymond review happened on a regular basis. occurs.
Chan (PAF 3.4-A7) (accuracy, existence)
18 Invoices that match with an approved There is proper segregation of duties Invoices on 14 June were signed by Y Y S3-2
fulfilled order that has been signed by between approval for purchases and Terence Ip or Raymond Chan as evidence
Terence Ip or Raymond Chan are approval for payment. Hence, the design of of approval. Noted that the invoices were
approved for proposed payment by Adrian this control is considered effective. subsequently approved by Adrian Walker
Walker. (PAF 3.4-C3) (accuracy, occurrence) for proposed payment.
19 A list of proposed payments is produced This control ensures proposed payments Checked the list of proposed payments on Y Y S3-2
and presented to Adeline Leung, together are mapped to and supported by GRNs and 14 June approved by Adrian Walker with
with the supporting invoices, orders & others. Its design is considered as effective. supporting invoices, orders and GRNs.
GRNs, for approval. (PAF 3.4-D3) (accuracy, completeness, occurrence) Noted Adeline Leung's review mark and
approval for the proposed payments.
C5.1 Page 124 of 565 APM 2022

20 All expenditure outside the normal This would be an effective control if such It is difficult to identify invoices outside the N N S3-7
production process must be approved by invoices could be separately identified. normal production process and none were
one of the directors. (PAF 3.4-M1) (accuracy) found.
21 Payroll Payrolls for weekly staff at the factory, This control ensures payrolls are reviewed Approval was seen to be evidenced on the Y Y S3-8
weekly staff at the warehouse and for all and accurate. Its design is considered as payrolls for the June 2021 payrolls
monthly staff are authorized by the factory effective. (accuracy, occurrence) inspected.
manager, warehouse manager and
finance director respectively. (PAF 3.4-L2
and L6)
22 Overtime is approved by the warehouse This control ensures overtime claimed by Approval was seen to be evidenced on the Y N N/A
and factory managers. (PAF 3.4-L4) staff is appropriate. Its design is considered overtime payrolls for the June 2021 payrolls
as effective. (accuracy, existence) inspected.
23 Accounting system Exceptions reports are run each week by This control ensures the integrity of data The reports are run on screen and so the N N N/A
Adrian Walker and reviewed and and allows any exceptions followed up review is not evidenced.
approved by Adeline Leung to confirm the timely. Its design is considered as effective.
integrity of data posting. (PAF 3.4-O2) (All assertions)
24 Monthly management accounts are This control ensures accuracy of the Noted the management accounts for June Y Y S3-9
reviewed and approved by Adeline Leung management accounts and performance of 2021 prepared by Adrian Walker were
before being circulated to other directors. the company be reviewed timely. Its design reviewed by Adeline Leung and circulated
(PAF 3.4-O7) is considered as effective. (All assertions) to other directors by Adeline Leung in an
email on 10 July 2021.
25 Routine month end journals are prepared This control ensures appropriate Checked that the June 2021 month-end Y Y S3-10
by Adrian Walker and approved by segregation of duties. Its design is journals were prepared by Adrian Walker
Adeline Leung. (PAF 3.4-O8) considered as effective. (All assertions) on 2 July and approved by Adeline Leung
on 2 July.
26 Non-routine journals are initiated and This control avoids any discrepancies Noted a non-routine journal on recall Y Y S3-11
approved by Adeline Leung. (PAF 3.4-O9) between the financial information and provision was prepared by Adeline Leung
HKFRS. Adeline Leung is considered as an on 2 Jan 2022 according to the discussion
experienced and informed management in at directors' meetings and underlying
HKFRS. The design of this control is documents.
considered effective. (All assertions)
C5.1 Page 125 of 565 APM 2022

27 Other relevant IT A back-up is run overnight at the end of This is an effective control. (All assertions) A member of the accounts staff was seen Y N N/A
systems each working day and stored off-site. to load a new cartridge each morning and
(PAF 3.4 - O4) pass the back-up to AW.
[Note. For the purposes of this model file not all controls identified on C5.2 as being relevant to the audit have been included on this schedule.]
C5.1 Page 126 of 565 APM 2022

M0001
INTERNAL CONTROL QUESTIONNAIRE
This questionnaire is intended as an aide-memoire to assist in the identification of systems and controls for inclusion on
the Review of Design & Implementation of Internal Controls schedule ( C5.1 ). Completion of this questionnaire in
isolation will not provide the evidence concerning the design and implementation of internal controls.
Relevant Ref Ref

to audit control to weakness
(Y/N) C5.1 to: A6 &
C8.3
Property, plant & equipment
1 Are minutes maintained of all board meetings and management meetings,
authorising capital expenditure and also disposals? Y A6-1
2 Does the company maintain fixed asset purchase order requisitions, which
are pre-numbered, authorized and controlled? N
3 Is there evidence to show that the addition invoices have been checked for
accuracy and that the posting code has been checked before the items are N
posted to the general ledger?
4 Is the fixed asset register regularly reconciled to the general ledger account,
and also to actual physical assets? Y C5.1-2 A6-2
5 Is there independent checking of calculations of profits and losses on

disposal? N
6 Is there evidence to show that there have been regular inspections of the
condition and use of assets? N
7 Other:
N/A
Inventories
8 Is there restricted access to inventories, and physical security over the
inventories? Y C5.1-4
9 Is there an independent check on all despatches, including any made by

persons other than those responsible for the inventories? N
10 Are regular reconciliations of actual inventories-to-inventories records

undertaken? Y C5.1-7 A6-3
11 Is there independent matching of goods in and out with purchase and sales A6-4
documentation? Y
C8.3-11
12 Is there a system for the reporting of slow, obsolete or damaged inventories
to relevant levels of management? N
13 Does the client maintain pre-numbered goods received notes (GRN) and
inventories requisition notes (SRN), and carry out regular checking for A6-4
Y
missing numbers? C8.3-11
14 Is there a record of an authorisation of scrapped/damaged goods? N

15 Other:
N/A
C5.2 Page 127 of 565 APM 2022

Relevant Ref Ref
(Y/N) C5.1 to: A6 &
C8.3
Sales cycle
16 Does the business have some form of control over who they sell goods or
provide services to on credit? Y C5.1-12
17 Is there prior approval by the credit department of all sales before the goods
are actually despatched or the service provided? Y C5.1-12
18 Is there prompt billing of all sales? Y C5.1-14

19 Is effective credit control exercised over outstanding balances? Y C5.1-9
20 Are sales ledger control account reconciliations carried out? Y
21 Does the client use pre-printed and controlled sequentially numbered
invoices? Y
22 Are invoices only raised when the invoicing department is given a valid order,
despatch note or service record? Y C5.1-14a A6-3 & 11
23 Is there a periodic separate check of the goods that have been despatched or
service provided to ensure that they agree with the order details and the N
invoice details?
24 Are despatch notes or provision of service records independently checked to
invoices? N
25 Is invoice pricing independently checked and reviewed? N

26 Other:
N/A
Bank
27 Are the duties of the person writing/posting the cash book separated from the
person responsible for the general ledger, making payments or handling Y
receipts and checking the bank reconciliations?
28 Is there adequate security over blank cheques and procedures to ensure that
under no circumstances should pre-signed cheques be maintained? Y
29 Are cash book balances regularly reconciled to the general ledger control
account? Y
30 Are cheques despatched immediately after signature and not returned to the
person who has prepared them? Y
31 Does a senior member of the client ’ s staff independently check bank

reconciliations? Y C5.1-10
32 Are cash counts undertaken on a regular basis, without the person in charge
of petty cash being aware that they are going to be undertaken? Y
33 Other:
N/A
C5.2 Page 128 of 565 APM 2022

Relevant Ref Ref
(Y/N) C5.1 to: A6 &
C8.3
Purchases cycle
34 Are all invoices approved prior to payment? Y C5.1-19
35 Are there controls to ensure that discounts are taken wherever possible? Y
36 Are supplier statement reconciliations carried out where available? Y C5.1-11
37 Are purchase ledger control account reconciliations carried out? Y
38 Are purchase invoices checked to pre-numbered goods received notes,
which in turn are checked to authorized orders? Y C5.1-18
39 Are invoices marked when they are being paid to prevent them from being
entered into the system again? Y
40 Other:
N/A
Payroll
41 Is the payroll independently approved for accuracy? C5.1-21 &
Y
22
42 Does an independent department keep proper personnel records? Y
43 Does the payroll department maintain a formal record of notification of
changes in rates of pay etc.? Y
44 Are payroll control account reconciliations carried out? Y

45 Other:
N/A
Information technology
46 Is there reliance on systems or programs that are inaccurately processing
data, processing inaccurate data, or both. N
47 Are there controls to prevent unauthorized access to data that may result in
destruction of data or improper changes to data, including the recording of
unauthorized or non-existent transactions, or inaccurate recording of Y
transactions? (Note - Particular risks may arise where multiple users access a
common database.)
48 Can personnel gain access privileges to systems beyond those necessary to

perform their assigned duties thereby breaking down segregation of duties? N
49 Are there controls to prevent unauthorized changes to data in master files?

Y
50 Are there controls to prevent unauthorized changes to systems or programs?

Y
51 Are all necessary changes to systems or programs made on a timely basis?

Y
52 Are there controls to prevent inappropriate manual intervention? Y

53 Are there controls to prevent potential loss of data or inability to access data
as required? Y
54 Are appropriate back-up and disaster recovery systems in place? Y C5.1-27

55 Other:
C5.2 Page 129 of 565 APM 2022

Relevant Ref Ref
(Y/N) C5.1 to: A6 &
C8.3
General
56 Is the culture of the organization conducive to the effective operation of
internal controls? Y
57 Does management use their influence in the business to promote the

effective operation of internal controls? Y
58 Are reliable management accounts produced at least quarterly and reviewed

A6-6
by management so that significant errors would be identified and corrected? Y C5.1-24
C8.2-3
59 Other:
N/A
Related party transactions

60 Are all significant related party transactions and transactions outside the
normal course of business authorized and approved? N
61 Are mechanisms in place to identify related party transactions and

transactions outside the normal course of business? Y
62 Are there controls in place to ensure all related party transactions and
relationships are accounted for and disclosed in accordance with the financial
N
63 Other:
N/A
C5.2 Page 130 of 565 APM 2022

M0001
PRELIMINARY ANALYTICAL PROCEDURES

Comments WP Ref
1 Consider comparison of the draft results for the current period
with:
(a) information for prior periods; Yes C6.1
(b) those anticipated in budgets or forecasts; No
(c) the auditor's expectation; No
(d) other companies of comparable size in the same industry; No
(e) overall industry of sector statistics. No
2 Consider relationships between:
(a) elements of financial information that would be expected
to conform to a predictable pattern based on the
company's experience, such as gross margin Yes C6.2
percentages.
(b) financial information and relevant non-financial
information, such as payroll costs to number of No
employees.
3 Consider the reliability of the information used to perform

analytical review procedures and whether this will be verified as Analytical review performed using
part of the audit process (including its completeness and management accounts.
accuracy).
Based on our understanding (PAF
3.4, PAF 1.1.1(11)) and evaluation
(C4-4.4) of clients' system and
internal controls, and test of
operating effectiveness of selected
controls (S3), financial information
generated by the entity in the
management accounts are
considered reliable. Also, results of
the management accounts would be
audited as part of this engagement.
4 Consider whether any expectations or comparisons used are

sufficiently precise to identify potential misstatements. Yes
5 Consider the impact of and reasons for any changes to the

value of accounting estimates. Yes C4.1
6 Ensure that any areas of increased risk identified are recorded

on the Assertion Risk Action plan. Yes C8.3
7 Where available, review any other information (including the Yes. Reviewed the draft directors'
directors' report) to be included in the annual report and report (the only "other information"
consider consistency with the financial statements and our accompanying the financial
understanding of the business. statements) and noted it is
consistent with the financial
statements and our understanding of
the business.
8 Document the conclusion identifying any transactions or
balances meriting further enquiry or areas of increased risk. See below
C6 Page 131 of 565 APM 2022

The following matters require further investigation and have been added to C8.3:
1. Is the drop in margin all due to increased competition or are there other factors? (C8.3-9)
2. Why is there a large increase in advertising expenditure? (C8.3-7)
3. Why are miscellaneous expenses so large? (C8.3-8)
4. Ensure disposal of the Memory Stick division is presented properly. (C8.3-3)
5. Explain the large increase in machine maintenance. (C8.3-13)
6. Explain the large increase in receivables. (C8.3-10)
7. Explain the fall in trade payables when these were expected to increase. (C8.3-14)
8. Investigate the terms of the loan from the parent company that cleared the overdraft. (C8.3-19)
9. Recall costs HK$1.2m (C8.3-16)
Additional considerations when using audit data analytics (ADA)

This subsection should be completed where ADA is to be used as part of the preliminary analytical review.
Comments WP Ref
1 What application(s) is/are being used?
2 Is/are this/these application(s) internally developed or externally
developed?
3 Evaluate the internal developer / external
application provider for:
(a) independence; and
(b) expertise including skills, knowledge and experience.
4 For any algorithms planned to be used within the application,
confirm:
(a) the algorithm has been appropriately tested and approved
for use; and
(b) why the algorithm is appropriate for use on this client.
5 Confirm the engagement team has sufficient knowledge and
understanding of the application(s) being used and, where
necessary, that specialists have been added to the
engagement team as required.
6 Confirm that the use of the application(s) has/have been
discussed with the client and that data transfer arrangements
and responsibilities have been agreed.
C6 Page 132 of 565 APM 2022

Manufacturing Company Limited AW C6.1
Detailed profit and loss account - Preliminary analytical review 10/3
2021 2020 Movement
HK$'000 HK$'000 % HK$'000
Revenue
Sound & graphics 55,860 31,990 75 23,870 See sales analysis on C6.2
Network 24,066 22,156 9 1,910
WiFi & Bluetooth 13,314 1,527 772 11,787 USB memory stick sales declining, hence sale of that
USB memory sticks 18,774 20,102 (7) (1,328) business in December 2021
112,014 75,775 48 36,239 See sales analysis on C6.2

Cost of sales
Purchases (adj for inventories) 45,595 26,539 72 19,056 Increase in line with increased sales
Factory rates 120 110 9 10
Machine maintenance 1,873 633 196 1,240 Not expected given new plant (C8.3-13)
Depreciation 2,730 1,967 39 763 Increase in dep'n expected due to new plant
acquired. See section F.
Direct wages 8,600 4,917 75 3,683
Other direct costs 989 580 71 409 Increase in direct wages broadly in line with increased
sales
(59,907) (34,746) 72 (25,161)
Drop in margin expected due to greater competition and
Gross profit 46.5% 52,107 54.1% 41,029 - lower margins on network cards. But should the drop be
Other gains and losses this great (C8.3-9)?
Profit on disposal of plant 266 175 52 91

Forex gains 200 49 151 Forex gains in year, more than offset by losses (see
below)
Direct expenses
Shipping 3,852 3,698 4 154
Packaging 3,082 3,011 2 71
Labor 1,802 1,425 26 377
Other distribution costs 427 497 (14) (70)
(9,163) (8,631) 6 (532)
Carried to next page 43,410 32,622 33 10,788
C6.1 Page 133 of 565 APM 2022

Wages 6,845 6,503 5 342
Directors pay 2,250 2,100 7 150
Pension contributions 934 747 25 187
Staff welfare 715 632 13 83
Power 2,054 1,773 16 281
Insurance 595 542 10 53
Cleaning 366 351 4 15
Repairs and maintenance 472 568 (17) (96)
Motor expenses 1,705 1,437 19 268
Advertising 3,592 1,462 146 2,130 Increased advertising expected per C6.2. To be
substantiated (C8.3-7)
Travelling 1,166 849 37 317
Entertaining 34 26 31 8
Telephone & internet charges 415 402 3 13
Computer costs 912 440 107 472
General office costs 1,220 1,129 8 91
Postage 984 915 8 69
Laundry & cleaning 12 11 9 1
Telephone and photocopiers 1,650 1,738 (5) (88)
Audit and accountancy 473 452 5 21
Legal and professional 1,858 1,711 9 147
Bank charges 358 342 5 16
Miscellaneous 2,239 506 342 1,733 Why the increase? (C8.3-8)
Charitable donations 79 75 5 4
Amortization and impairment of

intangible assets
147 512 (71) (365) Included impairment of goodwill in PY.
Faulty card provision 1,200 - 1,200

Will need to examine this new provision (C8.3-16)
(32,275) (25,223) 28 (7,052)
C6.1 Page 134 of 565 APM 2022

Finance costs
Lease interest 1,141 1,227 (7) (86)
Loan interest 123 79 56 44
Overdraft interest 109 138 (21) (29)
Losses on Forex FIs 228 - 228 Largely offset by gains (see above)
(1,601) (1,444) 11 (157)
Profit before tax 9,534 5,955 60 3,579
Tax (1,127) (2,116) (47) 989
Profit after tax 8,407 3,839 119 4,568
Loss on disposal of Memory Just loss on sale of assets. Need to add in loss for year
Stick division assets (1,806) - for presentation purposes.
C6.1 Page 135 of 565 APM 2022

Balance sheet - Preliminary analytical review
At 31 December 2021 2021 2020
HK$'000 HK$'000
Non-current assets
12,153 10,220 19 1,933 Major plant additions in year expected
Right of use assets

9,435 9,646 (2) (211) Warehouse revaluation in year expected
Goodwill & other intangible
assets 1,022 1,022 - -
Includes:
22,610 20,888
Trade receivables ($14686K)
Current assets Owed by factory ($1750K)
Prepayments ($952K)
Inventories 8,001 8,547 (6) (546) Is increase all due to increased turnover(C8.3-10)?
Directors loans ($126K) What is the amount owed by the warehouse (C8.3-20)?
Trade and other receivables Others ($35K)
17,549 12,110 45 5,439
Cash and cash equivalents 5,669 42 13,398 5,627 Increase in cash due to loan from parent HK$5m
31,219 20,699
Current liabilities Fall not expected. In fact expecting increase due to
Trade and other payables 9,680 12,057 (20) (2,377) increased production. (C8.3-14)
Current tax liabilities 1,092 681 60 411 Client estimate to be re-calculated
Loan from parent at low rate of interest. Revalue to NPV
(C8.3-19)
Borrowings 5,083 79 6,334 5,004
Lease liabilities
1,153 875 32 278 Expected as new leased equipment in year
Derivative financial instrument A small movement is expected due to fluctuations in the
79 79 - - period.
Overdraft cleared by loan from parent in year
Bank overdrafts - 1,501 (100) (1,501)
17,087 15,272

Total assets less current
liabilities 36,742 26,315
C6.1 Page 136 of 565 APM 2022

Share capital 9,100 8,750 4 350
Issue of shares to Tiffany.
Share premium 875 700 25 175
P&L reserves 11,034 4,396 151 6,638
Revaluation reserve 1,442 - Property revaluation
Total equity 22,451 13,846 62 8,605
Borrowings 2,587 1,681 54 906 New loan
Lease liabilities
8,953 9,199 (3) (246) New PPE on leases
Recall costs (C8.3-16). Should it instead be classified as

Provisions 1,200 - 1,200 current liabilities?
Deferred tax 1,552 1,589 (2) (37)

14,292 12,469 15 1,823
36,743 26,315
C6.1 Page 137 of 565 APM 2022

MCL - Management Accounts AW C6.2
Sales Analysis 10/3
31 December 2021
Total Total
2021 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020
HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000 HK$000
Sound & graphics 55,860 3,662 3,778 3,803 3,891 4,518 4,634 4,760 4,925 5,195 5,262 5,595 5,837 31,990
Network 24,066 1,435 1,456 1,610 1,687 1,715 1,939 2,121 2,282 2,240 2,436 2,562 2,583 22,156
WiFi & Bluetooth 13,314 910 924 959 1,043 1,043 1,050 1,176 1,183 1,204 1,204 1,267 1,351 1,527
USB memory stick 18,774 1,694 1,680 1,652 1,673 1,659 1,568 1,568 1,591 1,484 1,463 1,421 1,321 20,102
112,014 7,701 7,838 8,024 8,294 8,935 9,191 9,625 9,981 10,123 10,365 10,845 11,092 75,775
The trends in sales are broadly consistent with the discussion with Anthony Ho, director for marketing and business development.
1. Sales of sound and graphics cards are again about half of the company's business and have shown steady growth throughout the year in response to increased advertising
spend with a slight jump in the Autumn as manufacturers stock up for the Christmas sales.
2. Sales of Network cards show a steady increase throughout the year which is again as expected by Anthony Ho following the increased advertising spend. Network cards are
becoming standard on more computers. There is also a slight peak in the autumn as with sound and graphics cards.
3. Sales of WiFi extenders and Bluetooth dongles show a consistent but more marked increase in sales than network cards. The product was new last year and with continuing
advertising appears to be selling even better than predicted by Anthony Ho.
4. Sales of USB memory sticks show a consistent decline throughout the period. Buying the business from Kowloon USB Memory Sticks Limited increased the sales for a while but
did nothing to stop the decline in sales. Anthony Ho now regards the memory stick as having a fairly limited life, hence the sale of this division whilst there is still a market.
Note - the results of the Memory Stick division should be taken out of turnover and expenses for this year and last year to be presented separately as discontinued operations in the
income statement.
C6.2 Page 138 of 565 APM 2022

M0001
MATERIALITY SUMMARY
Overall materiality is set at: Initial: HK$ 1,120K Final: HK$ 1,120K
Section Risk factor Performance materiality

specific Justification for section specific materiality for section
materiality (C8.4)
Initial Final
E Intangible assets 1.2 $933k $933k
F Property, plant and 1.2 $933k $933k

equipment
Depreciation rate 1.4 $800k $800k
G Investments in group N/A
& associated
undertakings
H Other investments N/A
I Inventories 1.2 $933k $933k

Components & WIP
Inventories 1.6 $700k $700k
Finished goods
J Trade and other 1.2 $933k $933k
receivables
K Bank and cash 1.2 $933k $933k
L Trade and other 1.4 $800k $800k

payables
M Long-term loans and 1.2 $933k $933k
deferred income
N Provisions 1.6 $700k $700k
R Income statement
- Income 1.6 $700k $700k
- expenses 1.2 $933k $933k
- directors' $100k 1.4 $71k $71k

remuneration Sensitive areas; 10% of materiality applied
- related party $100k is considered appropriate 1.2 $71k $62.5k
transactions 1.6
Other (specify) Sections T and V 1.2 $933k $933k
W Group components N/A Where applicable see C7.2 N/A
Note. Performance materiality for a section is determined by dividing the overall materiality by the risk factor. However, where a
lower level of materiality is specified for a section that lower level should be used in the determination of performance materiality
for that section.
C7 Page 139 of 565 APM 2022

M0001
DETERMINING MATERIALITY
The determination of what is material is a matter of professional judgment. The percentage benchmarks set out below
are intended to provide guidance in exercising that judgment. They should not be used as a formula to 'calculate'
materiality.
Materiality ranges
Range of turnover or gross Percentage of turnover or gross

assets assets
HK$0 to HK$7.5 m 3.00%
HK$7.5 m to HK$ 15 m 2.50%
HK$15 m to HK$ 30 m 2.00%
HK$30 m to HK$ 50 m 1.50%
Over HK$ 50 m 1.00%
Application of materiality ranges to business
Initial assessment Final assessment

Anticipated
Percentage Materiality level Percentage Final results Materiality level
results
% HK$ % HK$ HK$
HK$
Turnover 1% 112,014k 1,120k 1% 92,096k 921k
Gross assets 1% 53,829k 538k 1% 54,065k 540k
Profit/(loss)
before tax 9,534k 12,528k
Adjustments for Loss on

unusual items memory stick (1,806k) (4,762k)
division
Adjusted 5% - 10% 5% - 10%
7,728k 773k 7,766k 777k
profit/(loss)
Last year
Overall initial materiality set at: This year: HK$1,120k (final): HK$750k
Justification
As this is a trading company, turnover is a good measure of activity. The control environment is good so it is reasonable
to use 1% on turnover as overall materiality.
Final materiality: This year: HK$1,120k

Justification
No reasons to alter original assessment. Turnover in final accounts is lower largely due to change in presentation of
discontinued operations rather than an actual fall.
Clearly trivial This year: HK$10,000

Justification for errors which are to be regarded as clearly trivial and will not be recorded on B7 as unadjusted
misstatements where the accumulation of such misstatements would not have a material effect on the financial
statements:
HK$10,000 is regarded as trivial in the context of the this client.
C7.1 Page 140 of 565 APM 2022

M0001
RISK ASSESSMENT
Comments WP Ref
1 Complete/review the detailed risk assessment or otherwise
identify financial statement and assertion risks that apply to the New risk assessment completed
C8.1
company and determine an overall level of risk. this year.
2 Ensure that the above process includes the consideration of fraud

related risks including the risk of fraud in relation to the
identification, accounting treatment and disclosure of related Addressed by relevant parts of C8.1 C8.1
parties, related party transactions and transactions outside the and also discussed on C9. C9
normal course of business.
3 Make inquiries of those charged with governance, management

and others as appropriate (such as internal audit) to:
a) obtain the results of its assessment of the risk that the

financial statements may be materially misstated as a result No formal risk assessment
of fraud; and undertaken by management.
b) determine whether they have knowledge of any actual, Management has confirmed that
suspected or alleged fraud affecting the company or its they have no knowledge of actual
financial statements. or suspected fraud.
Note: HKSA 315 (Revised 2019) paragraph A23 includes
examples of personnel to make inquiries of and examples of
types of inquiries.
4 Undertake observation and inspection. Completed as part of evaluating the
implementation of internal controls
Note: This may include observation or inspection of the entity's
operations, internal documents, records, manuals, reports,
premises, plant and equipment, information obtained from
external sources and behaviors and actions of management and
those charged with governance.
5 Consider whether there are any risks of material misstatement that

the management assessment failed to identify. Where this is the
case consider:
a) Why the client assessment failed to identify the risk. None identified.
b) The implications for the evaluation as to whether the
Informal approach appropriate to
evaluation of whether the entity’s risk assessment process is
size of business.
appropriate to the entity’s circumstances (C4).
c) Whether there is a significant deficiency in internal control
with regard to risk assessment. No significant deficiency.
6 Where the client does not have a documented risk assessment

process appropriate to its circumstances: consider whether this As noted above, the client's
represents a significant deficiency in internal control. approach is appropriate to the size
of the business.
7 Have all specific risks assessed as medium or high been recorded

on the Financial Statement or assertion risk action plans ? C8.2
Yes
C8.3
C8 Page 141 of 565 APM 2022

Comments WP Ref
8 Ensure that all risks identified in other areas of the planning
process, information from previous experience with the entity, from
audit procedures performed in previous audits and information C8.2
from other engagements performed by the engagement partner C8.3
from the entity are recorded on the appropriate risk action plan.
Consider:
(a) acceptance/continuance None identified.

(b) information from previous audits Yes
(c) understanding the entity Yes PAF1.1.1
(d) preliminary analytical review Yes C6.1
(e) review of design and implementation of controls Yes C5.1
(f) the results of non-audit services None identified.
9 Review the design and implementation of any controls relevant to
risks set out on the assertion and financial statement risk action Yes C5.1
plans.
10 Plan additional tests on the operating effectiveness of controls

where:
(a) the assertion level risk assessment included an expectation
that controls were operating effectively, or Yes C5.1
(b) substantive procedures are not expected to provide sufficient

appropriate evidence to reduce risk to an acceptably low Not expected to be an issue.
level.
11 Where we plan to rely on the operating effectiveness of controls to

mitigate high risks at the assertion level; ensure that the operating Yes, all controls testing undertaken
effectiveness of those controls will be tested in the current period. in current period.
12 Where we have determined that an assessed risk of material

misstatement at the assertion level is high, ensure that substantive
procedures specifically responsive to that risk are planned. Yes C8.3
Note 1. The spectrum of inherent risk used within this APM

includes 'Low', 'Medium' and 'High'. A 'High' risk will therefore be
at the upper end of the spectrum of inherent risk, and hence for
purposes of the APM 'high risk' is considered to be a 'significant
risk' under HKSA 315 (Revised 2019).
Note 2. When the approach to a significant risk consists only of
substantive procedures, those procedures shall include tests of
details (HKSA 330.21).
13 Evaluate whether the selection and application of accounting

policies by the entity, particularly those related to subjective
measurements and complex transactions, may be indicative of Reviewed on PAF. PAF 1.6
fraudulent financial reporting resulting from management's effort to
manage earnings.
14 Add the risk of fraud in relation to revenue recognition to the

Assertion Risk Action Plan (C8.3) as a high risk or explain why this Yes C8.3-1
is not necessary.
15 Add any other identified risks of fraud to the Assertion Risk Action
Plan (C8.3) as high risks. None identified.
16 Add the risk of management override of controls to the Assertion

Risk Action Plan (C8.3) as a high risk. Yes C8.3-2
17 Add any identified risks of material misstatement of accounting

estimates identified on the review of accounting estimates (See C4.1
Yes
C4.1) to the Assertion Risk Action Plan (C8.3) C8.3
C8 Page 142 of 565 APM 2022

Comments WP Ref
18 Add identified significant related party transactions outside the
normal course of business to the Assertion Risk Action Plan None identified. C8.3
(C8.3) as high risks.
19 Ensure that an element on unpredictability is incorporated into the

testing. Most samples selected randomly.
Incorporate new and unannounced
criteria for journal review testing: V4
test journals having exact multiples
of $1000 or end with $999.
20 Evaluate whether the audit evidence obtained from the risk Audit evidence obtained from risk
assessment procedures provides an appropriate basis for the assessment procedures is
identification and assessment of the risks of material considered to provide an
misstatement. If not, the auditor shall perform additional risk appropriate basis for the
assessment procedures until audit evidence has been obtained to assessment of the risks of material
provide such a basis. misstatement.
21 For material classes of transactions, account balances or
disclosures that have not been determined to be significant
classes of transactions, account balances or disclosures, evaluate Yes
whether this determination remains appropriate.
22 If new information is obtained which is inconsistent with the audit

evidence on which the identification or assessments of the risks N/A - No new information which is
of material misstatement was originally based, revise the inconsistent obtained.
identification or assessment.
C8 Page 143 of 565 APM 2022

M0001
DETAILED RISK ASSESSMENT

When completing this checklist it is important that an attitude of professional skepticism be maintained throughout,
recognizing the possibility that a material misstatement due to fraud could exist, notwithstanding our past experience with
the entity about the honesty and integrity of management and those charged with governance.
The application of professional skepticism by the auditor may include:

- Questioning contradictory information and the reliability of documents;
- Considering responses to inquiries and other information obtained from management and those charged with
governance;
- Being alert to conditions that may indicate possible misstatement due to fraud or error; and
- Considering whether audit evidence obtained supports the auditor’s identification and assessment of the risks of
material misstatement in light of the entity’s nature and circumstances.
Any risks that are assessed as 'medium' or 'high' should normally be carried forward to C8.2 or C8.3 as appropriate.
Where this is not the case a full explanation should be given as to how the risk will be managed.
H, M, L How will the audit risk

General risk area Specific risk affecting client
or N/A be managed?
1. General
1.1 Do we have any concerns as to the
integrity of the directors / No particular concerns L
management?
1.2 Are there any untrained or

inexperienced staff in key accounting No L
roles?
1.3 Does the entity have a weak control Specific assertion level
environment? Controls at warehouse are poor.
H risks 6 & 11 identified
Elsewhere they are good.
on C8.3
1.4 Are there any events or conditions that There are no concerns, the
may cast significant doubt on the company continues to trade
entity's ability to continue as a going properly and is comfortably within L
concern? current bank facilities.
1.5 Where management has considered
going concern does this assessment
identify any significant doubts about Not an issue from the forecasts
L
the entity's ability to continue? prepared
1.6 Would you describe the relationship

with the client as either ‘ abrasive ’ or ‘ Good relationship L
deteriorating’?
1.7 Is there any significant external interest

in the company's financial statements? Only the bank and tax authorities L
1.8 Are there any other risk factors that

may affect the client at the financial No L
statement level?
C8.1 Page 144 of 565 APM 2022

or N/A be managed?
2. Organizational Structure
2.1 Is the organizational structure
complex? No L
2.2 Is the group structure complex?

No - Standalone company. L
3. Ownership and Governance

3.1 Would you describe the relationship
between management and those
No L
charged with governance as either ‘
abrasive’ or ‘deteriorating’?
4. Business Model
4.1 Is the company reliant on only a few
customers or suppliers? Most components available from a
number of suppliers, one
exception is the nVidia graphics L
chip. The company is not
dependent on any one customer.
4.2 Is the company heavily reliant on

No, the company continues
particular products or services? L
developing new products.
4.3 Are there any significant related parties
to the business? Only the directors and there are
very few transactions with them. L
Risk added to C8.3-22.
Discovered that a business
controlled by Mrs. Chan is a H
customer of MCL.
4.4 Are there a large number of business

locations and/or a wide geographical
spread of its activities? Only Hong Kong and China L
4.5 Are there any complex situations which

might require the use of the work of an Addressed by standard
Property valuation L
expert? tests.
4.6 Is the company involved in electronic

commerce including internet sales? Not yet although it is planning to
L
do this.
4.7 Does the company carry out any

Yes, the company regularly
research or development activities? L
develops new products
5. Investments and investment activities

5.1 Were there any acquisitions, mergers
or disposals of business activities in Addressed by standard
the period or after the year-end? Yes - disposal. L
tests.
5.2 Does the company have any

investments in securities or loans? No L
C8.1 Page 145 of 565 APM 2022

or N/A be managed?
5.3 Does the company have any
investments in non-consolidated
entities, including non-controlled No L
partnerships, joint ventures and non-
controlled special-purpose entities?
6. Financing and financing activities

6.1 Does the company have a complex
capital structure? Equity and loans only. L
6.2 Are there any issues arising from the

ownership structure of major
subsidiaries and associated entities, No L
including consolidated and non-
consolidated structures?
6.3 Are there any issues arising from the

company's debt structure, and related
terms (e.g. covenants, restrictions,
guarantees), including off-balance No L
sheet financing arrangements and
leasing arrangements?
6.4 Are there any issues arising from

beneficial owners (for example, local,
foreign, business reputation and No L
experience) and related parties?
6.5 Does the company use derivative

financial instruments? Yes - immaterial L
6.6 Are there any valuations that are not

based on observable market prices? No L
6.7 Are the risks inherent in the financial

instruments fully understood and
Yes L
managed by the entity?
6.8 Is there a risk that important aspects of

a transaction may be missed or No L
inaccurately recorded?
6.9 Are there issues arising from the
volume or nature of financial No L
instruments?
6.10 Are there any risks of material
misstatement at the assertion level
related to the fair value measurements No L
and disclosures in the financial
statements?
7. Objectives, Strategies and Related Business Risks

7.1 Have we reviewed a copy of the There are no formal plans,
company's long term strategy or although the directors do have a L
business plan? strategy.
7.2 Are there any risks arising from the
company attempting to achieve the
No L
objectives set out in the plan?
C8.1 Page 146 of 565 APM 2022

or N/A be managed?
7.3 Is there a risk of failure to meet
stakeholder expectations (which
management may have encouraged)
No L
whether or not the expectations were
reasonable?
7.4 Are the directors ’ and/ or

managements ’ income highly geared
to results either directly, through share
options, or through other possibilities No L
for large capital gains?
7.5 Is there pressure to meet targets to

ensure protection of the jobs of
directors, management or other No L
employees?
7.6 Is there a desire to understate profits

to reduce tax liabilities? No L
7.7 Are there legal or regulatory

requirements to meet specific financial None N/A
thresholds or ratios?
7.8 Is there a need to ensure compliance

with loan covenants or to pacify None N/A
bankers?
7.9 Are future plans for selling the

company dependent upon achieving No plans to sell at the moment N/A
specified results?
7.10 Are the amounts for provisions set by

management at the time of finalizing
the profit and loss account rather than Management involved in setting
being determined by others as part of the provisions in the first instance. L
the routine accounting system?
7.11 Is there a pattern whereby accounting

judgments and estimates made when
finalizing the financial statements are
all biased in the direction management Have not been in the past L
desires?
7.12 Are the final figures for the company

subject to significant change as a In previous years taxation has L
result of journal adjustments? been the only major adjustment.
7.13 Were there any contracts or

transactions undertaken, particularly
where this was close to the year end, No L
where the commercial rationale is
unclear?
7.14 Do the accounting policies applied by
the company fall comfortably within
applicable accounting standards or do Comfortably within HKFRS L
they push the boundaries of
acceptability in some areas?
C8.1 Page 147 of 565 APM 2022

or N/A be managed?
7.15 Have the directors brought forward the
reporting date without good reason
making it difficult to obtain the quantity No L
and quality of audit evidence required?
7.16 Are the results of the company out of

step with industry trends with no
reasonable explanation available? No L
7.17 Is management keen to manipulate

profits (e.g. to reduce tax or increase No L
bonuses)?
8. Industry Conditions
8.1 Is there a risk of technological
obsolescence of products or services? Products are continually renewed L
and updated
8.2 Is the company in a highly competitive

The company has been around for
or volatile sector of the economy?
some time and has regularly
M C8.2-1
developed new products to keep
up with the market.
8.3 Is the company's business affected by
fashion, demographic trends or public Not as such L
opinion?
8.4 Is the company affected by cyclical or

seasonal factors? Slight peak towards Christmas L
9. Regulatory Environment
9.1 Is the client authorized by an external
regulator? No external regulator. N/A
9.2 Does the regulator require any special

reports? N/A
9.3 Are year-end returns or a copy of the

accounts required to be filed with a
trade association or regulator? N/A
9.4 Does the client rely on membership of

an association or similar body for a
substantial part of its business? N/A
9.5 Does the client operate in a business

sector where there is likely to be N/A
additional regulations?
9.6 Are there any issues concerning

eligibility for government grants or N/A
other aid programmes?
10. Other External Factors

10.1 Will the accounts be sent to a third
party? Bank and tax authorities L
10.2 Are there any individually material

third-party creditors? Normal trade suppliers L
C8.1 Page 148 of 565 APM 2022

or N/A be managed?
10.3 Is there any expectation that the
Longer term plan is to float
business (or part of it) may be sold in
company, but nothing in the short L
the near future?
term
10.4 Are there any external factors (e.g. a
potential listing or bank financing)
which could influence expected None L
results?
11. Measures Used to Assess the Entity's Financial Performance

11.1 Have accounting records been reliable
in the past? Yes, usually few audit adjustments L
11.2 Are meaningful management accounts

prepared during the year? Yes, but they are not used
M C8.2-3
properly
11.3 Has the audit report contained a

qualification in either of the last two No L
years?
11.4 Have there been problems with making

adjustments in the past? No L
11.5 Is the engagement ‘ stable ’ i.e. long

standing? Yes L
12. The Applicable Financial Reporting Framework

12.1 Have generally accepted accounting
principles been complied with in the Yes L
past years?
12.2 Are the accounting policies for

significant matters appropriate to the
circumstances of the entity? For L Other than revenue
example consider: recognition (C8.3-1)
there are no material
* Valuation of property Yes risks arising from the
* Revenue recognition Yes application of
* Depreciation accounting policies.
Yes
* Long term contracts N/A
12.3 Could the treatment of any areas in the
accounts be disputed by the tax None identified. L
authorities?
12.4 Consider the degree of estimation

uncertainty associated with accounting L
estimates such as:
- Allowance for doubtful debts;

- Inventory obsolescence;
- Warranty obligations;
- Depreciation method or asset useful Yes, specific risks identified on
life C8.3-16 in relation to provisions.
Considered low risk in other areas.
- Carrying value of investments;
- Outcome of long term contracts;
- Costs arising from litigation;
- Share based payments;
- Financial instruments not traded in an
active and open market.
C8.1 Page 149 of 565 APM 2022

or N/A be managed?
13. Control Environment

13.1 Is the extent of management
knowledge and experience sufficient
for operating the business? Yes L
13.2 Do management and administrative

On the whole yes, but problems at
controls appear strong? L
the warehouse.
13.3 Are good management information

systems in existence and used? Yes but see 11.2 above M C8.2-3
13.4 Is management in a position to

override any controls in existence? Risk added to C8.3 H C8.3-2
13.5 Does management promote an

operating style where competence and Yes, the directors like to get things L
integrity are valued? right.
14. The Entity's Risk Assessment Process

14.1 Will the company's risk assessment
There is no formal risk
process be used in identifying relevant
assessment process, however,
risks and actions that are taken in N/A
the directors do know the
response to them?
business they are in.
15. The Entity's Process to Monitor the System of Internal Control

15.1 Are there any indications that
monitoring activities such as Controls over inventory in the
performance reviews or segregation of warehouse are poor and the See C8.3-6, C8.3-11
H
duties have broken down or otherwise weekly counts are not taking and C8.3-21
failed to operate? place.
15.2 Is there an effective system of

monitoring controls in place? Other than above L
15.3 Are there any indications that the

monitoring controls have broken down
or otherwise failed to operate? Not on a systematic basis L
16. Information System and Communication

16.1 Are the accounting records kept up to Yes, except warehouse inventory
date? L
records.
16.2 Has there been any change to the
accounting system? No L
16.3 Are there any particular issues arising

from the use of IT that give cause for No L
concern?
16.4 Is there effective communication in

place? Yes L
C8.1 Page 150 of 565 APM 2022

or N/A be managed?
17. Control Activities

17.1 Do control activities address all
relevant areas?
Yes L
17.2 Are there high risks arising from the

use of IT which control activities place No L
reliance on?
18. Fraud and Error

18.1 Have there been any previous
experiences or incidents which call into
question the integrity or competence of No L
management?
18.2 Are there any unusual financial or

reporting pressures within the No L
business?
18.3 Are there any significant weaknesses

in the design or implementation of See C8.3-6, C8.3-11
Warehouse sales and inventories H
internal controls? and C8.3-21
18.4 Is there a history of unusual and/or

complex transactions? No L
18.5 Is there a history of problems in

obtaining sufficient appropriate audit No L
evidence?
18.6 Are there inadequate controls over

data in the information system? No L
18.7 Is there a high degree of judgment

involved in determining account No L
balances?
18.8 Are there a large number of assets

which may be susceptible to loss or Warehouse inventories L See comment on C9
misappropriation?
18.9 Do the results of analytical procedures

undertaken to obtain an understanding
of the entity and its environment show A few specific issues identified for
unusual or unexpected relationships further investigation as set out on Specific risks added to
L
that may indicate risks of material C6.1; however, these do not C8.3
misstatement due to fraud? indicate a material risk of fraud
18.10 Are there usually a large number of

transactions not subjected to ordinary No L
processing?
18.11 Are the accounting staff well trained

and capable of performing the tasks Yes L
allocated to them?
18.12 Are there any attitude or morale

problems in the accounting No L
department?
C8.1 Page 151 of 565 APM 2022

or N/A be managed?
18.13 Is there a high level of turnover of
accounting staff, senior management
or professional advisors? No L
18.14 Does any other information obtained

indicate any risk of material
misstatement due to fraud? No L
18.15 Is there a business rationale for any

transactions that appear out of the None appear out of ordinary L
ordinary?
19. Related Party Transactions

19.1 Are there usually a large number of
related party transactions? No L
19.2 Is the company a member of a group

that does not prepare group accounts? No N/A
19.3 Are any payment made to the

directors/shareholders other than Some loan account transactions L
remuneration or dividends?
19.4 Were there balances due to or from

the directors at any time during the Yes, but amounts not material L
year?
19.5 Is there any indication of risk of

misstatement at the assertion level for Transactions and disclosures are
classes of transactions, account L
straightforward
balances or disclosures?
19.6 Are there any significant related party
transactions outside the normal course None expected L
of business?
19.7 Are there any non-management The wife of the director is in

related parties? L
business, but no trading with her. See C8.3-22
H
See 4.3 above.
19.8 Is any related party in a position to
override any controls in existence? No L
19.9 Is there a history of undisclosed

related parties or related party No L
transactions?
19.10 Is any related party in a position to

exert dominant influence over the
company or is there any indication that
a related party has exercised dominant No L
influence over the company?
20. Group Considerations

20.1 Is there a complex group structure with
frequent additions, disposals or re- Standalone company. N/A
organizations?
20.2 Are there poor governance structures?

N/A
20.3 Are there ineffective group-wide

controls? N/A
C8.1 Page 152 of 565 APM 2022

or N/A be managed?
20.4 Do components operate in volatile
jurisdictions? N/A
20.5 Are components involved in high risk

activities? N/A
20.6 Is there a history of unreconciled intra-

group balances? N/A
20.7 Do components apply different

accounting policies? N/A
20.8 Do components have different year-

ends? N/A
20.9 Are there frequent changes of

component auditors? N/A
20.10 Is there aggressive tax-planning within

the group? N/A
20.11 Is the consolidation process properly

controlled by management? N/A
C8.1 Page 153 of 565 APM 2022

M0001
FINANCIAL STATEMENT RISK ACTION PLAN
Risk Affects RMM

Outcome
Ref (including nature and extent of pervasive effect on at Assertion Response
Ref
the financial statements) Level?*
1 The company is reliant on a relatively small No Discuss with directors as part of subsequent B6.1.3
number of products. Technological advances events review. (T2 test 3 and T2.1)
could render the company's existing products
obsolete very quickly. (PAF 1.1.2)
2 In the past the directors have been very good at No Discuss with directors as part of subsequent B6.1.4
spotting opportunities in the market and have also events review. (T2 test 3 and T2.1)
moved out of older technologies at the right time.
There is no guarantee that this will continue in the
future. (PAF 1.1.2)
3 The directors are managing the business mainly No Preliminary (C6.1) and final (B5.1) analytical B6.1.5
by reference to the key performance indicators reviews should identify any problem areas.
and are not using the management accounts to
the full. This may result in focus on too narrow a
range of indicators. (PAF 1.1.2)
4 The company's expansion plans are ambitious No Discuss with directors as part of subsequent B6.1.6
and, notwithstanding the company's good events review. (T2 tests 2 & 3)
relationship with its bankers, could lead to
financing problems. (PAF 1.1.2)
5 What would happen if directors or key staff No Discuss with directors as part of subsequent B6.1.7
became ill or resigned? (PAF 1.1.2) events review. (T2 test 2 & 3)
6 Management override of controls Yes Responses to this financial statement level risk B6.1
have been outlined on C8.3 as the responses are
at the assertion level.
* Note: Risks of material misstatement at the financial statement level may also affect individual assertions, and identifying these risks may assist the
auditor in assessing risks of material misstatement at the assertion level, and in designing further audit procedures to address the identified risks.
Where a financial statement level risk affects individual assertions, these assertion level risks should be added and cross referenced to C8.3.
C8.2 Page 154 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 4/4 C8.3
M0001
ASSERTION RISK ACTION PLAN
Classes of transactions,
Inherent Risk Inherent
Specific risk affecting account balances and Management Control Risk RMM Outcome
Ref (including likelihood and Risk Audit approach
client disclosures affected, and Response L/M/H L/M/H Ref
magnitude of misstatement) L/M/H
relevant assertions
1 Fraud concerning revenue Revenue - All assertions. Complexity: H Customer orders are Plan to test operating H (1) Test operating B6.1-1
recognition approved based on credit effectiveness of relevant effectiveness of controls
Little. Relatively straightforward
worthiness, etc controls? Y/N listed under <Management
due to nature of revenue being
Response>
sale of goods.
Orders are authorized and
the invoice and despatch
Subjectivity:
note are a multi-part set so (2) Element of
Little. Sales recognition at MCL is difficult to despatch goods Y unpredictability: (i) Most
straight forward. It is usually clear without an invoice being samples in tests of details
when goods have been raised. and tests of controls
despatched for sales recognition. selected randomly; (ii)
Sales are recorded daily in incorporate new and
Change: Control design and
the sales day book and unannounced criteria for JE
implementation reviewed
There is no change in accounting sales ledger in the proper testing: test journals having
on C5.1? Y/N
policies or the requirements of the period according to the exact multiples of $1000 or
applicable financial reporting terms end with $999.
framework.
Uncertainty:
Little. The sales recognition at MCL Y
is straight forward. It is usually
clear when goods have been
despatched for sales recognition.
C8.3 Page 155 of 565 APM 2022

relevant assertions
Susceptibility to management bias Control risk L/M/H
or other fraud risk factors: (3) Perform the following
High. There is scope for sales to L substantive tests:
be recorded in the incorrect period. - Agree sales invoices to
Also, the company wishes to customer order
expand its business aggressively - Reperform calculation on
in the networking cards sector and sales invoice
moves further away from the - Agree sales invoice
traditional approach of only amount to the posting in the
supplying computer manufacturers sales day book and sales
(PAF 1.1.1). Hence there might be ledger according to the
a chance for management to terms of sales
inflate sales to facilitate its - Inspect subsequent
expansion plan, sourcing of new settlement of sales
investors and capital, etc. - Assess MCL's revenue
recognition policy against
HKFRS 15, and inspect
sales samples to assess
whether they are
recognized according to
MCL policy and HKFRS 15.
Work summarised on R6.
C8.3 Page 156 of 565 APM 2022

relevant assertions
2 Management override of All assertions Complexity: H The control environment is Plan to test operating H Review of year end journals B6.1-2
controls (C8-16) good. In general, effectiveness of relevant and estimates for bias on
Moderate. The accounting system
management has created controls? Y/N V2.
is not complex and restricted to
and maintained a culture of
staff in the accounting department.
honesty and ethical Review accounting
As assessed on C4-4.4, the overall
behavior. estimates for biases and
control environment is good.
consider any indication of
However non-standard journals
See PAF 1.1.1 (17) and C4- fraud. Work on V3.
are used in higher risk areas such
4.4 on understanding and
as provisions and valuation hence
evaluation over MCL's While performing various
there is moderate level of
control environment. audit tests, consider
complexity.
whether any samples or
instances are contrary to
Subjectivity: MCL's business, appear
High. There is subjectivity in N unusual or against other
making non-standard journals such audit evidence obtained.
as year-end revaluation journals;
provisions for tax, liabilities etc.

Low. There have been no major
on C5.1? Y/N
changes to accounting policies or
standards.
Uncertainty:
Moderate. There is scope for N
manipulation in areas where there
is uncertainty and judgment.

or other fraud risk factors:
High. There is considerable scope H
for management bias in making
journals especially.
C8.3 Page 157 of 565 APM 2022

relevant assertions
3 The results of the Memory Presentation and disclosure of Complexity: M Transactions would be Plan to test operating M Work summarized on R1.3: B6.1.8
Stick division must be accounts for all areas posted to the relevant effectiveness of relevant
As the division is fairly discrete,
disclosed as a discontinued division's ledger accounts, controls? Y/N (1) Test operating
and the requirements are not
operation (C6) and would be reviewed by effectiveness of MCL's
particularly complex, the
Adrian Walker for posting controls for identifying and
complexity is relatively low.
and when he prepares the classifying transactions
Subjectivity: monthly management relating to the Memory Stick
accounts. division and inputting them
There is little scope for subjectivity Y to the Memory Stick division
given the division is fairly discrete. ledger correctly.
Change: Control design and (2) Substantive test: Select

implementation reviewed transactions recorded in the
High. This is a new disclosure Memory Stick division and
on C5.1? Y/N
requirement for the company; trace them to the underlying
management is not used to making documents to see if they
this disclosure. relate to the Memory Stick
Uncertainty: division.
There is little uncertainty. Performed on R1.3.1 (3) Consider results of

[Note: R1.3.1 not sales and purchases tests
included in this example on continuing operations
file] and whether any samples
tested or instances noted
Susceptibility to management bias Control risk L/M/H relate to the Memory Stick
or other fraud risk factors: division.
There is potential for some L
management bias in the allocation (4) Check management's
of costs between divisions. disclosure against
disclosure checklist
4 Company may incur R&D Understatement of intangible Complexity: Reliant on AW being Plan to test operating Perform substantive tests N/A
expenditure that is not assets informed that a job is R&D effectiveness of relevant on cost of sales.
identified and capitalized as in Overstatement of cost of sales Subjectivity: controls? Y/N
accordance with HKAS 38 Completeness of R&D is not
(PAF 1.6) Change: Control design and considered a material risk area. No
implementation reviewed specific procedures are required.
Uncertainty: on C5.1? Y/N JO 11/3

C8.3 Page 158 of 565 APM 2022

relevant assertions
5 Non-compliance with health & Understatement of provisions Complexity: M Warehouse and factory Plan to test operating M 1. Discussion with directors B6.1.9
safety legislation (PAF 1.4) (valuation and accuracy) managers monitor on an effectiveness of relevant (N2.1 test 10 and N3)
H&S legislation can be complex.
informal basis. Any controls? Y/N
Subjectivity: accidents or problems will 2. Review of accident book
Should a provision be required, be recorded in the accident N for material or systematic
this would be extremely subjective. book. They are experienced problems (N2.1 test 21)
in MCL's operations and
attend annual trainings on 3. Review of the company's
Change: health and safety legislation Control design and minutes on O4
for latest requirements. implementation reviewed
There has been little change in the
on C5.1? Y/N
relevant legislation.
Management held bi-weekly
Uncertainty: meeting with warehouse and
There is a reasonable element of factory managers on N
uncertainty as non-compliance can operation matters and to
sometimes only be identified review the accident book, so
should an incident occur. any non-compliance would
be identified by
management during the
meeting, if not immediately
There is potential for management upon occurrence. H
to try and hide G&S incidents,
should they arise.
C8.3 Page 159 of 565 APM 2022

relevant assertions
6 Sales invoices may be Cut-off and completeness Complexity: H Goods are delivered Plan to test operating H 1. R2.1 test 8(a): Review B6.1.10
processed as a sale this year problem eventually or a credit note is effectiveness of relevant credit notes issued in 2022
Cut-off is fairly straight forward
but the goods will not be Overstatement of sales and issued. controls? Y/N for any that relate to 2021.
given the nature of goods
delivered until next year (C9) receivables Work on R6.5.
provided.
Subjectivity:
There is little scope for subjectivity. N 2. R2.1 test 8(b): Follow-up
unprocessed picking lists
Change: Control design and and despatch notes
implementation reviewed recorded at the inventory
There is little change in MCL's count. Work on R6.2.
on C5.1? Y/N
processes on sales cut-off.
Uncertainty:
There is little uncertainty in this N
area because cut-off is straight
forward.

There is a risk of bias or override H
in this area if management wants
to inflate sales. For instance, to
manipulate sales in December and
revert them using credit notes in
January.
C8.3 Page 160 of 565 APM 2022

relevant assertions
7 Why the increase in Expense for advertising Complexity: M Subject to controls over Plan to test operating M Analyze advertising B6.1.11
advertising expenditure (C6)? expenditure may be overstated purchases. effectiveness of relevant expenditure and perform
Little. Expenditure relates to
(accuracy, occurrence) controls? Y/N substantive tests on Q7:
adverts placed in trade directories
and magazines and will be
- Agree expenditure
invoiced from external suppliers.
incurred to supplier
invoices.
Subjectivity:
- Confirm that relates to
There is little scope for subjectivity. N advertising campaigns as
described by the client on
Change: Control design and C6.1 and 2 by reference to
implementation reviewed relevant directories and
High. Advertising expenditure in magazines.
on C5.1? Y/N
2021 (HK$3.6m) has more than
doubled from the prior year. The
amount is material and exceeds
OM hence a material misstatement
is reasonably possible.
Uncertainty:
Little as there should be supplier N
invoices for all expenditure.

H
Little scope for management bias
given the expenditure is invoiced
from third party suppliers and can
be substantiated by reference to
the directories and magazines
where adverts were placed.
C8.3 Page 161 of 565 APM 2022

relevant assertions
8 What is the increase in Miscellaneous expenses may be Complexity: M Subject to controls over Plan to test operating M Analyze miscellaneous B6.1.12
miscellaneous expenditure overstated purchases. effectiveness of relevant expenses on Q20.
Misc. expenses are not expected
(C6)? controls? Y/N
to be complex.
Audit tests on purchases
Subjectivity: cover all types of expenses
including misc. expenses.
Limited uncertainty as expenses Y Planned audit tests:
are expected to be supported with
invoices. Substantive tests:
- Check invoice details to
Change: Control design and spot irregularities
implementation reviewed - Check stock records
Misc. expenditure in 2021 posted are according to
on C5.1? Y/N
increased over three times and the GRNs
total amount exceeds OM. Given - Check subsequent
the materiality and the big settlement of the purchase
magnitude of change, a material
misstatement is reasonably - Test purchase cut-off by
possible. testing last deliveries in
2021 and the first in 2022
Uncertainty: - Review January invoices
to identify any that relate to
Limited uncertainty as expenses Y
2021 that had not already
are expected to be supported with
been identified and accrued
invoices.
- Review the cash book to
identify any irregular or
material payments
C8.3 Page 162 of 565 APM 2022

relevant assertions
There is potential for bias or other L Tests of control:
fraud risk factors here with - Invoices are properly
inappropriate expenses being authorized, and agree to
included. authorized purchase order
- Expenses outside the
normal production process
are authorized by a director
- GRNs are signed by the
factory stores manager as
evidence that the goods
were received
- Factory records are
updated from the GRN
C8.3 Page 163 of 565 APM 2022

relevant assertions
9 The overall gross profit Closing inventory or sales may Complexity: M No specific systems in this Plan to test operating M Tests are planned on sales B6.1.13
margin has fallen, but the fall be understated or purchases area effectiveness of relevant and purchases respectively.
The calculation of WIP can be
is bigger than expected (C6) overstated controls? Y/N See R6 and R7.
complex (hence COGS) which
involves the incorporation of
Discuss with directors as
overhead which requires
part of final analytical
significant judgment.
review (B5.1)
Sales recognition is not
complicated, but there is concern
on sales cut-off. See <6> above.
Subjectivity:
There is some scope for N
subjectivity, namely overhead
calculation in WIP (hence COGS)

There have been changes in
on C5.1? Y/N
market conditions with increased
competition.
Uncertainty:
There is uncertainty around what N
may happen in the future which
could affect prices in the market
and also possible provisioning.

There is scope for management H
bias and manipulation on sales.
See <1> above.
C8.3 Page 164 of 565 APM 2022

relevant assertions
10 Why the large increase in Receivables may be overstated Complexity: No specific systems in this Plan to test operating L Analytical procedures on B6.1.14
receivables (C6)? area effectiveness of relevant C6.2 plus review of
controls? Y/N subsequent settlement on
Subjectivity: J2.1 test 9.
Increase explained by sales

Change: Control design and analysis work on C6.2.
implementation reviewed Should not have been
on C5.1? Y/N recorded as a risk. BL 12/3
Uncertainty:

11 Cut-off between the factory Closing inventory may be Complexity: H Processing in the Plan to test operating H Check the sequence of job B6.1.15
and the warehouse appears understated (cut-off, accuracy) warehouse is not up to date effectiveness of relevant numbers despatched from
Little. The inventory transit
to be wrong (C9) so the controls are controls? Y/N the factory and ensure that
between factory and warehouse is
ineffective. all were received at the
straight forward.
warehouse added to I2. (I2
Subjectivity: test 22.1). Work on I7.4.
Little. The inventory transit N
between factory and warehouse is
straight forward.

Inventory record processing at
on C5.1? Y/N
warehouse is not up to date and
this has caused changes from the
prior period.
Uncertainty:
There is significant uncertainty due N
to the processing not being up to
date and poor control environment
in this particular area.

bias.
C8.3 Page 165 of 565 APM 2022

relevant assertions
12 The inventory records for Inventory costs may be Complexity: M No specific systems in this Plan to test operating M Testing of component costs B6.1.16
components values on a first- overstated (valuation, accuracy) area effectiveness of relevant to specifically consider
Costs of components are not
in-first-out (FIFO) basis (PAF controls? Y/N whether the latest invoice
complex to identify.
3.4 - G5). cost is materially different to
Subjectivity: a strict FIFO basis. (I2 test
There is little subjectivity arising. N 12). Work on I5.1, 6.1, 7.1
Prices do fluctuate regularly.
on C5.1? Y/N
Uncertainty:
There is uncertainty around the N
appropriate prices to be used.

bias as an appropriate inventory
valuation policy is not being
adopted.
13 Why the large increase in Machinery maintenance costs Complexity: M No specific systems in this Plan to test operating M Analyze machinery B6.1.17
machinery maintenance costs may be overstated (accuracy, area effectiveness of relevant maintenance costs. Test 20
These costs are not particularly
given the investment in new existence) controls? Y/N of R2.1 and work on Q22.
complex.
plant in the year (C6)
Audit tests on purchases
Subjectivity:
will cover all types of
Whilst there is little subjectivity in Y expenses including misc.
the amount, there is some expenses.
subjectivity in allocation of costs.
See summary of planned
Change: Control design and audit tests on purchases in
implementation reviewed <8> above.
There is a significant amount of
on C5.1? Y/N
change in the value of the
expenses.
Uncertainty:
There is little uncertainty. Y
There is scope for expenses to be L
incorrectly allocated to machinery
maintenance.
C8.3 Page 166 of 565 APM 2022

relevant assertions
14 Why the fall in trade Trade payables may be Complexity: M The purchase ledger is Plan to test operating M Review top 10 suppliers in B6.1.18
payables? These would be understated (accuracy, cut-off, posted weekly from the effectiveness of relevant 2021 against 2020 to spot
Trade payables are not complex.
expected to increase given completeness) purchase day book and controls? Y/N unusualness.
increased production levels cash book and reviewed by
Subjectivity:
(C6) Adrian Walker. (L2.1 test 7) Arrange
Little. MCL did not have significant Y circularization of trade
disputes history or recently with its All supplier reconciliations payables confirmations to
creditors. Also, its payables mainly are prepared by Adrian confirm year-end balance.
relate to purchases from suppliers Walker and reviewed by Perform alternative
for PC components which is Adeline Leung. procedures for unreturned
straight forward with clear cut-off. confirmations.
Review all purchase ledger

Change: Control design and invoices processed in
implementation reviewed January 2022 for any
Moderate. There has been a 20%
on C5.1? Y/N relating to 2021 that have
fall in the amount of trade
not already been accrued.
payables, despite increased
production.
Uncertainty: Test the operating
effectiveness on the posting
There is little uncertainty, assuming Y
of purchases to ledger, and
they can be verified.
the preparation and review
Susceptibility to management bias Control risk L/M/H of supplier reconciliation.
See L3.1 for summary of
There is little susceptibility. L
work.
However given the fall in trade
payables despite increase in
production, and the material
amount involved, there is a
moderate susceptibility to
management bias.
C8.3 Page 167 of 565 APM 2022

relevant assertions
15 Depreciation rates may be too Understatement of PPE Complexity: M Management review the Plan to test operating M Review the gains and B6.1.19
high resulting in consistent (valuation) UEL annually based on effectiveness of relevant losses on disposal of plant
Low. Depreciation rates are not
gains on disposal of plant historical and latest PPE controls? Y/N and equipment for the year
complex. MCL applies the same
(C6.1) usage, maintenance (F4.3)
depreciation rates over the past
incurred, remaining period of
five years. Management's recent
the warranty, the UEL Review management's
annual review on rates did not
suggested by the supplier assessment of UEL (F4.4a)
indicate a need to change the
and the latest [F4.4a not included in this
rates.
technology/machine models example file]
Subjectivity: in the market.
There is a reasonable element of N

subjectivity, especially with regard
to determining useful economic
lives (UEL).

There has not been a significant
on C5.1? Y/N
change in use of PPE or in
expected UELs.
Uncertainty:
There is uncertainty with regard to N
UELs.
There is susceptibility in making H
the estimate.
C8.3 Page 168 of 565 APM 2022

relevant assertions
16 A provision for recall costs is Provision is management's Complexity: H No specific systems Plan to test operating H Review the need for and B6.1.20
required (C6.1) estimate. Assessed as high risk addressing this effectiveness of relevant the client's estimation of the
High. Management has already
because provision exceeds controls? Y/N provision. (N3.1)
issued a recall notice to affected
materiality (accuracy, valuation,
customers to replace the faulty
existence)
card. Hence, a provision would be
required but the amount is subject
to significant judgment.
Subjectivity:
High. See comments under N
"Complexity" above.
High. See comments under
on C5.1? Y/N
"Complexity" above.
Uncertainty:
There is a high uncertainty around N
future costs expected. See
comments under "Complexity"
above.
bias.
C8.3 Page 169 of 565 APM 2022

relevant assertions
17 A provision may be required Provision is management's Complexity: H No specific systems Plan to test operating H Review the need for and B6.1.21
following a fire in a computer estimate. Assessed as high risk addressing this effectiveness of relevant the client's estimation of
Relatively complex. It is uncertain
that included one of MCL's because any provision would controls? Y/N any provision. (N2.1 test
whether the fire was caused by
WiFi Express Extenders (O4) probably exceed materiality. 14a)
MCL's WiFi Express Extenders.
(accuracy, valuation, existence)
Also, it is uncertain as to the
course of actions that the
counterparty would undertake and
the amount they would claim.
Subjectivity:
The amount of any provision, and N
whether a provision is even
required is very subjective.
This is a new item. The provision implementation reviewed
required would involve significant on C5.1? Y/N
judgment and legal proceeding.
Uncertainty:
There is considerable uncertainty N
in the amount of provision that may
be required. See comments under
"Complexity" and "Change" above.

There is considerable scope for H
management bias in determining
the amount of the provision.
C8.3 Page 170 of 565 APM 2022

relevant assertions
18 Revaluation of property Overstatement of property and Complexity: H No systems in this area Plan to test operating H Complete programme for B6.1.22
revaluation reserve (accuracy, effectiveness of relevant reliance on management's
Valuations of this nature are
valuation) controls? Y/N expert (filed as F3.1)
complex.
Subjectivity:
Review surveyor's valuation
There is scope for subjectivity in N report and test the
the valuation such as manipulating assumptions used on F3.1a
the assumptions used. [not produced in this
example file]
Property values fluctuate regularly.
on C5.1? Y/N
Uncertainty:
There is an element of uncertainty N
as the value is based on possible
yields and significant judgments.

bias due to significant judgment
involved in the valuation.
19 Appropriateness of discount Over/understatement of loan, Complexity: M No systems in this area Plan to test operating M Review the client's basis of B6.1.23
rate applied to loan from capital contribution and interest effectiveness of relevant calculation including
The calculation is not particularly
parent (accuracy, valuation) controls? Y/N external sources for the
complex.
discount rate (M5)
Subjectivity:
There is subjectivity in selecting an N
appropriate discount rate.
Discount rates fluctuate over time.
on C5.1? Y/N
Uncertainty:
Discount rates fluctuate over time. N

bias to use an inappropriate
discount rate.
C8.3 Page 171 of 565 APM 2022

relevant assertions
20 What is the amount owed by Debtors may be overstated Complexity: M No specific systems in this Plan to test operating M Perform vouching to test B6.1.24
the warehouse (C6.2)? (accuracy, existence) area effectiveness of relevant the nature of the balance
The nature is unknown and was a
controls? Y/N (J5.1)
new item in 2021. The amount is
slightly over OM so it is material to
MCL. Against this background we
determine the level of complexity
as moderate.
Subjectivity:
Moderate subjectivity. See N
above.
MCL's operations remain stable so
on C5.1? Y/N
the level of change is expected to
be low.
Uncertainty:
Moderate uncertainty. See N
above.
As the nature is unknown this H
could be susceptible to
management bias.
C8.3 Page 172 of 565 APM 2022

relevant assertions
21 Existence of warehouse Closing stock may be overstated Complexity: H Client systems failing in this Plan to test operating H Standard tests for follow-up B6.1.25
stocks (accuracy, completeness, area effectiveness of relevant of items counted at the
Existence of stocks is not complex.
existence) controls? Y/N stock take attendance on
The conditions of MCL's stocks
I4.4.
would not be deteriorated or
perished over time. Also, its stocks
are easily identifiable and
measurable.
Subjectivity:
There is little subjectivity. See N
above.

Little. MCL continues its business
on C5.1? Y/N
of assembling PC components as
in last year, hence no change to
MCL's nature of stocks in 2021.
Also, there is no change to MCL's
inventory cycle and production
cycle.
Uncertainty:
There is little uncertainty. See N
above.

Stocks are material in MCL's H
accounts (HK$8m) so it is
reasonable that susceptibility to
management bias is high.
C8.3 Page 173 of 565 APM 2022

relevant assertions
22 Undisclosed related party Inadequate disclosure of related Complexity: H No formal guidelines / Plan to test operating H Complete programme on B6.1.26
transactions (C9) party transactions in the internal controls as the usual effectiveness of relevant related parties which
Complexity is expected to be low.
accounts related party transactions controls? Y/N included specific
are routine and low risk. procedures required by
Subjectivity:
HKSA 550.
(R8.1)
There can be subjectivity in N
determining whether a transaction
was at market value.

There have been changes in
on C5.1? Y/N
related party relationships in the
year.
Uncertainty:
Uncertainty is low. N
The disclosure is susceptible to H
management not identifying related
party relationships.
C8.3 Page 174 of 565 APM 2022

M0001
C8.4 RISK RESPONSE SUMMARY Table of inherent risk Assertion level risk (below)
assessment factors L M H
Financial L 1.2 1.4 1.6
Statement M 1.4 1.8 2.1
level risk (C1) H 1.6 2.1 2.5
Other Assertion Level Risks

Major risks identified Residual Audit approach and reference to work
(C8.3) Risk Justification of risks programme
H, M, L
E Intangible assets L Straight forward area with no concerns about Standard programme
impairment Substantive approach
F Property, plant and Revaluation of the property is a high risk L Disposal of Memory Stick division assets Standard programme
equipment (C8.3-18) addressed by standard programme. Substantive approach
Depreciation rates may be excessive is

considered as a medium risk (C8.3-15)
G Investments in group N/A

and associated
undertakings
H Other investments N/A
C8.4 Page 175 of 565 APM 2022

H, M, L
I Inventories High risk for warehouse inventory L Factory inventories are routine and well controlled. Tailored programme
accuracy, cut-off for transfers from There are no major concerns about determining Substantive approach
factory to warehouse and sales cut-off cost and NRV.
(C8.3-11)
Medium risk for inventory valuation (C8.3-

12)
J Trade and other Cut-off identified as a high risk (C8.3-6) L Standard programme including
receivables circularization. Substantive approach.
K Bank and cash L Standard programme.

Substantive approach.
Cash balances ignored as not material.
L Trade and other Completeness, accuracy and cutoff is a L Other main creditors are finance leases and these Standard programme including
payables medium risk as unexpected fall in trade are non contentious in terms of treatment circularization. Reliance on controls to
payables (C8.3-14) reduce substantive testing.
M Long-term loans and Discount rate applied to loan from parent, L Standard programme
deferred income so accuracy and valuation of the loan is a Substantive approach
medium risk (C8.3-19)
N Provisions and Determining amount of provision for H Provision exceeds materiality Standard programme
contingencies recall costs is a high risk (C8.3-16) Substantive approach
Possible claim re component causing
computer fire is a high risk (C8.3-17)
O Capital and reserves L Standard programme

Substantive approach
C8.4 Page 176 of 565 APM 2022

H, M, L
P Taxation L Standard programme
R Income Income Cut-off and completeness of income is L No other risk factors identified. Tailored programme, directional testing
state- assessed as a high risk (C8.3-6) used to eliminate duplicate testing.
ment Combined approach, controls testing set
out on S3.
Note. An explanation must be given where the
risk of fraud in relation to revenue recognition
is not assessed as high.
Expenditure Some expenses are medium risk as L Tailored programme, directional testing
specified on C8.3: used to eliminate duplicate tests.
- advertising expenditure (C8.3-7) Combined approach
- miscellaneous expenditure (C8.3-8)
- machinery maintenance costs (C8.3-13)
Wages Pension contributions are of medium risk L Analytical procedures and reliance on
controls supported by tests of detail
where necessary
Combined approach
Related party L No problems expected Standard tests in R2 programme

transactions sufficient.
As a result of undisclosed related party H Whilst there is no suggestion of deliberate The programme for related parties (R8.1)
transactions discovered during the audit deception, there is a risk that the client was not has therefore been completed.
it has been necessary to revise the risk fully aware of when another business is a related
response (C8.3-22) party.
AW 1/4
C8.4 Page 177 of 565 APM 2022

H, M, L
Other Non-compliance with health and safety L No specific programme required
legislation is assessed as a medium risk
(C8.3-5)
T Subsequent events L Standard programme

V General ledger L Standard programme
W Consolidation N/A
Opening balances and L No particular issues arising Standard programme

comparatives –
checklist
Other (including group N/A

components)
[Note. For the purposes of this example not all risks identified have been included on this schedule.]
C8.4 Page 178 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 11/3 C9
M0001
NOTES OF ENGAGEMENT TEAM PLANNING MEETING

Present at Meeting:
Bob Lee
Jeffrey Ong
An Wang
Daniel Tsui
Date of meeting: 11.3.22

Application of the applicable financial reporting framework and the susceptibility of the entity's financial
statements to material misstatement
Reference to risk
Risks Financial statement assertion
action plan (C8.3)
The inventory records at the warehouse are Overstatement & understatement of C8.3-11
never up to date. This reduces the company's inventories.
ability to control inventory movements.
Sales invoices may be sent days or weeks Overstatement of sales and sales cut off. C8.3-6
before goods are despatched because of the
poor inventory controls.
Susceptibility of the financial statements to material misstatement due to fraud or error that could result from
the entity's related party relationships and transactions
Reference to risk
action plan (C8.3)
Undisclosed related party transactions Presentation of related party transactions C8.3-22
Susceptibility of the entity to fraud It is not considered necessary to complete C9.1)
Reference to risk
action plan (C8.3)
The company product lines are relatively high Inventories may be overstated.
value and also quite small so theft is a
possibility. However, systematic theft on a large scale
would be required for there to be a material
error in the accounts. The client has a separate
lockable store for the more valuable
components for which only the directors and
the stores and factory managers have keys.
The likelihood of large scale systematic theft is
considered very low so no further action is
required.
C9 Page 179 of 565 APM 2022

Disclosures in the applicable financial reporting framework
Reference to risk
action plan (C8.3)
Undisclosed related party transactions Presentation of related party transactions C8.3-22
Other matters
The risk of undisclosed related parties or undisclosed transactions with related parties is considered low.
Post meeting note: As a result of audit work performed, we note MCL's failure to disclose the relationship with Reca
Limited which is a related party. Hence the risk of undisclosed related party transactions is revised as high.
Matters communicated to engagement team members not involved in the engagement team discussion
Matters communicated Name(s) Date
N/A - All involved.
C9 Page 180 of 565 APM 2022

M0001
OTHER PLANNING ISSUES

Comments WP Ref
1 Where inventories are material to the financial statements has Yes I4
attendance been planned at the physical count?
2 Determine whether the use of external confirmations, in addition to Yes trade receivables and
those for the bank balances, is necessary to obtain sufficient payables confirmations
appropriate audit evidence at the assertion level.
3 Irrespective of the assessed risks of material misstatement have Yes

substantive procedures been planned for each material class of
transactions, account balance, and disclosure?
4 For initial engagements or where an audit was not undertaken in the N/A
previous year complete the 'Opening balance and comparatives
checklist' (D2).
5 Where the previous period's audit report was qualified or there was a N/A
fundamental uncertainty, consider what impact, if any, it will have on
the current period's report.
6 Have sample sizes been planned so as to ensure sufficient Yes. Standard sampling
appropriate audit evidence will be obtained? calculation template used.
Final sample size applied
based on professional
judgment.
7 Have we planned to obtain sufficient appropriate audit evidence Yes
concerning the reasonableness of accounting estimates?
8 Consider whether any activities undertaken by service organizations N/A D4
are relevant to the audit: where appropriate complete the optional
programme 'Service organizations' (D4).
9 Consider whether there is a risk that previously unidentified or There is a risk and therefore Rapp02
undisclosed related party transactions will have a material impact on optional programme is to be R8.1
the audit: where appropriate complete the optional programme completed
'Related party transactions' (Rapp02).
10 Where it will be necessary to place reliance on the work of a N/A W3
component auditor in respect of a branch, division or subsidiary,
complete the optional programme 'Component Auditors' (W3).
11 Where the work of an expert is to be relied upon concerning: the
valuation of assets & liabilities; the determination of quantities; the
application of specialized techniques to determine amounts; or the
measurement of work completed; complete one or both of the
following optional programmes:
a) Using the work of an auditor's expert (D5) N/A D5

b) Using the work of management's expert (D6) Yes Property valuers D6
Filed as F3.1
12 Where other information is expected to be issued with the financial None other than the director's
statements review of this information should be planned so as to report which will be reviewed
allow sufficient time for resolution of inconsistencies. alongside the review of
financial statements
13 Where a decision has been made to use internal auditors to provide N/A
direct assistance (D8.1) communicate the nature and extent of that
planned use of to those charged with governance so as to reach a
mutual understanding that such use is not excessive in the
circumstances of the engagement.
C10 Page 181 of 565 APM 2022

Comments WP Ref
14 Consider and document impact of changes in legislation and None
accounting standards on the accounts.
15 Consider whether there are any indications that the going concern No indications
basis of accounting may not be appropriate.
16 Where there may be a requirement to report to an external regulator N/A
have we considered the scope of the engagement, the client ’ s
authorisation and the effectiveness of its control environment?
17 If appropriate, prepare a brief file note of matters arising from the Yes Notes on
review of the correspondence file and the meetings/discussions with C1
the client.
18 Determine the amount below which misstatements will be regarded Done, 1% of materiality B7
as clearly trivial and record on B7. Document the rationale. rounded down. Given there
are some identified
misstatements found in earlier
years a lower amount is
considered reasonable.
19 Carry out analytical procedures based on the preliminary figures or Done, no impact on audit C6
other information available and conclude upon the impact on the audit approach
approach.
20 Consider whether extensive analytical procedures can be used to Not considered appropriate
improve the efficiency and effectiveness of the audit.
21 Where substantive procedures were performed at an interim date N/A
have we planned further substantive procedures (and tests of
controls) to cover the remaining period from the interim date to the
period end?
22 Consider whether any changes are required to the audit approach in No changes necessary
the light of the results of the firm's monitoring process.
23 Confirm with management the extent of other information to be Done, only the directors'
included in the annual report and make arrangements to obtain a report information
copy for review.
C10 Page 182 of 565 APM 2022

31-Dec-21 E
M0001
E INTANGIBLE ASSETS
1 Summary sheet E
2 Lead schedule E1
3 Audit programme E2.1
4 Supplementary procedures E2.2
5 Goodwill E3
6 Development expenditure E4, 4.1, 4.2
Ei Page 183 of 565 APM 2022

31-Dec-21 E
M0001
SUMMARY SHEET– INTANGIBLE ASSETS

Planning Final
Number of Reference Have the Comments Initials
key tests to supple- objectives
which mentary been met?
satisfy procedures
objective*
Audit objectives
1 To ensure that all intangible assets exist 4 1, 2 Yes/No AW
and the register/listing is complete.
2 To ensure that intangible assets have 5, 6, 7, 8 3, 4, 5, 6, 7 Yes/No AW

been valued properly.
3 To ensure amortisation and impairment 9, 10, 11 8 Yes/No AW

are adequate if applicable.
4 To confirm that all necessary disclosures 12 Yes/No AW
concerning intangible assets have been
made and that the information is
appropriately presented and described.
Planning conclusion
Materiality or, where applicable, section specific materiality, (C7) has been set at: HK$933k
I am satisfied that from the tests planned sufficient appropriate evidence can be gained to satisfy the objectives.
Prepared by: AW Date: 10/3
Reviewed by: JO Date: 11/3
Final conclusion
From the audit work carried out I confirm that:

- the work has been performed in accordance with the audit programme.
- the work performed and the results obtained have been adequately documented.
- all necessary information has been collected for the presentation and disclosure in the financial statements.
- sufficient and appropriate evidence has been obtained to support the audit conclusion reached.
- in my opinion (subject to matters highlighted on B6 or B9)* intangible assets are fairly stated/ *not fairly stated as
described below:

Es Page 184 of 565 APM 2022

MCL AW E1
31 December 2021 18/3
Intangible assets - Lead schedule JO 1/4
Goodwill Development Total

HK$'000 HK$'000 HK$'000
COST
ß
1 January 2020 1,400 1,946 3,346
Additions - - -
31 December 2020 1,400 1,946 3,346
Additions - 497 497
Disposal of business (1,400) (1,400)
31 December 2021 - 2,443 2,443
AMORTISATION & IMPAIRMENT (Impairment) (Amortization)

1 January 2020 ß 700 1,112 1,812
Charge for year - 162 162
Impairment loss recognized in year 350 - 350
31 December 2020 1,050 1,274 2,324
Charge for year - 147 147
31 December 2021 - 1,421 1,421
NET BOOK VALUES

At 31 December 2020 ß 350 672 1,022
At 31 December 2021 - 1,022 ü 1,022
E3 E4
ß Agreed to last year's accounts

ü Agreed to final accounts
E1 Page 185 of 565 APM 2022

Manufacturing Company Limited Completed by: AW Date: 18/3 Ref:
31-Dec-21 Reviewed by: JO Date: 1/4 E2.1
M0001
AUDIT PROGRAMME - INTANGIBLE ASSETS
Test Results Initials

required satisfactory Sch ref Comments and
Y/N Y/N date
General
1 Obtain and check, or prepare, a lead schedule Y Y E1 AW
for the current year’s figures and reconcile this
to the general ledger.
2 Carry out analytical procedures such as:
(a) comparison of the current figures with Y Y C6.1 Movements AW
those of prior periods; E1 assessed in E3, E4,
E4.1 and E4.2 and
considered as
reasonable
(b) review and comparison of key ratios or N Not appropriate AW
other performance indicators.
3 Review for items above performance Y Y E3 Disposal of memory AW
materiality or that are otherwise unusual and stick division is only
verify. item above
performance
materiality
Existence
4 Ensure the existence of intangible assets by N Existence confirmed by
inspecting documents of title e.g. patent, checking underlying
licence, etc. expenditure
Cost/valuation
5 Ensure intangible assets are properly
classified under:
(a) Intangible assets with finite useful lives. Y Y E4 AW
(b) Intangible assets with indefinite useful Y Y None AW
lives.
6 Ensure sufficient and appropriate evidence is N AW
obtained to support indefinite useful life
assessments.
7 Vouch additions to supporting documentation.
Ensure that:
(a) Cost has been correctly recorded; Y Y E4 AW
(b) They have been added to the intangible Y Y E4 AW
asset register/listing;
(c) They have been appropriately capitalized Y Y E4.2 AW
in the current financial year/period;
(d) They have been properly authorized. Y Y E4.2 New job numbers AW
authorized by factory
manager
E2.1 Page 186 of 565 APM 2022

Y/N Y/N date
8 Vouch disposals to supporting documentation.
Ensure that: E3
(a) Any sales proceeds have been correctly Y Y

accounted for;
(b) Any profit or loss on disposal has been Y Y
correctly calculated; Disposal of goodwill
(c) They have been removed from the Y Y re Memory Stick
AW
intangible asset register/listing; division, otherwise
none.
(d) They should be derecognized in the Y Y
current financial year/period;
(e) They have been properly authorized. Y Y
Impairment
9 Consider whether there are any indicators of Y Y The company is AW
impairment, which might adversely affect the trading profitably and
value of the assets, and ensure that these all products with
have been dealt with in accordance with capitalized
applicable accounting standards. development
expenditure continue
to sell. There are no
indications of
impairment.
10 Where an impairment provision may be N No indicator of AW

required: impairment
(a) Confirm that impairment has been
identified as an accounting estimate on
C4 Section 4.5 and work planned on
C4.1; or
(b) Explain how the approach taken

complies with the requirements of HKSA
540 (Revised).
Amortisation
11 For intangible assets with finite useful lives:
(a) Confirm that amortisation has been Y Y AW
C4.1; or
(b) Explain how the approach taken Y Y C4.1 AW
540 (Revised).
(c) Compare bases and rates of amortisation Y Y E4 AW
with accounting policy note and ensure
consistency.
(d) Confirm that all assets are being Y Y E4 AW
amortised in accordance with the
company’s accounting policy.
(e) Test check calculations or check Y Y E4 AW

reasonableness of amortisation charge
for the year/period.
E2.1 Page 187 of 565 APM 2022

Y/N Y/N date
Presentation and disclosure
12 Ensure that there is sufficient appropriate Y Y E1 (1) Amounts AW
evidence on the file to support the disclosures disclosed in the
made. financial statements
agreed to audit work
performed.
(2) Disclosure
checklist completed
against
management's
disclosure [Not
included in this
example file]
Bespoke tests
13 Draft and perform any necessary additional Y Y None required AW
tests such as those required by C8.3 and
cross reference with the objectives on the
summary sheet.
Conclusion
14 Consider whether there are any points which Y Y No issues arising AW
need to be included in a letter of
representation or letter of comment and record
on A5 or A6 as appropriate.
15 Review the planned extent of reliance on N No planned reliance AW

internal controls in this area and consider
whether this remains appropriate.
16 Assess whether the initial materiality and/or Y Y No revisions AW
risk assessment should be revised in view of required
the audit evidence obtained. Record details of
any necessary adjustments on B6 or B9.
Consider the impact on the remainder of the
audit work and on any work undertaken to
date.
E2.1 Page 188 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 E2.2
M0001
SUPPLEMENTARY PROCEDURES - INTANGIBLE ASSETS

Y/N Y/N date
1 Ensure the existence of intangible assets by Y Y E4.1 AW
examining evidence of expenditure incurred E4.2
e.g. purchase details for intangible asset
separately acquired, acquired in a business
combination, internally generated, etc.
2 Ensure the completeness of intangible assets

by :
(a) assessing whether there was any Y Y Discussed with AW
expenditure that should have been Raymond Chan.
capitalized as intangible assets but Development
expensed in the income statement. expenditure is
recorded via the job
costing system so it is
easy to spot in the
product description.
(b) reviewing board minutes (Ref. Section Y Y O4 AW

O).
(c) performing search for unrecorded Y Y T2-2(c) AW
liabilities (Ref. Section T).
3 Ensure the entity has accounted for its Y Y Cost model - no active AW
intangible assets in accordance with applicable market
accounting standards.
4 Has the cost been correctly determined?

(a) For assets separately acquired N
(b) For assets acquired as part of a business N
combination
(c) For assets exchanged N

(d) For assets internally generated Y Y E4.1 AW
(e) For government grant N
5 Ensure that expenditure on an intangible item Y Y E4.1 Costs incurred via job AW
that was initially recognized as an expense costing system so
shall not be recognized as part of the cost of none previously
an intangible asset at a later date. expensed.
6 Where the intangible assets are stated at N

revalued amount ensure that:
(a) the policy is applied consistently to all N
assets in that class;
(b) revaluation increases and decreases are N

Cost model being
properly recorded; AW
applied
(c) where a revalued asset was disposed of, N
any revaluation surplus included in the
equity was transferred to retained
earnings and not recycled through the
income statement.
E2.2 Page 189 of 565 APM 2022

Y/N Y/N date
7 Ensure the entity accounted for foreign N
currency transactions in accordance with
applicable accounting standards.
8 Intangible assets with indefinite useful lives

and intangible asset not yet available for use
must be assessed for impairment annually and
whenever there is an indication that the
intangible asset may be impaired.
(a) If the recoverable amount of an asset (i.e. N

the higher of an asset ’ s fair value less
cost to sell and its value in use) is less With sale of Memory
than the carrying amount, ensure an Stick division and
impairment loss has been recognized related goodwill, the
immediately in profit or loss, unless the only intangible asset is AW
asset is carried at revalued amount; R&D which is available
for use and subject to
amortization.
(b) Where an increase in carrying value is N
attributable to a reversal of previous
impairment loss; confirm that the carrying
value (net of amortisation) does not
exceed the value at which the asset
would have been stated had no previous
impairment loss been recognized.
E2.2 Page 190 of 565 APM 2022

Client: MCL Prep by: AW Date: 18/3 Ref:
Year end: 31-Dec-21 Rev by: JO Date: 1/4 E3
Subject: Goodwill
The goodwill related to the USB Memory Sticks business purchased from Kowloon USB Memory Sticks Limited
("KMSD").
The purchase of the business increased the sales in the short term but did nothing to halt the downward trend in sales
that is due to technological changes and the massive growth in the market for flash drives in particular.
Any issues with the valuation of goodwill have been avoided through the sale of the division in December this year.
Sale of Memory Stick division

$
Goodwill 350 E1
Plant & equipment Note 1 1,806 F1
2,156
Proceeds of sale Note 2 (350)
Loss on sale 1,806
Note 1 These are primarily the assets acquired from KMSD. They were separately identifiable in the fixed asset
register.
Note 2 The proceeds were received on completion in December and are in accordance with the sale agreement
and were checked to the bank statement. A copy of the sale agreement is on the PAF file [not produced in
this example file.]
Note 3 Approval of the sale of Memory Stick division was checked to the minutes of board of directors' meeting.
(See O4)
E3 Page 191 of 565 APM 2022

Subject: Research and development
Objective
Review the calculation of R&D amortization
Assertions
Accuracy, valuation
Results
R&D Additions and amortization

E4.2
P&L &
Years ß 2015 2016 2017 2018 2019 2020 2021 Charge
2009 55,833.37 55,833.37
2010 55,833.33 55,833.33
2011 55,833.33 55,833.33
2012 55,833.33 43,333.37 99,166.70
2013 55,833.33 43,333.33 99,166.66
2014 55,833.33 43,333.33 99,166.66
2015 55,833.33 43,333.33 99,166.66
2016 55,833.33 43,333.33 99,166.66
2017 55,833.33 43,333.33 35,000.00 134,166.66
2018 55,833.33 43,333.33 35,000.00 17,500.00 151,666.66
2019 55,833.33 43,333.33 35,000.00 17,500.00 10,500.00 162,166.66
2020 55,833.33 43,333.33 35,000.00 17,500.00 10,500.00 162,166.66
2021 43,333.33 35,000.00 17,500.00 10,500.00 41,416.74 147,750.07
2022 43,333.33 35,000.00 17,500.00 10,500.00 41,416.66 147,749.99
2023 43,333.33 35,000.00 17,500.00 10,500.00 41,416.66 147,749.99
2024 35,000.00 17,500.00 10,500.00 41,416.66 104,416.66
2025 35,000.00 17,500.00 10,500.00 41,416.66 104,416.66
2026 35,000.00 17,500.00 10,500.00 41,416.66 104,416.66
2027 35,000.00 17,500.00 10,500.00 41,416.66 104,416.66
2028 35,000.00 17,500.00 10,500.00 41,416.66 104,416.66
2029 17,500.00 10,500.00 41,416.66 69,416.66
2030 10,500.00 41,416.66 51,916.66
2031 41,416.66 41,416.66
2032 41,416.66 41,416.66
2,443,000 670,000 520,000 420,000 210,000 126,000 - 497,000 N1

Total cost Sound & graphics cards Network cards TV tuner
Sum of shaded area is net book value = $1,021,749.92. Calculated verified and agreed.
N1 Addition in 2021 verified on E4.2
E4 Page 192 of 565 APM 2022

The company has continued its policy of writing off development expenditure over 12 years. Whilst this seems a long
time in the IT world, much of the development is the overall design and layout of a particular card, rather than the use
of a particular processor, and this has a more enduring life. We have reviewed the company latest sales ledger and
noted that it is still selling the cards to which the expenditure relates so the policy appears reasonable.
Conclusion
The R&D amortization was properly calculated.
E4 Page 193 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 E4.1
Objective
Whether the capitalization of R&D is in accordance with HKFRSs
Assertions
Presentation, rights and obligations of intangible assets
Results
The company has incurred expenditure of $497k (E4.2) in bringing the new Wi-Fi units into production. The expenditure
relates to the specific design of the component so as to ensure compatibility with other components used by the
company's major customers and includes the cost of prototypes of the repeaters, extenders and hot spot units.
The prototype units were given a job number (267-21 to 272-21) and costs were booked against the job in the usual way.
The balance on the job was then capitalized at the start of the year when development was complete.
HKAS 38.57 includes a series of tests that must be passed in order to capitalize development expenditure. These are set
out below:
Satisfy?
1. The technical feasibility of completing the intangible asset so that it will be ü The product is now
available for use or sale. being sold.
2. Its intention to complete the intangible asset and use or sell it. ü As above.
3. Its ability to use or sell the intangible asset. ü Designs can be sold
as with Memory Stick
division
4. How the intangible asset will generate probable future economic benefits. ü Existing sales and
Among other things, the entity can demonstrate the existence of a market for projections show this.
the output of the intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
5. The availability of adequate technical, financial and other resources to ü The new components
complete the development and to use or sell the intangible asset. are now being
manufactured and
sold
6. Its ability to measure reliably the expenditure attributable to the intangible ü Separate job
asset during its development. numbers allocated
The nature of costs incurred was also reviewed on E4.2. In all cases this was labor charged by the R&D staff together
with some component costs.
Conclusion
The R&D expenditure was properly capitalized according to HKSA 38.57.
E4.1 Page 194 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 E4.2
Objective
Test research and development cost capitalized during the year.
Assertions
Accuracy, existence, rights and obligations of intangible assets
Results
The development expenditure was checked to job cards as follows:
Agreed to
labor
Agreed to charged by
Job card HK$ job card R&D dept Nature of expenditure
267-21 86,332 ü ü Components and labor

269-21 2,334 ü ü Labor only
497,419
ü Agreed to job card. (Job cards have been tested on I6.1)
Conclusion
The R&D expenditure in 2021 was verified.
E4.2 Page 195 of 565 APM 2022

31-Dec-21 F
M0001
F PROPERTY, PLANT AND EQUIPMENT
1 Lead schedule F1
F1a
Assessing the classification of assets as PP&E or leases [Not produced in this example file]
2 Audit programme
Audit programme F2.1
Supplementary programme F2.2
Sample selection planning - PP&E (existence and depreciation charge) F2.3
Sample selection planning - PP&E (plant addition) F2.4
Accounting estimate: work programme (revaluation of property) F2.5
3 Using the work of management's expert F3.1

Assessing the valuation of warehouse [Not included in this example file] F3.1a
4 Land and building F3.2

Test the depreciation charge of the warehouse [Not included in this example file] F3.3
Plant F4
Plant register F4.1
Test client's plant register [Not included in this example file] F4.1a - b
Test the depreciation charge of PP&E [Not included in this example file] F4.1c
3 Schedule of additions F4.2
4 Depreciation basis/calculation
Disposals and depreciation assessment F4.3
Review management's UEL assessment [Not included in this example file] F4.4
5 Leases
Summary of plant and equipment held under leases F5
Summary sheet - lessee accounting under HKFRS 16 F6.1
Audit programme - lessee accounting under HKFRS 16 F6.2
Consideration of potential lease contracts F6.3
Fi Page 196 of 565 APM 2022

31-Dec-21 F
M0001
SUMMARY SHEET– PROPERTY, PLANT AND EQUIPMENT

Planning Final
satisfy procedures
objective*
Audit objectives
1 To establish that property, plant & 5 1 Yes/No AW
equipment exist and its register/ listing is
complete.
2 To establish that property, plant & 6 Yes/No AW

equipment are beneficially owned.
3 To verify that all property, plant & 7, 8, 9, 10 2, 3, 4, 5, Yes/No AW

equipment are recorded at cost or 6, 7
valuation and that the basis is acceptable.
4 To confirm that impairment and 11, 12, 13 8 Yes/No AW

depreciation are adequately provided for
the property, plant and equipment.
5 To confirm that all necessary disclosures 14, 15 9 Yes/No AW

concerning property, plant and equipment
have been made and that the information
is appropriately presented and described.
Planning conclusion
HK$933k (except
Materiality or, where applicable, section specific materiality, (C7) has been set at:
depreciation HK$800k)
Final conclusion
- sufficient appropriate evidence has been obtained to support the audit conclusion reached.
- in my opinion (subject to matters highlighted on B6 or B9)* property, plant & equipment are fairly stated/ * not fairly
stated as described below.

*Delete as appropriate
Fs Page 197 of 565 APM 2022

MCL AW F1
31 December 2021 19/3
Property Plant & Equipment - Lead schedule JO 1/4
We have assessed client's classification of assets as property, plant and equipment and right-of-used
assets respectively, and noted the classifications are based on the attribute of the assets and in accordance
with HKAS 12 and HKFRS 16. For work performed, please refer to F1a [not included in this example file] .

Memory
Ware- Total
COST Plant stick
house P&E
division
HK$000 HK$000 HK$000 HK$000
1 January 2020 ß 7,203 2,202 2,954 12,359
Additions - 1,527 - 1,527
Revaluation - - - -
Disposals - (1,526) - (1,526)
31 December 2020 7,203 2,203 2,954 12,360

Additions - 3,867 - 3,867
Revaluation 1,099 - - 1,099
Floppy disposal - - (2,954) (2,954)
Disposals (637) - (637)
31 December 2021 8,302 5,433 - 13,735
DEPRECIATION
1 January 2020 ß 21 1,976 784 2,781
Charge 147 374 364 885
Disposals - (1,526) - (1,526)
31 December 2020 168 824 1,148 2,140

Charge 175 1,339 - 1,514
Revaluation (343) - - (343)
Floppy disposal - - (1,148) (1,148)
Disposals - (581) - (581)
31 December 2021 - 1,582 - 1,582
NET BOOK VALUE
31 December 2020 ß 7,035 1,379 1,806 10,220
31 December 2021 8,302 3,851 - 12,153 ü

F3.2 F4 E3

F1 Page 198 of 565 APM 2022

MCL AW F1
31 December 2021 19/3
Property Plant & Equipment - Lead schedule JO 1/4
Right-of-use Assets Total
COST Factory Equipment
HK$000 HK$000 HK$000

1 January 2020 ß - 332 332
Additions 9,800 629 10,429
Revaluation - - -
Disposals - - -
31 December 2020 9,800 961 10,761
Additions - 1,005 1,005
Revaluation - - -
Disposals - - -
31 December 2021 9,800 1,966 11,766
DEPRECIATION
1 January 2020 ß - 33 33
Charge 980 102 1,082
Disposals - - -
31 December 2020 980 135 1,115
Charge 980 236 1,216
Revaluation - - -
Floppy disposal - - -
Disposals - - -
31 December 2021 1,960 371 2,331
-
NET BOOK VALUE -
31 December 2020 ß 8,820 826 9,646
31 December 2021 7,840 1,595 9,435 ü
F4.4 F4, F5

F1 Page 199 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 F2.1
M0001
AUDIT PROGRAMME - PROPERTY, PLANT AND EQUIPMENT

Y/N Y/N date
General
1 Obtain and check, or prepare, a lead schedule Y Y F1 AW
(a) comparison of the current figures with Y Y C6.1 AW
those of prior periods;
(b) review and comparison of key ratios or N AW

3 Review for items above performance Y Y E3 Disposal of memory AW

materiality or that are otherwise unusual and F3.1 stick and valuation of
verify. F3.1a warehouse to be
F4.1 assessed separately
on E3, F3.1 and
F3.1a [Note: F3.1a
not included in this
example file] .
Plant register
reviewed. No
individual movement
during the year (i.e.,
addition,
depreciation,
disposal) is above
PM or appears
unusual.
4 Consider completion of App 6 where HKFRS Y Y F6 AW

16 applies.
Existence/Completeness
5 Carry out physical inspection of assets
including both current year additions and
assets purchased in previous years.
(a) Test for existence by selecting items from Y Y F4.1 For plant & AW
the asset register and checking back to equipment
the physical assets.
(b) Test for completeness by selecting N N/A Not a risk area

physical assets and checking the quantity
counted with the asset register.
(c) Where physical verification has not been N N/A

undertaken, detail the steps carried out to
establish that all assets exist.
F2.1 Page 200 of 565 APM 2022

Y/N Y/N date
Ownership
6 Confirm ownership of PPE by:
(a) Inspecting title deeds to all properties. Y Y F3.2 AW
(b) Performing land search for properties Y Y F3.2 AW
situated both locally or overseas.
(c) Inspecting lease agreement or obtaining Y Y F3.2 AW

direct confirmation from bank or other
custodian of PPE.
(d) Inspecting the motor vehicle registration Y Y F4.1 AW

documents for motor vehicles owned by
the company.
Cost and valuation

7 Vouch additions to supporting documentation. F4.2
Ensure that:
(a) The cost is correctly recorded; Y Y AW

(b) They have been properly authorized; Y Y AW
(c) They are correctly classified; Y Y AW
(d) They are of a capital, not revenue, nature; Y Y AW
(e) The value has been correctly computed Y Y AW

where they represent the capitalisation of
items made internally;
(f) Assets acquired were delivered prior to Y Y AW

the balance sheet date;
(g) For assets under leasing arrangements Y Y F5 AW

where HKFRS 16 applies, consider
completion of App6.
8 Vouch disposals to available evidence. Ensure

that: F4.3
(a) Sales proceeds have been correctly Y Y AW

accounted for;
(b) Profit /loss on disposal has been correctly Y Y AW

calculated;
(c) They have been properly authorized; Y Y AW

(d) They have been removed from the fixed Y Y AW
asset register/listing.
9 Where there is a policy of revaluation for a

class of assets: F3.2
(a) Confirm that valuations have been Y Y AW

identified as accounting estimates on C4
Section 4.5 and work planned on C4.1; or C4.1-3
(b) Explain how the approach taken complies Y Y AW

with the requirements of HKSA 540 C4.1-3
(Revised).
(c) Confirm that the policy is applied Y Y AW
consistently to all assets in that class.
F2.1 Page 201 of 565 APM 2022

Y/N Y/N date
10 Where the business has investment properties N AW
please complete the appendix for investment
properties (App 2).
Impairment
11 Consider whether there are any indicators of Y Y No indicators AW
impairment, which might adversely affect the identified.
value of the assets, and ensure that these
have been dealt with in accordance with
12 Where an impairment provision may be

required:
(a) Confirm that impairment has been N N/A

C4.1; or
(b) Explain how the approach taken complies N N/A
with the requirements of HKSA 540
(Revised).
Depreciation
13 In respect of the charge to depreciation: F4.1
(a) Confirm that depreciation has been Y Y C4.1-1 AW
C4.1; or
(b) Explain how the approach taken complies Y Y C4.1-1 AW
(Revised).
(c) Compare bases and rates of depreciation Y Y F4.1 AW
with accounting policy note and ensure F4.3
consistency. F4.4
(d) Have rates been considered for each Y Y F4.4a [Note: F4.4a not AW
significant part of PPE based on different included in this
useful life, rate of consumption and example file]
separability etc.
(e) Review the methods applied and Y Y F4.4a AW
consider whether they are appropriate to
the pattern of consumption of the assets.
(f) Confirm that all assets are being Y Y F4.4a AW

depreciated in accordance with the
company’s accounting policy.
(g) Test check calculations or check Y Y F3.3 [Note: F3.3 and AW
reasonableness of depreciation charge F4.1c F4.1c not included in
for the year/period. this example file]
(h) Ensure that no assets have been Y Y F3.3 [Note: F3.3 and AW
depreciated by more than the lower of F4.1c F4.1c not included in
cost or residual value. this example file]
F2.1 Page 202 of 565 APM 2022

Y/N Y/N date
14 Ensure that there is sufficient appropriate Y Y F3.2 (1) Amounts AW
evidence on the file to support the disclosures F5 disclosed in the
made such as property valuations, the book financial statements
value of leased assets and assets pledged as agreed to audit work
security for liabilities. performed.
(2) Disclosure
checklist completed
against
management's
disclosure [Not
included in this
example file]
15 Ensure that where assets have been revalued Y Y F3.2 AW

during the year:
(a) the revaluation is accounted for correctly Y Y AW

through the income statement or other
comprehensive income statement as
appropriate; and
(b) any necessary historical cost information Y Y AW
is available for disclosure purposes.
Bespoke tests
16 Draft and perform any necessary additional N NA None required AW
tests such as those required by C8.3 and cross
reference with the objectives on the summary
sheet.
Conclusion
17 Consider whether there are any points which Y Y A6-2 AW
need to be included in a letter of representation
or letter of comment and record on A5 or A6 as
appropriate.
18 Review the planned extent of reliance on N No reliance planned AW

19 Assess whether the initial materiality and/or Y Y No change AW

risk assessment should be revised in view of
date.
F2.1 Page 203 of 565 APM 2022

M0001
SUPPLEMENTARY PROCEDURES - PROPERTY, PLANT AND EQUIPMENT

Y/N Y/N date
1 Ensure the completeness of PPE by :
(a) reviewing board minutes (Ref. Section Y Y O4 AW
O).
(b) performing search for unrecorded Y Y AW
liabilities (Ref. Section T). T2-2(c)
2 Ensure the entity has accounted for its PPE in Y Y Plant & Equipment - AW
accordance with applicable accounting F1a Cost basis
standards. F3.2 Warehouse -
Revalued basis
3 Ensure cost has been correctly determined Y Y AW
under the applicable accounting standards. F1a
F3.2
4 Where property, plant and equipment is

acquired in exchange for a non-monetary
asset or assets, or a combination of monetary
and non-monetary asset, ensure that the cost
of property, plant and equipment is measured
at fair value unless:
(a) the exchange transaction lacks N N/A

commercial substance; or
(b) the fair value of neither the asset N N/A
received nor the asset given up is reliably
measurable.
(c) If the acquired item is not measured at N N/A

fair value, its cost is measured at the
carrying amount of the asset given up.
5 Where the PPE is stated at revalued amount
confirm that:
(a) supporting documentations exists for the Y Y C4.1-3 AW
valuations such as an appraisal report or F3.2
management's estimates; ensure PAF 1.7
sufficient appropriate audit evidence is
obtained and documented in B5, C4 and
PAF13 in relation to accounting
estimates of fair values.
(b) any revaluation increase is credited to Y Y AW

equity.
(c) any revaluation decrease is debited first Y Y None AW
against any previous revaluation surplus
and secondly to the income statement.
(d) where a revalued asset was disposed of; N NA No such circumstances AW

any revaluation surplus was transferred
to equity and not recycled through the
income statement.
F2.2 Page 204 of 565 APM 2022

Y/N Y/N date
6 For leases concerning land and buildings
consider whether:
(a) it is necessary to measure interests in N AW
land and buildings elements separately;
Cannot split and there
is no financial impact
(b) any of the exceptions from the need to N AW
follow this treatment apply.
(c) proper distinction has been drawn as F3.2
follows:
(i) land in Hong Kong and held on long, Y Y AW
medium-term and long leases
(ii) land outside Hong Kong, freehold N N AW
and held on long, medium-term and
long leases
7 Ensure the entity accounted for foreign N AW

8 Where there is an indication of impairment:

(a) Enquire if the entity has estimated the N AW
recoverable amount of assets (i.e. the
higher of an asset’s fair value less cost to
sell and its value in use).
(b) Where an increase in carrying value is N AW

attributable to a reversal of previous
impairment loss; confirm that the carrying
value (net of depreciation and
amortisation) does not exceed the value
at which the asset would have been
stated had no previous impairment loss
been recognized.
9 Accumulate information regarding long-term Y Y L6 AW

lease commitments such as lease term, PAF 7
monthly rental, expiry date, outstanding
principal balances and finance charges etc. for
disclosure requirements under the applicable
F2.2 Page 205 of 565 APM 2022

31-Dec-21 F2.3
M0001
SAMPLE SELECTION PLANNING – PROPERTY, PLANT AND EQUIPMENT
(Existence)
Table of inherent risk Assertion level risk (C8.4)
Approximate number of transactions Statement M 1.4 1.8 2.1
in year: 50 level risk (C1) H 1.6 2.1 2.5
Sampling risk factor

Test of detail only = Inherent risk factor (table figure) OR 1.2
Test of detail and (substantive analytical procedure (D1 and D1.1)* or test of control
2
(Section S)*) = Inherent risk factor (table figure) x /3 OR N/A
Test of detail and (substantive analytical procedure (D1 and D1.1)* and test of control
(Section S)*) = Inherent risk factor (table figure) x1/2 N/A
Performance materiality = Materiality = 1,120 933

Owned - $3,851K
Inherent risk factor (table figure) 1.2 Leased - $1,595K
Monetary value of population ( 100 %) F4 HK$ 5,446
Value of items above performance materiality ( %) HK$( - )
Value of scheduled other “key” items ( %) HK$( - )
Value of residual population ( %) HK$ 5,446
Sample size =
6 (See maximum
Residual population x Sampling risk factor HK$ 5,446 x 1.2 = below)
Materiality HK$ 1,120
Plus: Number of items above performance materiality = -
Number of other “key” items = -
Actual sample size 6
Conclusion
I note that the sample size calculated by the APM is a suggestion only and that the extent of testing is a matter for
professional judgment. I am satisfied that the sample specified above will fairly test the population.
Note: Please refer to HKSA 530.A23 for guidance if the auditor concludes that audit sampling has not provided a
reasonable basis for conclusions about the population that has been tested.
Prepared by AW Date 21/3

Reviewed by JO Date 1/4
* Delete as appropriate.
Tables of maximum sample sizes

Assertion risk Assertion risk Assertion risk
L M H L M H L M H
Financial L 20 25 30 Financial L 13 17 20 Financial L 10 13 15

statement M 25 30 35 statement M 17 20 23 statement M 13 15 18
level risk level risk level risk
H 30 35 40 H 20 23 26 H 15 18 20
Table 1 – for tests of Table 2 – for tests of Table 3 – for tests of
detail only detail and (substantive detail and substantive
analytical procedures* or analytical procedures and
tests of control*) tests of control
F2.3 Page 206 of 565 APM 2022

31-Dec-21 F2.4
M0001
SAMPLE SELECTION PLANNING – PROPERTY, PLANT AND EQUIPMENT
(Plant additions)

(Section S)*) = Inherent risk factor (table figure) x 2/3 OR N/A

1.2
Inherent risk factor (table figure) Owned - $3,867K
Leased - $1,005K
Monetary value of population ( 100 %) F4 HK$ 4,872

Sample size =
5 (See maximum
Residual population x Sampling risk factor HK$ 4,872 x 1.2 = below)
Number of other “key” items = -
Conclusion

Reviewed by AO Date 1/4

L M H L M H L M H

H 30 35 40 H 20 23 26 H 15 18 20
analytical procedures* or analytical procedures
tests of control*) and tests of control
F2.4 Page 207 of 565 APM 2022

M0001 (D3)
ACCOUNTING ESTIMATE: WORK PROGRAMME Revaluation of property
A copy of this programme (D3) should be completed for each estimate and filed in the relevant section(s), not in
section D. The estimate for which the form is completed should be specified above. This programme must be tailored
as it is unlikely that all tests will be necessary.

required satisfactory Sch Ref Comments and
Y/N Y/N date
Planned approach
1 Summarise the results of the risk assessment Y Y C8.3-18 The risk is assessed AW
for this estimate from C4.1 and C8.3. as high.
2 Specify the assertions where there is a risk of Y Y C8.3-18 Valuation of PPE/ AW

misstatement arising from this estimate. Overstatement of
property and
revaluation reserve
3 Confirm that the information recorded on Y Y PAF1.7 Yes, no changes. AW

PAF13 regarding this estimate is complete and
up to date.
4 Where a high risk exists, ensure the N N/A PAF1.7 AW
information recorded on PAF13 includes our
understanding of the entity ’ s controls,
including control activities, relevant to the risk.
5 Where the audit approach or control risk N N/A AW

assessment placed reliance on the
effectiveness of relevant controls, or where
substantive tests alone cannot provide
sufficient audit evidence: specify how the
operating effectiveness of those controls at
relevant times during the period has or will be
confirmed.
6 Tailor the procedures below based on the level
and nature of assessed risks of material
misstatement at the assertion level to include
one or more of the following:
a) Obtaining audit evidence from events N N/A AW
occurring up to the date of the auditor ’ s
report.
b) Testing how management made the Y Y F3.1 AW
accounting estimate. F3.1a
F3.2
c) Developing an auditor’s point estimate or N N/A AW

range.
F2.5 Page 208 of 565 APM 2022

Y/N Y/N date
7 Ensure the planned procedures:
a) Include those in respect of the Y Y F3.1 Disclosure checklist AW
appropriateness of the disclosures in the F3.1a completed and noted
financial statements related to this F3.2 the disclosures are
accounting estimate. appropriate [Not
included in this
example file]
b) Are not biased towards obtaining audit Y Y AW

evidence that may be corroborative or
towards excluding audit evidence that
may be contradictory.
c) Include tests of detail where there is a Y Y F3.1 AW
high risk and the audit approach consists F3.1a
only of substantive procedures. F3.2
Events occurring up to the date of the audit

report
8 Have the audit procedures performed Y Y T2 None noted from the AW
included an evaluation of whether the subsequent events
evidence obtained is sufficient and procedures.
appropriate, taking into account any changes
in circumstances and other relevant conditions
between the event and the measurement date
that may affect the relevance of the audit
evidence obtained in the context of the
Testing how management made the

accounting estimate
9 Consider the following in respect of the F3.1
method adopted by management to determine F3.1a
the accounting estimate: F3.2
a) The appropriateness of the method Y Y AW
selected in the context of the applicable
financial reporting framework, and, if
applicable, any changes from the method
used in prior periods.
b) Whether judgments made in selecting Y Y AW

the method gave rise to any indicators of
possible management bias.
c) That calculations have been applied in Y Y AW

accordance with the method and are
mathematically accurate.
d) Whether the integrity of the significant Y Y AW
assumptions and data has been
maintained in applying the method.
F2.5 Page 209 of 565 APM 2022

Y/N Y/N date
10 Where management ’ s application of the N N/A No complex AW
method involves complex modelling: modelling.
a) Consider whether judgments have been

applied consistently.
b) Ensure that the design of the model

meets the measurement objective of the
applicable financial reporting framework.
c) Where applicable ensure that any

changes from the prior period ’ s model
are appropriate in the circumstances.
d) Ensure that any adjustments to the
output of the model are consistent with
the measurement objective of the
applicable financial reporting framework
and are appropriate in the circumstances.
11 Review the significant assumptions made by F3.1

management when determining the F3.1a
accounting estimate and consider whether: F3.2
a) Those assumptions are appropriate in Y Y AW
the context of the applicable financial
b) Any changes from the prior period are Y Y AW
appropriate.
c) judgments made in selecting the Y Y AW
significant assumptions give rise to
indicators of possible management bias.
d) Significant assumptions are consistent Y Y AW

with each other and with those used in
other accounting estimates, or with
related assumptions used in other areas
of the entity’s business.
e) Management has the intent to carry out Y Y AW

specific courses of action and has the
ability to do so.
12 Consider the following in respect of the data F3.1
utilized in management ’ s approach to F3.1a
determining the accounting estimate: F3.2
a) Whether the data is appropriate in the Y Y AW
context of the applicable financial
reporting framework .
b) Whether any changes from prior periods Y Y AW
are appropriate in the circumstances.
c) Whether judgments made in selecting Y Y AW

the data give rise to indicators of possible
management bias.
F2.5 Page 210 of 565 APM 2022

Y/N Y/N date
d) The data is relevant and reliable in the Y Y AW
circumstances.
e) The data has been appropriately Y Y AW

understood or interpreted by
management, including in respect to any
contractual terms.
13 Consider whether, in the context of the N N/A AW
applicable reporting framework, management
has taken appropriate steps to both
understand and address estimation
uncertainty by selecting an appropriate point
estimate.
14 Where, based on the audit evidence obtained, N N/A AW

the conclusion is that management has not
taken appropriate steps to understand or
address estimation uncertainty, the following
audit procedures should be performed.
a) Request management to perform

additional procedures to understand
estimation uncertainty or to address it by
reconsidering the selection of their point
estimate or considering providing
additional disclosures relating to
estimation uncertainty and evaluated
management's responses so taken.
b) If management ’ s response to the

request made in part (a) above is
determined to not sufficiently address
estimation uncertainty, to the extent
practicable develop an auditor ’ s point
estimate or range.
c) Consider whether a deficiency in internal
control exists, and if so, communicated to
those charged with governance and
management.
Developing an auditors point estimate or
range
15 Have procedures been performed to evaluate N N/A AW
whether the methods, assumptions or data
used are appropriate in the context of the
16 Confirm that the range includes only amounts N N/A AW

that are supported by sufficient appropriate
audit evidence and have been determined to
be reasonable in the context of the
measurement objectives and other
requirements of the applicable financial
F2.5 Page 211 of 565 APM 2022

Y/N Y/N date
Use of management appointed experts

17 Evaluate the expert’s competence, capabilities Y Y F3.1 AW
and objectivity along with the nature of the F3.1a
work that they have undertaken. F3.2
18 Consider whether the audit team is sufficiently Y Y AW

familiar with the expert ’ s area of expertise to
be able to make this evaluation.
Overall evaluation of the estimate

19 Consider whether, for this estimate:
a) The assessment of the risks of material Y Y AW
misstatement at the assertion level
remain appropriate?
b) Possible indicators of possible Y Y AW
management bias have been identified?
c) Management ’ s decisions relating to the Y Y AW

recognition, measurement, presentation
and disclosure of the accounting
estimate are in accordance with the
d) Sufficient appropriate audit evidence has Y Y AW

been obtained, taking into account all
relevant audit evidence obtained whether
corroborative or contradictory?
Disclosure and presentation

20 Consider whether management has Y Y Disclosure checklist AW
addressed estimation uncertainty by including completed against
appropriate disclosure in the financial management's
statements, including those necessary to disclosure [Not
achieve fair presentation, in accordance with included in this
the applicable financial reporting framework. example file]
21 Have we obtained sufficient appropriate audit Y Y Same as above AW

evidence that the disclosures related to the
accounting estimate are free of material
misstatement, other than those related to
estimation uncertainty?
F2.5 Page 212 of 565 APM 2022

Y/N Y/N date
Communication and letter of representation

22 Consider whether there are any points which Y Y None AW
representation or letter of comment, or
communicate with those charged with
governance or management, in respect of the
methods, significant assumptions and data
used in making the accounting estimate and
related disclosure and record on A5 or A6 as
appropriate.
[Note: Appendix 2 of HKSA 540 (Revised)
includes matters specific to accounting
estimates that the auditor may consider
communicating to those charged with
governance.]
Conclusion
23 Consider whether sufficient appropriate audit Y Y AW
evidence concerning this audit estimate has
been obtained that is adequate for the
purposes of the audit.
24 Assess whether the initial materiality and/or Y Y No changes required AW
date.
F2.5 Page 213 of 565 APM 2022

M0001 (D6)
AUDIT PROGRAMME - USING THE WORK OF MANAGEMENT'S EXPERT

This programme should be used where information to be used as audit evidence has been prepared using the work
of management's expert and the expert's work will be significant to the audit.
This programme should be separately completed for each expert used by management and filed in the relevant
section(s), not Section D.

Y/N Y/N date
General
1 Evaluate their professional competence and Y Y F3.2 Qualifications and AW
capabilities including professional experience of T&C
qualifications, experience and resources. are considered
appropriate
2 Evaluate the objectivity of the expert. For Y Y F3.2 T&C are a AW

example consider whether they are employed professional firm
by the company; the level of influence the with no apparent
company has over the expert; whether they are links with the client
related in some manner such as being
financially dependent upon the entity or being
an investor.
3 Obtain sufficient appropriate audit evidence Y Y F3.1a Instructions AW

that the scope of the expert’s work is adequate reviewed and filed
for the purposes of the audit by reviewing the [not on F3.1a. Noted
terms of reference or other written instructions produce that it did not limit
from the company to the expert. d in this the scope of the
example
valuation in any
file]
way
[F3.1a Not
produced in this
example file]
4 Evaluate the appropriateness of the expert ’ s F3.2

work as audit evidence regarding the assertion and
being considered. Consider: F3.1a
(a) The source data used. Y Y - T&C were AW

provided with full
information
concerning the
property including
the completion
statement for the
original purchase.
(b) Assumptions and methods used and their Y Y - The valuation was AW
consistency with prior periods. arrived at by
reference to market
evidence of
transaction prices
for similar
properties.
F3.1 Page 214 of 565 APM 2022

Y/N Y/N date
(c) The timing of the work undertaken. Y Y - The valuation was AW
as of 31-Dec-21
which was the
same as the entity's
year-end date
(d) The results of the expert ’ s work in the Y Y F3.1a We have: AW

light of the firm's overall knowledge of the - researched the
business and of the results of other audit [not value of similar
procedures. produce properties. The
d in this valuation by T&C
example fell comfortably
file]
within the range of
values obtained.
- verified T&C's
assumptions used
by benchmarking
against market
information. T&C's
assumptions are
reasonable in light
of latest market
trend.
Refer to F3.1a on
work performed and
our assessment of
the expert's
valuation [Note:
F3.1a is not
included in this
example file]
Conclusion
5 Consider whether sufficient appropriate audit Y Y The valuation is AW
evidence concerning the work of considered
management's experts has been obtained that adequate for audit
is adequate for the purposes of the audit. purposes.

appropriate.
7 Review the planned extent of reliance on N No reliance on AW

internal controls in this area and consider controls
8 Assess whether the initial materiality and/or Y Y No changes AW

risk assessment should be revised in view of required
date.
F3.1 Page 215 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 F3.2
Subject: Land and building
Objective
Assess the ownership and valuation of the warehouse
Assertions
Valuation and rights/obligation of the warehouse
Results
Draft Adj Final 2020
HK$'000 HK$'000 HK$'000 HK$'000
Warehouse - Hong Kong
Cost Note 1 7,203 - 7,203 7,203
Valuation surplus 1,099 - 1,099 -
Valuation Note 2, 3 8,302 - 8,302 7,203

ü ß
Depreciation
B/ fwd 168 - 168 21
Charge Note 4 175 - 175 147
Revaluation (343) (343)
- - - 168
ü
Net book value 8,302 - 8,302 7,035
ß
Note 1 Cost agreed to last year's file.
Note 2 Title to the property was agreed to a copy of the title deeds on the PAF and also land search
performed. The original title deed is held by the bank as confirmed by the bank confirmation (K4)
[Note - The lease copy on the PAF and land search results are not included in this example file]
Note 3 Agreed to the valuation report as at 31 December 2021 from Messrs. Twist & Copperfield that values
the property at HK$8,302,000. A copy of the valuation report filed on PAF 6.6 [Not included in this
example file]
The audit programme - using the work of management's expert has been completed, see F3.1.
Messrs. Twist & Copperfield is a firm of independent qualified professional valuers not connected
with the company. It has appropriate qualifications (checked that it is a member of the Hong Kong
Institute of Surveyors (HKIS) on the HKIS website) and experience in the valuation of similar
properties. The valuation was arrived at by reference to market evidence of transaction prices for
similar properties.
[Note - The valuation report and auditor's assessment on valuer's work on F3.1a are not included in
this example file.]
F3.2 Page 216 of 565 APM 2022

Subject: Land and building
Note 4 We have re-calculated the depreciation charge based on the lease period of the property per the
land search results. The test is satisfactory. See Sch F3.3 [Not included in this example file].
The property has been pledged as security in respect of all bank borrowings. See the bank confirmation on K4.
Conclusion
Ownership and valuation of the warehouse is verified and considered reasonable.
F3.2 Page 217 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 F4
Subject: Plant
PP&E Right-of-use assets Total

Memory stick
Plant Equipment
division
COST HK$000 HK$000
1 January 2020 ß 2,202 2,954 332 5,488
Additions 1,527 - 629 2,156
Revaluation - - - -
Disposals (1,526) - - (1,526)
31 December 2020 2,203 2,954 961 6,118
Additions 3,867 - 1,005 4,872 F4.2
Revaluation - - - -
Floppy disposal - (2,954) - (2,954)
Disposals (637) - - (637)
31 December 2021 5,433 - 1,966 7,399 F4.1
DEPRECIATION
1 January 2020 ß 1,976 784 33 2,793
Charge 374 364 102 840
Disposals (1,526) - - (1,526)
31 December 2020 824 1,148 135 2,107
Charge 1,339 - 236 1,575 F4.1
Revaluation - - - -
Floppy disposal - (1,148) - (1,148)
Disposals (581) - - (581)
31 December 2021 1,582 - 371 1,953 F4.1
NET BOOK VALUE

31 December 2020 ß 1,379 1,806 826 4,011
31 December 2021 ü 3,851 - 1,595 5,446 F4.1
F5 F2.3
For audit test purposes, plant (PP&E) and equipment (right-of-use assets) are treated as the same population for sample selection,
because they are subject to the same internal control processes by client. They are classified into PP&E or right-of-use assets at
the year-end by management for reporting purposes.

F4 Page 218 of 565 APM 2022

MCL AW 19/3 F4.1
Plant Register JO 1/4
DEP
BAL SHT PL NOM DEP DEP PURCH CHARGE DEP TO NET BOOK
NOM COD COD METHOD RATE DATE COST PRICE FOR YEAR DATE VALUE DETAILS
HK$ HK$ HK$ HK$
0030 7930 Straight line 10% 6/6/2015 650,000 65,000 C 427,917 C 222,083 C Machine 1 P
0030 7930 Straight line 15% 29/3/2017 193,250 28,988 140,106 53,144 Plant 1
0030 7930 Straight line 10% 21/1/2019 732,500 73,250 C 219,750 C 512,750 C Machine 2 P
0030 7930 Straight line 15% 2/5/2019 175,000 26,250 70,000 105,000 MITSUBISHI FGC20N
0030 7930 Straight line 15% 2/5/2019 157,000 23,550 62,800 94,200 MITSUBISHI EOP15-24
0030 7930 Straight line 20% 10/8/2020 209,800 41,960 C 59,443 C 150,357 C Mini Cooper S (D4T4 1) PM
0030 7930 Straight line 20% 10/8/2020 209,800 41,960 59,443 150,357 Mini Cooper S (D4T4 2)
0030 7930 Straight line 20% 10/8/2020 209,800 41,960 C 59,443 C 150,357 C Mini Cooper S (D4T4 3)
PM
0030 7930 Straight line 10% 22/5/2021 760,000 50,667 C 50,667 C 709,333 C Flux Capacitor P
0030 7930 Straight line 15% 5/7/2021 320,750 24,056 C 24,056 C 296,694 C Plant 4 P
0030 7930 Straight line 15% 15/10/2021 122,250 4,584 4,584 117,666 MITSUBISHI PMWT11N
0030 7930 Straight line 15% 15/10/2021 122,250 4,584 4,584 117,666 MITSUBISHI PMWT11N
[Remainder of plant not analyzed
0030 7930 Straight line 10 - 20% various 3,171,438 1,104,488 641,319 2,530,119 for case study]
TOTAL PLANT 7,399,138 1,575,342 1,953,012 5,446,126
F4 ü F4 ü F4 ü F4 ü
F4.1 Page 219 of 565 APM 2022

Audit notes ü
ü ü
Report run from client's fixed asset register software. We have tested the report accuracy and reliability by a substantive test and concluded that the report is reliable for use in audit
procedures. The test is performed on F4.1a. [not produced in this example file].
A review of the register did not identify any individual items above performance materiality.
P Agreed from plant register to plant (Sample of 6 per F2.3). Work performed on F4.1b. [not included in this example file]
C Calculation of depreciation agreed to test performed (Straight line on a monthly basis) (Sample of 6 per F2.3) Details performed on F4.1c. [not included in this example
file]
ü Cast agreed
M
For motor vehicles included in sample of plant selected - title checked to motor vehicle registration documents
Conclusion: Existence and depreciation of plants verified.
F4.1 Page 220 of 565 APM 2022

Manufacturing Company Limited AW 19/3 F4.2
Schedule of Additions JO 1/4
Year ended 31 December 2021
Purchase Agreed to Date of

date Item HK$ invoice receipt Item description
16/1/2021 Plant 10 156,020 Shelving + cupboards in store room

18/1/2021 Plant 11 210,500 Y 18/1/21 Shelving + cupboards in store room
4/2/2021 Machine 10 56,800 Drills
30/3/2021 Machine 11 245,000 Y 29/3/21 Welding machine
9/4/2021 Plant 12 156,300 Office desks & chairs
21/5/2021 Machine 12 232,450 Stacker
22/5/2021 Flux capacitor 760,000 Y 20/5/21 Flux capacitor [Leased]
25/5/2021 Machine 13 176,900 PCB press
5/7/2021 Plant 4 320,750 Y 3/7/21 Conveyor belt system
3/8/2021 Plant 13 110,330 Conveyor belt system
4/8/2021 Plant 14 331,002 Y 4/8/21 Air conditioning units
15/10/2021 Mitsubishi PMWT11N 122,250 2,200 lb light duty walkie stacker
15/10/2021 Mitsubishi PMWT11N 122,250 2,200 lb light duty walkie stacker
19/10/2021 Machine 14 281,220 PCB burner
13/11/2021 Machine 15 71,600 Filing cabinets
2/12/2021 Plant 15 6,750 Storage cupboard
[Balance] * 1,512,005
4,872,127
Analysis:
ü
Owned 3,867,127 F4
Leased 1,005,000 F4
4,872,127
Audit note:
Schedule run from client's fixed asset register software. We have tested the report accuracy and reliability by a substantive test and concluded that the
report is reliable for use in audit procedures. The test is performed on F4.1a. [not produced in this example file] .
Sample of 5 per F2.4 checked to invoice

Cast agreed
ü
īġġŜŃŢŭŢůŤŦġůŰŵġŢůŢŭźŻŦťġŧŰųġŵũŦġűŶųűŰŴŦŴġŰŧġŵũŦġŤŢŴŦġŴŵŶťźŞ
F4.2 Page 221 of 565 APM 2022

Subject: Disposals and depreciation assessment
Objective
Test PPE disposals and assess management's depreciation in light of profit on disposal
Assertions
Disposals: Existence, accuracy
Depreciation: Valuation
Results
Have a summary that gives totals for cost, depreciation & NBV and also proceeds and profit/loss that reconciles
with accounts
HK$'000
Cost of plant disposed 637
Dep'n of plant disposed (581)
NBV of plant disposed 56
Proceeds 322
Profit/ loss on sale 266
The following information was extracted from the fixed asset register
Accum
Cost Book value Proceeds (Profit)/loss
dep'n
Plant X1 352 310 42 187 (145) ü
Plant X2 105 91 14 85 (71) ü
[Balance not specified] 180 180 - 50 (50) ü
637 581 56 322 (266)
ü Agreed to sales invoice and cash book receipt, and checked to management's authorization to
dispose. Also checked that they were removed from the fixed asset register upon disposal.
Depreciation
As noted on C8.3-15 the profit on sale suggests that depreciation rates may be too high.
The depreciation rates used by the company are largely consistent with those used in the industry and are
considered reasonable. The effect of slightly longer rates is not material.
The reason for the profit on sale of plant X1 was examined and was found to be due to the company being
fortunate to find another company that was very keen to acquire this plant for its unique strategic purposes and
was prepared to pay a good price. This situation would not normally be expected to arise.
F4.3 Page 222 of 565 APM 2022

Subject: Disposals and depreciation assessment
Management's process to develop depreciation rate

Management review the useful economic life (UEL) annually based on historical and latest PPE usage,
maintenance incurred, remaining period of the warranty, the UEL suggested by the supplier and the latest
technology/machine models in the market.
See F4.4 for management's UEL assessment and our review [Not included in this example file] . We consider the
assessment appropriate given the size and nature of MCL.
Conclusion
Disposal of PPE is accurately recorded.
Depreciation rates might be slightly high. Our assessment on F4.4 [not produced in this example file] using a
longer useful life shows a depreciation of HK$1530K (client: HK$1750K); the difference of HK$220K is not
material. Also, our review of management's UEL assessment shows that rates used are not unreasonable. Hence,
we conclude that the rates used remain appropriate in the context of MCL.
F4.3 Page 223 of 565 APM 2022

Subject: Factory
Objective
Test cost and depreciation of the factory to ensure appropriate.
Assertions
Right-of-use assets: Existence, accuracy
Depreciation: Valuation
Results
The cost of the factory of HK$9.8m was agreed to PY financial statements and to the lease agreement and lease
calculations on PAF 7.4.6.
The lease team of 10 years was agreed to the PY file and the lease agreement [not included in this example file] .
The property is depreciated over the 10 year useful economic life, which is the same as the lease term thus is
reasonable. Accordingly, depreciation is expected to be HK$980k per year (HK$9.8m/ 10 years).
There are no indicators of impairment for the factory.
COST Factory
HK$000
1 January 2020 -
Additions 9,800 Agreed to PY file and lease calculations on PAF 7.4.6
31 December 2020 9,800
31 December 2021 9,800
DEPRECIATION
1 January 2020 -
Charge 980
31 December 2020 980
Charge 980 9.8m / 10 years UEL
31 December 2021 1,960
NET BOOK VALUE

31 December 2020 8,820
31 December 2021 7,840
Conclusion
Cost, depreciation and NBV of factory appear appropriate.
F4.4 Page 224 of 565 APM 2022

MCL AW F5
31 December 2021 19/3
Summary of plant and equipment held under leases JO 1/4
Forklifts Machines Company Cars
Mitsubishi Mitsubishi Mini Mini Mini
Mitsubishi Mitsubishi PMWT11N PMWT11N Flux Cooper Cooper Cooper
Note 1 TOTAL FGC20N EOP15-24 [1] [2] Capacitor (D4T4 1) (D4T4 2) (D4T4 3)
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
Cost
1 January 2020 332,000 175,000 157,000 - - - - - -
Additions 629,400 - - - - - 209,800 209,800 209,800
31 December 2020 961,400 175,000 157,000 - - - 209,800 209,800 209,800
Additions Note 2 1,004,500 - - 122,250 122,250 760,000 - - -
31 December 2021 1,965,900 175,000 157,000 122,250 122,250 760,000 209,800 209,800 209,800
ü ü ü ü ü ü ü ü
Depreciation
1 January 2020 33,200 17,500 15,700 - - - - - -
Charge 102,249 26,250 23,550 - - - 17,483 17,483 17,483
31 December 2020 135,449 43,750 39,250 - - - 17,483 17,483 17,483
Charge 235,515 26,250 23,550 4,584 4,584 50,667 41,960 41,960 41,960
31 December 2021 370,964 70,000 62,800 4,584 4,584 50,667 59,443 59,443 59,443
ü ü ü ü ü ü ü ü
Net book value
31 December 2020 825,951 131,250 117,750 - - - 192,317 192,317 192,317
31 December 2021 1,594,936 105,000 94,200 117,666 117,666 709,333 150,357 150,357 150,357
F1 ü ü ü ü ü ü ü
ü
ü Agreed to plant register
We have tested the register's accuracy and reliability by a substantive test and concluded that it is reliable for use in audit
procedures. The test is performed on F4.1a. [Note: F4.1a not included in this example file] .
Note 1 We have reviewed the contracts and noted that they are within the scope of HKFRS 16. The assessment is performed on F1a.
[Note: F1a not produced in this example file]
F5 Page 225 of 565 APM 2022

Note 2 These 3 additions are each on a lease on normal terms.
- Copy of leases are on the PAF [Not included in this example file]
- Lease extracts are also included on the PAF on schedules 7.4.1 to 7.4.5
- The treatment of the leases is addressed on L6.1
For account disclosure: Lease liabilities repayment in 2021
Repayment
Sch in 2021
HK$
MITSUBISHI FGC20N (4,000lb gas forklift) 7.4.1 62,368
MITSUBISHI EOP15-24 (3,000lb Order picker) 7.4.2 55,953
3 x Mini Cooper (D4T4 1, D4T4 2, D4T4 3) 7.4.3 193,030
2 x MITSUBISHI PMWT11N 7.4.4 17,161
Flux Capacitor 7.4.5 80,378
Factory 7.4.6 563,292
972,181
Round to 972,000 A/C disclosure note 20
F5 Page 226 of 565 APM 2022

31-Dec-21 F6
M0001
APP 6: LEASES UNDER HKFRS 16
1 Summary sheet F6.1
2 Audit programme – Lessee accounting under HKFRS 16 F6.2
3 Consideration of potential lease contracts F6.3
4 Assessing the classification of assets as PP&E or leases [Not included in this example file] F1a
F6 Page 227 of 565 APM 2022

31-Dec-21 F6.1
M0001
SUMMARY SHEET - LESSEE ACCOUNTING UNDER HKFRS 16

Planning Final
which mentary been
satisfy procedures met?
objective*
Audit objectives
1 To ensure that identification of all 2, 3, 4, 5, 6, Yes/No AW
contracts that are or contain a lease. 7, 8, 9
2 To ensure that the lease liability is 10, 11, 12, Yes/No AW
measured correctly and discounted at an 13, 14, 15
appropriate rate over the lease term.
3 To ensure that the right-of-use asset is 16, 17 Yes/No AW

measured/ remeasured and accounted for
correctly over the lease term.
4 To ensure that any lease modifications 18, 19 Yes/No None AW

are accounted for correctly.
5 To ensure that any sale and lease back 20, 21, 22 Yes/No None AW
transactions are dealt with appropriately.
6 To confirm that all necessary disclosures 23, 24, 25 Yes/No AW

concerning lease arrangements have
been made and that the information is
Planning conclusion
Conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* right-of-use assets and lease liabilities are fairly stated/ *
not fairly stated as described below.

* Delete if not applicable.
F6.1 Page 228 of 565 APM 2022

Manufacturing Company Limited Completed by: AW Date: 28-Mar Ref:
31-Dec-21 Reviewed by: JO Date: 1-Apr F6.2
M0001
AUDIT PROGRAMME - LESSEE ACCOUNTING UNDER HKFRS 16

This programme addresses the requirements for lessee accounting under HKFRS 16.
Note that the "Covid-19 Related Rent Concessions Amendment to HKFRS 16" is not addressed in this audit
programme.
Test Results
Initials
required satisfactory Sch ref Comments
and date
Y/N Y/N
Scope
1 Confirm that HKFRS 16 has been applied to F1.1 [Note: F1.1
all leases with the exception of the following. F6.3 assessing the
classification of
assists as PP&E or
leases not produced
in this example file]
a) Specific items covered by other Y Y AW

standards. (See HKFRS 16.3 )
b) Leases with a term of 12 months or less Y Y AW
that do not include a purchase option
where the entity has elected not to apply
the requirements in paragraph 22-49 of
the standard. (See HKFRS 16.5(a) and
BC91-97 )
c) Leases of low value assets where the Y Y AW
entity has elected not to apply the
requirements of 22-49 of the standard.
(See HKFRS 16.5(b), B5-B8 and BC98-
BC104 )
Assess whether a contract is or contains a lease
The assessment in tests 2 to 8 below must be

carried out on a contract by contract basis
unless, as a practical expedient, it is applied
on a portfolio basis. (See HKFRS 16.B1)
2 Confirm that the assessment of whether the

contract is or contains a lease is being carried
out:
a) At inception of the contract (See HKFRS Y Y F1.1 AW
16.9); or F6.3
b) Where the terms and conditions of the N N/A No changes
contract have changed. (See HKFRS
16.11)
3 Consider whether it is necessary to combine N No such contracts.

two or more contracts entered into at or near
the same time with the same counterparty (or
related parties of the counterparty), and
account for those contracts as a single
contract. This is required where:
F6.2 Page 229 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
a) The contracts are negotiated as a
package with an overall commercial
objective that cannot be understood
without considering the contracts
together.
b) The amount of consideration to be paid in
one contract depends on the price or
performance of the other contract; or
c) The rights to use underlying assets
conveyed in the contracts (or some rights
to use underlying assets conveyed in
each of the contracts) form a single lease
component as described in paragraph
B32. (See HKFRS 16.B2 )
4 Does the contract convey the right to use an Y Y F6.3 AW
asset that is explicitly identified in the contract PAF 7
or that is implicitly specified at the time it is
made available for use by the customer?
(See HKFRS 16.B13 )
5 Consider whether a supplier has a substantive F6.3
right of substitution - one that satisfies both of PAF 7
the following:
a) The supplier has the practical ability to Y Y AW
substitute alternative assets throughout
the period of use; and
b) The supplier would benefit economically Y Y AW

from the exercise of the right to substitute
the asset. (See HKFRS 16.B14-B19 )
6 Consider whether the customer has the right Y Y F6.3 AW

to obtain substantially all the economic PAF 7
benefits from use of the asset throughout the
period of use. (See HKFRS 16B21-B23 )
7 Determine whether the customer has the right F6.3

to direct the use the identified asset PAF 7
throughout the period of use by:
a) directing how and for what purpose the Y Y AW

asset is used throughout the period of
use; or
b) making relevant decisions about how and Y Y AW
for what purpose the asset is used were
predetermined and the customer has the
right to operate the asset throughout the
period of use, or the customer designed
the asset in a way that predetermined
how and for what purpose the asset
would be used throughout the period of
use. (See HKFRS 16.B24-B30 )
F6.2 Page 230 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
8 Conclude, based on an assessment of: F6.3
PAF 7
a) the existence of an identified asset; Y Y AW
b) the right to obtain substantially all of the Y Y AW
economic benefits from use of the
identified asset; and
c) the right to direct the use of the identified Y Y AW
asset;
whether the contract is or contains a lease as
defined by HKFRS 16.
Separating components of a contract

9 Consider whether it is necessary to account No separate
for each lease component within the contract components
as a lease separately from non-lease
components of the contract. The right to use
an underlying asset is a separate lease
component if both:
a) the lessee can benefit from use of the
underlying asset either on its own or
together with other resources that are
readily available to the lessee; and
b) the underlying asset is neither highly
dependent on, nor highly interrelated
with, the other underlying assets in the
contract. (See HKFRS 16.12 and B32-
B33 )
Lease term F6.3
PAF7
10 Review the determination of the non-
cancellable period of the lease taking into
account:
a) periods covered by an option to extend Lease agreements AW
the lease if the lessee is reasonably don't contain such
certain to exercise that option; and options.
b) periods covered by an option to terminate AW
the lease if the lessee is reasonably
certain not to exercise that option. (See
HKFRS 16.18 )
F6.2 Page 231 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
11 In assessing whether a lessee is reasonably Lease agreements
certain to exercise an option to extend, or not don't contain such
to exercise an option to terminate, consider all options.
relevant facts and circumstances that create
an economic incentive for the lessee to
exercise the option to extend the lease, or not
to exercise the option to terminate the lease
which include but are not limited to:
a) contractual terms and conditions for the

optional periods compared with market
rates;
b) significant leasehold improvements
undertaken (or expected to be
undertaken) over the term of the contract
that are expected to have significant
economic benefit for the lessee when the
option to extend or terminate the lease,
or to purchase the underlying asset,
becomes exercisable;
c) costs relating to the termination of the

lease, such as negotiation costs,
relocation costs, costs of identifying
another underlying asset suitable for the
lessee’s needs, costs of integrating a
new asset into the lessee’s operations, or
termination penalties and similar costs,
including costs associated with returning
the underlying asset in a contractually
specified condition or location;
d) the importance of that underlying asset to

the lessee’s operations, considering, for
example, whether the underlying asset is
a specialized asset, the location of the
underlying asset and the availability of
suitable alternatives; and
e) conditionality associated with exercising
the option (i.e. when the option can be
exercised only if one or more conditions
are met), and the likelihood that those
conditions will exist. (See HKFRS 16.19
and B37-B40 ).
F6.2 Page 232 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
12 Have any significant events occurred within Lease agreements
the control of the lessee that might affect don't contain such
whether the lessee is reasonably certain to options.
exercise an option not previously included in
its determination of the lease term, or not to
exercise an option previously included in its
determination of the lease term meaning a
reassessment of the lease term is required?
Consider:
a) significant leasehold improvements not

anticipated at the commencement date
that are expected to have significant
economic benefit for the lessee when the
option to extend or terminate the lease,
or to purchase the underlying asset,
becomes exercisable;
b) a significant modification to, or

customization of, the underlying asset
that was not anticipated at the
commencement date;
c) the inception of a sublease of the
underlying asset for a period beyond the
end of the previously determined lease
term; and
d) a business decision of the lessee that is
directly relevant to exercising, or not
exercising, an option (for example, a
decision to extend the lease of a
complementary asset, to dispose of an
alternative asset or to dispose of a
business unit within which the right-of-
use asset is employed). (See HKFRS
16.20 and B41 )
F6.2 Page 233 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Measurement of the lease liability
13 Determine whether the lease liability at
commencement date has been measured as
being the total present value of the following
items payable during the lease term that were
not paid at the commencement date:
a) fixed payments including in-substance Y Y PAF 7 AW

fixed payments less any lease incentives
receivable from the lessor.
Note. In-substance fixed payments are

those which in form are variable but in
substance are unavoidable. (See
HKFRS 16.B42 )
b) variable lease payments that depend on Y Y PAF 7 AW
an index or rate, initially measured using
the index rate at the commencement
date.;
Note that variable payments that do not

relate to an index or rate should generally
be recognized in profit or loss as
incurred.
c) amounts expected to be payable by the N N/A

lessee under residual value guarantees;
d) the exercise price of a purchase option N N/A

where the lessee is reasonably certain to
exercise that option; and
e) payments of penalties for terminating the N N/A
lease if the lease term reflects the lessee
exercising an option to terminate the
lease. (See HKFRS 16.27 )
14 Has the present value of the lease liability
been determined using:
a) the rate implicit in the lease where this Y Y PAF 7 AW
can be readily determined; or
b) the lessee's incremental borrowing rate if N N/A
the rate implicit in the lease cannot be
readily determined. (See HKFRS 16.26 )
F6.2 Page 234 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
15 Consider whether it is necessary to reassess No such changes
the lease liability. This is required in the
following circumstances.
a) A change in the amount expected to be N N/A
payable under a residual value
guarantee;
b) A change in future lease payments to N N/A
reflect a change in an index or rate used
to determine those payments (for
example a market rent review);
c) A change in the lease term (for example N N/A
the lessee not exercising an option
previously included in the determination
of the lease term); or
d) A change in the assessment of an option N N/A

to purchase the underlying asset. (See
HKFRS 16.40 and 42)
Measurement of the right-of-use asset

16 Determine whether the right-of-use asset at
commencement date has been measured at
cost being the total of:
a) the amount of the initial measurement of Y Y F1, F5 AW
the lease liability;
b) any lease payments made at or before Y Y F1, F5 No lease incentives AW
the commencement date, less any lease received.
incentives received;
c) any initial direct costs incurred by the N N/A
lessee; and
d) an estimate of costs to be incurred by the N N/A
lessee in dismantling and removing the
underlying asset, restoring the site on
which it is located or restoring the
underlying asset to the condition required
by the terms and conditions of the lease,
unless those costs are incurred to
produce inventories. The lessee incurs
the obligation for those costs either at the
commencement date or as a
consequence of having used the
underlying asset during a particular
period. (See HKFRS 16.23-24 )
F6.2 Page 235 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
17 Confirm that after commencement date right-
of-use assets have been measured either:
a) At cost less any accumulated Y Y F1, F5 AW

depreciation and impairment in
accordance with HKAS 16. (See HKFRS
16.30-33 ); or
b) At fair value in accordance with HKAS 40 N N/A
where relevant (See HKFRS 16.34 ); or
c) At a revalued
Note. HKFRS amount under HKAS
16.35 requires 16
the right-of- Y F3.2 AW
use asset to be measured at revalued
amount if the entity applies the
revaluation model under HKAS 16 to a
class of property, plant and equipment
where the right-of-use assets are related
to.
Lease modifications No modifications
18 Review any lease modifications to determine N N/A
whether these should be accounted for as a
separate lease. This is required by HKFRS
16.44 if:
a) the modification increases the scope of
the lease by adding the right to use one
or more underlying assets; and
b) the consideration for the lease increases
by an amount commensurate with the
stand-alone price for the increase in
scope and any appropriate adjustments
to that stand-alone price to reflect the
circumstances of the particular contract.
19 For lease modifications not accounted for as a N N/A
separate lease confirm that these have been
dealt with in accordance with HKFRS 16.45 by
reviewing the allocation of consideration to
each lease component, reviewing the lease
term and remeasuring the lease liability as
appropriate.
Sale and leaseback transaction None

20 Review any sale and lease back transactions N N/A
to determine whether the transfer of the asset
concerned meets the criteria in HKFRS 15 for
recognition as a sale.(See HKFRS 16.99 )
F6.2 Page 236 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
21 Where the criteria for recognition as a sale N N/A
under HKFRS 15 were met did the seller /
lessee recognize:
a) a right-of-use asset arising from the lease
back measured as the proportion of the
previous carrying amount of the asset
relating to the right-of-use it has retained;
and
b) a gain or loss limited to the extent that

rights of use were transferred to the
buyer / lessor? (See HKFRS 16.100 )
22 Where the criteria for recognition as a sale N N/A
under HKFRS 15 were not met did the seller /
lessee:
a) continue to recognize the underlying
asset; and
b) Recognize a financial liability in respect
of the sale proceeds and account for the
financial instrument in accordance with
HKFRS 9. (See HKFRS 16.103 )
First time adoption of the standard

23 Consider whether the transition to the new N N/A
standard using the full or modified
retrospective approach has been accounted
for and disclosed appropriately. (See HKFRS
16 App C )
24 Confirm that the presentation and disclosure of Y Y L6
the lease arrangements and related cash flows
is in accordance with the requirements of
HKFRS 16.47-60
25 Check that we have sufficient evidence Y Y L6

regarding the disclosure of lease
arrangements.
Bespoke tests
26 Draft and perform any necessary additional N N/A Not required
summary sheet.
Interest rate benchmark reform
27 Consider whether there are any implications N N/A
arising from interest rate benchmark reform
(see Interest Rate Benchmark Reform
(September 2019) and Interest Rate
Benchmark Reform - Phase 2 (August 2020)).
F6.2 Page 237 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Conclusion
28 Consider whether there are any points which Y Y None considered
need to be included in a letter of necessary.
29 Review the planned extent of reliance on Y Y The planned extent of

internal controls in this area and consider reliance was
whether this remains appropriate. extremely limited and
remains appropriate.
30 Assess whether the initial materiality and/or Y Y No change to

risk assessment should be revised in view of materiality considered
the audit evidence obtained. Record details of necessary.
date.
F6.2 Page 238 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 F6.3
Subject: Consideration of potential lease contracts
Telephone, IT and copiers

Telephone system Service contract 350 350
Photocopiers Short-term leases 450 450
Computers Low-value leases 850 938
1,650 1,738
Photocopier contract
The contract for the photocopiers has been reviewed. At the commencement date the contract is for 12
months. The contract does not include any purchase option. Hence the photocopier leases are short-term
leases and will not be capitalized on the balance sheet. The expense for the year, which has been agreed
to the contract is HK$450K (2020: HK$450k).
[A copy of the contract is not included in this example file].
[Assessment of the telephone system and computers not illustrated in this example file]
= Agreed to Note 12a in financial statements
F6.3 Page 239 of 565 APM 2022

31-Dec-21 I
M0001
I INVENTORIES
1 Summary sheet I
2 Lead schedule I1
3 Audit programme – inventories I2
4 Sample selection planning I2.1 - 2.3
5 Physical inventory count

Audit programme I4
Inventory listing I4.1 - 4.3
Inventory count attendance report I4.4
Assessment of client's inventory counting instructions [Not included in this example file] I4.5 - 4.6
6 Inventory listing - raw materials I5.1

Component cost I5.2 - 5.3
7 Inventory listing - work in progress I6

Work in progress cost I6.1 - 6.5
8 Inventory listing - finished goods I7

Finished goods testing I7.1
Finished goods cost I7.2
Finished goods net realizable value I7.3
Test accuracy of the sales reports [Not included in this example file] I7.3a
Cut-off - Factory to warehouse I7.4
Assessment of stock ageing [Not included in this example file] I7.5
Ii Page 240 of 565 APM 2022

31-Dec-21 I
M0001
SUMMARY SHEET - INVENTORIES

Planning Final
which satisfy mentary been met?
objective* procedures
Audit objectives
1 To ensure that the company has good title 5, 6, 7 Yes/No AW
to inventories.
2 To ensure that all inventories exist. 8, 9, 10, 11 Yes/No AW
3 To ensure that inventories have been 12, 13 Yes/No AW

valued correctly, consistently and in
accordance with applicable legislation
and accounting standards.
4 To ensure that adequate provision has 14, 15, 16, Yes/No AW

been made for all damaged, obsolete or 17, 18
slow moving inventories.
5 To ensure that cut-off has been correctly 19 Yes/No AW

applied.
6 To confirm that all necessary disclosures 20, 21 Yes/No AW

concerning inventories have been made
and that the information is appropriately
presented and described.
Planning conclusion
Components & WIP HK$933k;

Materiality or, where applicable, section specific materiality, (C7) has been set at:
Finished goods HK$700k
Conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* inventories are fairly stated/ * not fairly stated as described
below.

Is Page 241 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 I1
Subject: Inventories lead schedule
Jnl 2021 2020

Draft Ref Adj Final
$000 $000 $000 $000
Raw materials (factory) I5 3,374 - 3,374 3,780
Work in progress (factory) I6 1,568 - 1,568 1,652
Finished goods (warehouse) I7 3,059 3,4 2,794 5,853 3,115
8,001 2,794 10,795 8,547

I7.4 ü ß
Note: For disclosure purposes:

The amount of inventories recognized as an expense during the year:
2021 2020
$000 $000
Carrying amounts of inventories sold R1.5 ü 28,523 15,235
Write-down of inventories - -
Reversal of write-down of inventories - -
28,523 15,235
Carrying amounts of inventories sold R1.5 16,028 11,304
Write-down of inventories - -
Reversal of write-down of inventories - -
16,028 11,304
I1 Page 242 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 I2
M0001
AUDIT PROGRAMME - INVENTORIES

Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead schedule Y Y I1 AW

those of prior periods; I1
3 Review for items above performance Y Y I5 No individual inventory AW

materiality or that are otherwise unusual and I6 item over PM. No
verify. I7 unusual item noted
from the inventory list.
4 For construction contracts please complete N
App 4 construction contracts.
Ownership
5 Enquire if any of the inventories are held on Y Y None held on behalf of AW
behalf of third parties and ensure that such third parties
items are excluded from the accounts. Where
material, obtain confirmation from the third
party.
6 Where inventory that is material in value is N None held by third AW

held by third parties on behalf of the company parties
do either one or both of the following:
(a) Request confirmation from the third party

as to the quantities and condition of
inventory held.
(b) Inspect the inventory and carry out other
appropriate procedures such as test
counts as per HKSA 501.A16.
7 Consider whether any inventories held on N None AW
consignment have been accounted for.
Existence
8 Complete the physical inventory counting Y Y I4 AW
programme, I4.
(a) Ascertain whether there is anything in the N Nothing arising AW
inventory counting report that requires us
to revise our risk assessment for
inventory.
(b) Trace all items selected at the count to Y Y I4.1 AW

the final inventory listings, and, where I4.2
appropriate, internal inventory records. I4.3
Obtain explanations for any differences.
I2 Page 243 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
9 Select a sample of items from the final Y Y I4.1 AW
inventory listings and trace to the copies of the I4.2
inventory listings taken during the physical I4.3
inventory counting.
10 If the inventory attendance is conducted at a N Year end count AW
date other than the date of the financial
statements, then, in addition to completing the
inventory counting programme I4, perform
audit procedures to obtain audit evidence
about whether changes in inventory between
the count date and the date of the financial
statements are properly recorded.
11 Where there are material inventories that have Attended year end
not been physically verified at the year-end count at warehouse
physical inventory counting: and factory
(a) Take or observe some physical counts on N AW

an alternative date and,
(b) Perform audit procedures on intervening N AW

transactions.
(c) Specify below any other audit work N AW
required to verify existence:
-
Valuation
12 Test the additions and extensions of the final Y Y I5, I6, I7 AW
inventory listings.
13 Ascertain the method used for valuing I5.1,
inventories and consider whether: I6.1,
I7.1
(a) It has been correctly applied. Y Y AW
(b) It is an acceptable basis of valuation Y Y In particular confirm AW
under applicable legislation and that latest invoice cost
accounting standards. is not materially
different to FIFO for
component costs
(c) It is consistent with previous years and Y Y AW

with the company’s accounting policy.
(d) Where the valuation of inventory involves Estimation not AW

estimation: involved
(i) Confirm that valuation has been N AW
C4.1; or
(ii) Explain how the approach taken N AW
540 (Revised).
I2 Page 244 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Provisions
14 Obtain details of the basis for making Y Y I5.1 No provisions required AW
provisions and determine if it is both adequate I6.1
and consistent. I7.1
15 Where an impairment provision may be No provisions required AW
required:
(a) Confirm that impairment has been N AW
C4.1; or
(b) Explain how the approach taken complies N AW
(Revised).
16 Review the inventory listings including the Y Y I7.5 Checked to the stock AW
stock ageing and ensure that adequate ageing report, all
provision has been made for items identified stocks are within the
as damaged, slow moving or obsolete. last four months on
31-Dec-21. The
assessment of the
ageing report and
stock count results do
not identify damaged,
slow moving or
obsolete items for
provision. For work
performed please
refer to I7.5 [not
produced in this
example file]
17 Review all inventories and consider whether I7.1 No indicators noted

any further provision is necessary. which suggest the
need for inventory
provision.
(a) whether production levels are falling; Y Y AW
(b) whether inventory levels are high in Y Y AW
comparison to orders received and
anticipated demand;
(c) any fluctuations in cost or selling price; Y Y AW

(d) any likely change in technology or market Y Y AW
demands.
I2 Page 245 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
18 Select a sample of inventories and compare I7.1
costs to the selling price less expenditure I7.2
necessary for realisation.
(a) Items need to be examined individually. Y Y AW

Losses on one item cannot be set off
against profits on another.
(b) Where a provision is made on a finished Y Y AW

product consider whether any provision
should be made against unfinished units
and materials used in the process.
Nb Expenditure necessary for realising

inventories should include estimated costs of
completion and the estimated costs necessary
to make the sale, such as a proportion of
marketing, selling and distribution expenses
as well as an allowance for scrap and
reworking costs.
Cut-off
19 Review the results of the tests on cut-off Y Y I7.4 Cut-off misstatements AW
carried out on trade receivables and payables R6.2 identified and adjusted
(see Section R) and ensure they provide
adequate assurance as to the accuracy of the
year end cut-off.
Foreign currencies
20 Ensure that the entity accounted for foreign N None AW
21 Ensure that there is sufficient appropriate Y Y (1) Amounts disclosed AW
evidence on the file to support the disclosures in the financial
made. statements agreed to
audit work performed.
(2) Disclosure
checklist completed
against management's
disclosure [Not
included in this
example file]
Bespoke tests
22 Draft and perform any necessary additional Y Y C8.3 risks addressed AW
tests such as those required by C8.3 and cross by standard tests
sheet.
22.1 Check the cut-off for deliveries from the factory Y Y I7.4 Errors to B7 AW
to the warehouse
I2 Page 246 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Conclusion
23 Consider whether there are any points which Y Y A6 See points 3, 4, 5, 8 AW
need to be included in a letter of and 9


date.
I2 Page 247 of 565 APM 2022

31-Dec-21 I2.1
M0001
SAMPLE SELECTION PLANNING – INVENTORIES - RAW MATERIALS


Inherent risk factor (table figure) 1.2
Monetary value of population ( 100 %) I5 HK$ 3,374
Value of items above performance materiality ( %) HK$( )
Value of scheduled other “key” items ( %) HK$( )
Sample size =
(See maximum
Residual population x Sampling risk factor HK$ 3,374 x 1.2 = 4 below)
Plus: Number of items above performance materiality =
Number of other “key” items =
Actual sample size (See I4.1, 5.1) 4
Conclusion
I note that the sample size calculated by the APM is a suggestion only and that the extent of testing is a matter
for professional judgment. I am satisfied that the sample specified above will fairly test the population.


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
I2.1 Page 248 of 565 APM 2022

31-Dec-21 I2.2
M0001
SAMPLE SELECTION PLANNING – INVENTORIES - WORK IN PROGRESS



Value of scheduled other “key” items ( %) HK$( )
Sample size =
(See maximum
Number of other “key” items =
Actual sample size (See I4.2, I6.1) 2
Conclusion


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
I2.2 Page 249 of 565 APM 2022

31-Dec-21 I2.3
M0001
SAMPLE SELECTION PLANNING – INVENTORIES - FINISHED GOODS



Value of scheduled other “key” items ( %) I7 HK$( 212 )
Sample size =
(See maximum
Number of other “key” items (See I4.3, I7) = 1
Actual sample size (See I4.3, I7) 5
Conclusion


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
I2.3 Page 250 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 I4
M0001
AUDIT PROGRAMME - PHYSICAL INVENTORY COUNTING

Y/N Y/N date
Before the count
1 Record the following details: I4.4
(a) location(s) being counted; Y Y AW
(b) date(s) of count and attendance; Y Y AW
(c) types of inventory held at location; Y Y AW
(d) approximate value of inventory by Y Y I5, I6, I7 AW
category at location;
(e) details of any inventories at locations not N/A AW
covered by the count and any alternative
method used to verify their existence;
(f) brief description of the procedures Y Y AW

adopted;
(g) names of client staff counting; Y Y AW
(h) names of audit staff taking part. Y Y AW
2 Carry-out the following procedures as
appropriate:
(a) Perform analytical procedures, and N PAR completed in AW
discuss with management any significant C6.1; no major
changes in inventories over the year and variances noted.
any problems with inventories that have Variance from last
recently occurred such as unexpected year is not material
“ inventory-out ” reports or negative
inventory balances.
(b) Discuss arrangements and instructions Y Y I4.4 AW

for the physical count with management.
(c) Familiarisation with the nature and Y Y

volume of the inventories, the
identification of high value items, the
method of accounting for inventories and
the conditions giving rise to
obsolescence.
(d) Consider the locations of the inventories Y Y Stock held at 2 AW
and assess the implications of this for locations. Both
inventory control and recording. locations attended
(e) Consider the quantity and nature of work Y Y Separate testing for AW
in progress, the quantity of inventories WIP. No stock held
held by third parties, and whether expert by third parties. No
valuers or counters will be engaged. expert valuers or
stocktakers.
I4 Page 251 of 565 APM 2022

Y/N Y/N date
(f) Consider any internal control relating to Y Y Controls at AW
inventories, so as to identify potential warehouse identified
areas of difficulty (for example cut-off and as poor. Risks added
segregation of duties between entity staff to C8.3-6 and 11
carrying out the count and those
responsible for subsequent adjustments
to inventory records).
(g) Consider any internal audit involvement, N No internal audit AW

with a view to deciding the reliance which
can be placed on it.
(h) Consider the results of previous physical Y Y No problems noted AW
counts made by the entity. from previous year
(i) Review the audit working papers for the Y Y No problems noted AW
previous year.
Risk assessment
3 Assess the risk of misstatement in the context
of the existence of inventory through
consideration of the following factors.
a) reliability of accounting and recording Y Y Controls at AW
systems and related controls for warehouse identified
inventories including, in relation to work as poor. Existence
in progress, the systems that track and cut-off risk
location, quantities and stages of recorded on C8.3-6
completion; and 11
b) timing of physical counts relative to the N/A Count carried out on AW
year-end date, and the reliability of the year-end date
records used in any “roll-forward” or "roll-
backward" of balances;
c) location of inventories, including Y Y No issues noted AW

inventories on “consignment,”
inventories in transit and inventories
held at third-party warehouses;
d) physical controls over the inventories and Y Y No issues noted AW

their susceptibility to theft or
deterioration;
e) objectivity, experience and reliability of Y Y I4.5 Counters were AW
the inventories counters and of those I4.6 properly briefed and
monitoring their work; [not re- monitored. See our
produce assessment on I4.5
d in this & 4.6 [Note: not
example reproduced in this
file]
example file]
f) degree of fluctuation in levels of Y Y No issues noted AW

inventories;
g) nature of the inventories, for example Y Y The nature of AW
whether specialist knowledge is needed inventories are
to identify the quantity, quality, identity simple. No specialist
and/or stage of completion of items of knowledge required.
inventories;
I4 Page 252 of 565 APM 2022

Y/N Y/N date
h) difficulty in carrying out the assessment Y Y No issues noted AW
of quantity and/or stage of completion of
items of inventories, for example whether
a significant degree of estimation is
involved; and
i) any other relevant matters. Y Y None AW
4 Consider the risk of material misstatement due
to fraud through activities such as:
a) “false sales” involving the movement of Y Y Fraud risks assessed AW
inventories not yet sold by the entity to a and discussed
location not normally used for storing amongst audit team.
inventories; See C9 notes
b) movement of inventories between entity Y Y Attended counts at AW

sites with physical counts at different the factory and the
dates; warehouse at same
time. There were no
movements. The
warehouse and
factory were closed
for business in the
afternoon of the
count.
c) the appearance of inventories being Y Y I4.4 A number of pallets AW

misrepresented so that they seem to be that appeared to be
of a higher value/greater quantity; inventory delivered
were seen in a
corner behind a fork
lift truck. The pallets
were still sealed in
polythene and I was
informed that the
delivery had not been
included in the count.
Follow-up work on
I4.4
d) the application of inappropriate Y Y I6.2 Job cards are AW

estimation techniques; I6.3 separately tested on
I6.4 the allocation of
costs to each job.
e) records prepared during physical counts Y Y Listings used for the AW

deliberately being incorrectly completed count agreed to the
or altered after the event; and final inventory lists
with agreement
noted.
f) additional (false) records being added to Y Y None noted. AW

those prepared during the count.
5 Evaluate the adequacy of management's Y Y AW

instructions and procedures for recording and
controlling the results of the entity's physical
inventory counting.
I4 Page 253 of 565 APM 2022

Y/N Y/N date
At the count
6 Ascertain and note whether: I4.4 [Note: I4.5 and 4.6
I4.5 not reproduced in
I4.6 this example file]
(a) the count teams were properly briefed Y Y AW
prior to commencing the count;
(b) the teams only include people who are Y Y AW

not responsible for the storing and
recording of inventory and work in
progress;
(c) inventory was counted by teams of two Y Y AW
(one counting and one checking and
recording);
(d) the teams were asked to identify Y Y AW

damaged, slow moving or obsolete stock;
(e) the teams were made aware of any Y Y AW

inventories held on behalf of third parties
and these were excluded from the count.
Inventory counting
7 Determine whether: I4.4 [Note: I4.5 and 4.6
I4.5 not reproduced in
I4.6 this example file]
(a) management's instructions for Y Y AW
conducting the count have been carried
out properly;
(b) the teams were counting and recording Y Y AW
accurately;
(c) the counts were being controlled to Y Y AW
ensure that all inventory was counted
and only once;
(d) there was adequate control over Y Y AW

inventory sheets to ensure that they are
all accounted for (e.g., pre-numbered).
8 Where serially numbered sheets are used, N AW
record the numbers of all sheets used at the
end of the count.
9 Select a sample of items from completed Y Y I4.1 AW

inventory sheets and check to ensure that the I4.2
number has been recorded properly. (These I4.3
should be followed through to final inventory
sheets at the final audit).
10 Count a sample of inventory items and ensure Y Y I4.1 Samples tested from AW
that they have been recorded properly on the I4.2 listing to shelves and
final inventory sheets. I4.3 shelves to listing
11 Where possible, copy or extract details of a Y Y I4.1 Copies taken AW

sample of rough inventory sheets for checking I4.2
at the final audit. I4.3
I4 Page 254 of 565 APM 2022

Y/N Y/N date
12 Where inventories are valued at selling price N AW
less mark-up, record the shelf price of a
number of inventory items for follow-up when
checking valuation.
13 Ascertain whether any inventory is held on N AW

behalf of a third party. Where applicable
ensure that it has been separately identified
and excluded from the count.
14 Ascertain whether any consignment inventory N AW

is held. Ensure, where appropriate, a full
record is made.
15 Note any old or damaged inventory during the Y Y I4.4 Nothing noted AW
count. Ensure that it is marked as such on the
final inventory sheets.
Cut-off
16 Ensure that no movements in or out took place Y Y Attended counts at AW
during the physical count. the factory and the
warehouse at same
time. There were no
movements.
17 Record details of the last goods despatch Y Y I4.4 AW
number and the last goods received note
number to follow up at the final audit.
Other work
18 Note any instances of the client's procedures Y Y None identified AW
not being satisfactorily carried out or any other
weaknesses that should be brought to the
attention of management.
19 Perform any other procedures that would None required

normally be carried out when attending the
physical count:
(a) Select a sample of assets for verification N AW
from the fixed asset register.
(b) Undertake a cash count. N AW

(c) Other (specify): N AW
-
-
Conclusion
20 Write a report on the count concluding on its Y Y I4.4 AW
accuracy and our ability to rely on it.
I4 Page 255 of 565 APM 2022

MCL AW I4.1
31 December 2021 21/3
Inventory listing - Raw materials - Inventory count JO 1/4
Test count from Test count from Agreed to final

Product Description Quantity Count
sheet to shelf shelf to sheet stock sheet
S101 Sound card component 952 952

S105 Sound card component 889 889 889 ü
S107 Sound card component 1,134 1,134
S110 Sound card component 1,421 1,421 1421 ü
G201 Graphics card component 1,414 1,414
G202 Graphics card component 1,232 1,232 1232 ü
G205 Graphics card component 385 385
G210 Graphics card component 1,876 1,876 1826 N1 ü
I4.1 Page 256 of 565 APM 2022

G214 Graphics card component 245 245 245 ü

N301 Network card component 210 210
N304 Network card component 1,799 1,799
N309 Network card component 1,778 1,778 1778 ü
TV401 Wifi extender component 336 336
TV402 Wifi extender component 1,211 1,211
TV405 Wifi extender component 959 959 959 ü
TV408 Wifi extender component 1,309 1,309
TV410 Bluetooth dongle component 1,175 1,175
TV411 Bluetooth dongle component 345 345
I4.1 Page 257 of 565 APM 2022

TV413 Bluetooth dongle component 844 844 844 ü

TV415 Bluetooth dongle component 406 406
[Other not specified in the case study]
Audit Notes
Four samples (as determined on I2.1) are selected from the shelves and the other four items (as determined on I2.1) from the
inventory sheets randomly.
The components are mainly in sealed boxes of 50, 25 or 10. Where a box was still sealed the contents were assumed to be as per the
labelling. A box of TV405 was opened at my request and the contents were as per the label. The product codes on loose components
were checked to ensure they matched those that were boxed.
N1
A box of 50 had been placed on an adjacent shelf in error. On recounting the total was correct.
I4.1 Page 258 of 565 APM 2022

MCL AW I4.2
31 December 2021 21/3 JO 1/4
Inventory listing - Work in Progress - Inventory count
Agreed to
Job No Product Batch size Count Test count final stock
sheet
334-21 Xforce 3D 8600GT 2000MHz 256MB 250 250
335-21
X-Fi Xtreme Music - Sound card -
24-bit - 192 kHz - 109 dB - PCI 250 250 S 250
ü
336-21 Xforce 3D 8500GT 800MHz 512MB 750 750
337-21 Xforce 3D 8500GT 800MHz 256MB 500 500
338-21 Ethernet PCI LAN card 500 500

X-F2 Xtreme Audio card with X-Fi
339-21 Crystallizer PCI 250 250
340-21 802.11g Wireless G PCI Network Card 500 500

A 500
ü ü
341-21 Wi-Fi hot spot 250 250
ü
342-21
24-bit - 192 kHz - 109 dB - PCI 250 250
ü
343-21
ü
Xforce 3D 8500GT 800MHz 512MB 750 750
ü
344-21 Xforce 3D 8500GT 800MHz 256MB 500 500
345-21 Wi-Fi hot spot 250 250 S 250

ü
346-21 Crystallizer PCI 500 500
347-21 802.11g Wireless G PCI Network Card 750 750 A 750 ü

Other not specified in the case study
Two samples (as determined on I2.2) are selected from the shelves and the other two items (as determined on I2.2) from
the inventory sheet randomly.
In many cases the components had not been fully assembled although they had been booked to the job. What was
counted in each case was either the partially assembled unit, or in the case of a graphics card, the chips, where these had
not been installed.
S = Counted from shelves to sheet
A = Counted from sheet to shelves
I4.2 Page 259 of 565 APM 2022

MCL AW I4.3
31 December 2021 21/3
Inventory listing - Finished goods - Inventory count JO 1/4
Test
Product Description Quantity Count Agreed to
count
final stock
sheet
Xforce 3D 8500GT 800MHz 256MB Graphics card 154 154 S 154 ü

Xforce 3D 8500GT 800MHz 512MB Graphics card 161 161 A 161 ü
Xforce 3D 8600GT 1400MHz 256MB Graphics card 308 308
Xforce 3D 8600GT 2000MHz 256MB Graphics card 889 889 S 889 ü

X-FI Xtreme Audio card with X-Fi
Crystallizer PCI Sound card 406 406
Crystallizer PCI Sound card 385 385 A 385 ü
24-bit - 192 kHz - 109 dB - PCI Sound card 763 763
802.11g Wireless G PCI Network
Card Network card 826 826
Ethernet PCI LAN card Network card 367 367 S 367 ü

802.11G Wireless USB Network
Adapter Network adapter 917 917 A 917 ü
802.11G Wireless USB Network
Adapter (with extension) Network adapter 1015 1015
Wi-Fi Express repeater Wi-Fi 910 910 A 910

ü
Wi-Fi Express extender Wi-Fi 847 847 A 847
ü
Portable Wi-Fi hot spot Wi-Fi 791 791 S 791 ü
Portable Wi-Fi hot spot plus Wi-Fi 875 875
Other not specified in the case study
S = Counted from shelves to sheet

A = Counted from sheet to shelves
Four samples (as determined on I2.3) are selected from the shelves and the other four items (as determined on I2.3)
from the inventory sheet randomly.
The key item is the Wi-Fi Express Extender that was in the computer that caught fire and concerning which there is a
possibility of a claim against the company. It was selected for counting judgmentally.
I4.3 Page 260 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 I4.4
Subject: Inventory count attendance report
Inventory is held by the company at two locations, i.e. the factory in Kowloon and warehouse on the Hong Kong
Island.
Both counts were undertaken on the afternoon of 31 December. The warehouse and factory were closed for
business in the afternoon of the count.
Raw materials and components inventories are held at the factory in Kowloon. The count here was attended by
DT on 31 December. Finished goods inventories are held at the warehouse on the Hong Kong Island. The count
here was attended by AW on 31 December.
Sample sizes for the inventory count were estimated based on the year-end stock figures and the sampling
calculation template.
- Components and raw materials I2.1 4 in each direction
- Work in progress I2.2 2 in each direction
- Finished goods I2.3 4 in each direction + 1 key item
Factory
The count was well organized and the staff properly briefed. A copy of the inventory counting instructions, name
of client's staff responsible for the count and our assessment to the design of the count are at I4.5. [Note: I4.5 is
not reproduced in this example file]
Copies of the rough inventory sheets were taken and are on file at I4.1 and I4.2.
A sample of 4 items was selected at random from the inventory sheets and recounted. A further sample of 4
items was selected from the shelves and checked to the inventory sheets. All counts were agreed to the original
counts.
Similarly a sample of 4 work in progress jobs was selected for counting, 2 from the stock sheets and 2 from the
factory floor.
During the count, we observed that the staff undertaking the counts in a methodical manner and followed the
count instruction strictly. We also noted appropriate division of labor and responsibilities, i.e. different staff were
used to count the inventories and record the count results. As a monitoring mechanism, some items were
selected randomly for re-counting by the supervisor.
The following cut-off information was noted:

Last goods received note - 71228
Last transfer to warehouse - 333-21
During the count there were no items observed that appeared to be damaged, dusty or otherwise showed
evidence of not being currently used.
I4.4 Page 261 of 565 APM 2022

Subject: Inventory count attendance report
Warehouse
The count was well organized and the staff properly briefed. A copy of the inventory counting instructions, name
of client's staff responsible for the count and our assessment to the design of the count are at I4.6. [Note: I4.6 is
not included in this example file]
Copies of the rough inventory sheets were taken and are on file at I4.3.
A sample of 4 items was selected at random from the inventory sheets plus 1 key item and recounted. A further
sample of 4 items was selected from the shelves and checked to the inventory sheets. All counts were agreed to
the original counts.
During the count, we observed that the staff undertaking the counts in a methodical manner and followed the
count instruction strictly. We also noted appropriate division of labor and responsibilities, i.e. different staff were
used to count the inventories and record the count results. As a monitoring mechanism, some items were
selected randomly for re-counting by the supervisor.
The following cut-off information was noted:

Last sales invoice number issued by accounts - 71746
Picking lists received in the warehouse but not processed:
71736
71737
71738
71739
71740
71741 See R6.2 for further testing
71742
Despatch notes picked but not sent:

71743
71744
When selecting items from the shelves to check to the stock sheets a number of pallets that appeared to be
inventory delivered were seen in a corner behind a fork lift truck. The pallets were still sealed in polythene and I
was informed that the delivery had not been included in the count. The despatch numbers were visible through
the polythene and are noted below.
328-21
329-21
330-21
See I7.4 for further testing
331-21
332-21
333-21
Conclusion
The inventory counts in both locations were undertaken methodically and in accordance the counting
instructions. The test counts performed in both locations indicate that the counts can be relied upon.
[Note: For the purpose of this case study, the effect of any COVID related lockdowns have been ignored]
I4.4 Page 262 of 565 APM 2022

MCL AW I5
31 December 2021 21/3
Inventory listing - Raw materials JO 1/4
Cost Value
Product Description Quantity
$ $
S101 Sound card component 952 85.05 80,966.51

S105 Sound card component # 889 78.06 69,397.01
S107 Sound card component 1,134 31.84 36,108.48
S109 Sound card component 1,792 88.79 ü159,116.16 I5.1
S110 Sound card component @ 1,421 52.29 74,304.13
G201 Graphics card component 1,414 8.48 11,995.23
G202 Graphics card component @ 1,232 34.52 42,530.14
G205 Graphics card component 385 4.68 1,803.07
G210 Graphics card component @ 1,876 285.11 ü 534,866.30 I5.1
G211 Graphics card component 1,722 86.11 ü 148,281.65 I5.1
G214 Graphics card component # 245 3.78 924.92
N301 Network card component 210 90.29 18,960.88
N303 Network card component 203 4.37 886.97
N304 Network card component 1,799 32.11 57,758.48
N309 Network card component @ 1,778 90.09 ü 160,174.17 I5.1
I5. Page 263 of 565 APM 2022

TV401 WiFI Extender component 336 8.75 2,940.00
TV402 WiFI Extender component 1,211 54.87 66,451.28
TV405 WiFI Extender component # 959 44.07 42,262.18
TV408 WiFI Extender component 1,309 6.38 8,348.48
TV409 Bluetooth dongle component 623 57.06 35,548.88
TV410 Bluetooth dongle component 1,175 15.22 17,881.50
TV413 Bluetooth dongle component # 844 36.83 31,085.60
Raw materials at cost HK$ 3,374,030.72

ü
ü Casts checked
@ Agreed to test count results in I4.1 (from sheet to shelf')
# Agreed to test count results in I4.1 (from shelf to sheet)
I5. Page 264 of 565 APM 2022

Subject: Component cost
Objective
To confirm that component inventories are carried at the lower of net realizable value and cost on a FIFO basis.
Assertion
Valuation of component inventories
Method
1 A sample of 4 (I2.1) component lines were selected being the 3 highest value lines plus 1 at random. (I5.2)
a) The cost per the inventory listing was compared to the purchase invoices on a FIFO basis to ensure the
inventories were valued on a FIFO basis appropriately.
b) The cost per the inventory listing was compared to the latest purchase invoice subsequent to the balance
sheet date as an indication that net realizable value is greater than or equal to cost.
2 Consider whether any lines are no longer used and should be written down.
Results
The results are shown on I5.2
There is an overvaluation in the sample tested of HK$15K. Enquired with Adeline Leung and according to our
understanding and implementation test, MCL's inventory is valued using FIFO. Variance noted from the test of
component G210 was due to a special discount given by the vendor towards the year-end for MCL's continuing purchase
and support in 2021. MCL had not updated its FIFO pricing to reflect this special discount because this was an one-off
discount, not material (both amount and quantity) and the purchase price has resumed to HK$285 (i.e., the original price)
in MCL's subsequent purchases. We have reviewed the correspondence between MCL and the vendor, and MCL
subsequent purchase invoices and noted this was the case.
Based on the results of other samples, we concur that the overvaluation of HK$15K is an isolated case and would not be
representative of the population as a whole. However since it is over the trivial amount (HK$10K), it has been added to
the schedule of unadjusted misstatements on B7-3.
According to Terence Ip all lines relating to memory sticks were scrapped. All other lines are current.
Conclusion
Objective achieved.
I5.1 Page 265 of 565 APM 2022

Subject: Component costs
From stock sheet Invoices on a FIFO basis
(1a)
(1b) (1c)
Cost per
Quantity in Approximate Most recent
Value Unit cost Quantity in inventory Quantity on
Product Invoice No. stock on a Unit cost FIFO cost of Difference cost ≥
$ $ stock listing invoice
FIFO basis quantity in purchase
agreed to
stock costs
invoice
1 G210 534,866 285.11 1,876 ü A7890 500 500 285.11 142,555 Yes
A5678 500 500 285.11 142,555
A1234 500 500 285.11 142,555
A1111 500 376 245.00 92,120
1,876 519,785 15,081
2 N309 160,174 90.09 1,778 ü ZZ11 2000 90.09 160,174 - Yes
3 S109 159,116 88.79 1,792 ü 3145627 750 750 88.79 66,593 Yes
2895673 750 750 88.79 66,593
1784562 500 292 88.79 25,927
1,792 159,112 3
4 G211 148,282 86.11 1,722 ü 1290-B 1000 1000 86.11 86,110 Yes
1257-B 1000 722 86.11 62,172
1,722 148,282 (0)
1,002,438
See I5.1 15,085
On 18 March 2022 I enquired of the factory manager regarding obsolete or slow moving stock who responded that he was not aware of any obsolete or slow moving
components or materials. This accords with the results of the stock take attendance which did not identify any such items. Given that all components and raw materials are
used in production and all finished goods were sold at above cost, I have concluded that no write-down of the raw material balance was necessary.
[Note. For this sample the item chosen at random (item 4) just happened to be the 4th largest item.]
I5.2 Page 266 of 565 APM 2022

MCL AW I6
31 December 2021 21/3
Inventory listing - Work in Progress JO 1/4
Materials Labor to Total to
Job No Product Batch size to date date date
$ $ $
334-21 Xforce 3D 8600GT 2000MHz 256MB 250 150,930 24,570 175,500
335-21 X-Fi Xtreme Music - Sound card - S 250 159,907 26,031 185,938
24-bit - 192 kHz - 109 dB - PCI
336-21 Xforce 3D 8500GT 800MHz 512MB 750 222,042 36,146 258,188
337-21 Xforce 3D 8500GT 800MHz 256MB 500 129,000 21,000 150,000
338-21 Ethernet PCI LAN card 500 27,090 4,410 31,500
339-21 X-F2 Xtreme Audio card with X-Fi 250 86,538 14,087 100,625
Crystallizer PCI
340-21 802.11g Wireless G PCI Network A 500 25,155 4,095 29,250

Card
341-21 Portable Wi-Fi hot spot 250 33,863 5,512 39,375
342-21 X-Fi Xtreme Music - Sound card - 250 75,250 12,250 87,500
24-bit - 192 kHz - 109 dB - PCI ü
343-21 Xforce 3D 8500GT 800MHz 512MB 750 91,429 14,884 106,313
ü ü
344-21 Xforce 3D 8500GT 800MHz 256MB 500 56,438 9,187 65,625
345-21 Portable Wi-Fi hot spot S 250 16,932 2,756 19,688
346-21 X-F2 Xtreme Audio card with X-Fi 500 37,088 6,037 43,125
Crystallizer PCI
347-21 802.11g Wireless G PCI Network A 750 2,903 472 3,375

Card
Other not specified in the case study 228,478 43,520 271,998
WIP Valuation HK$ 1,343,043 224,957 1,568,000
ü ü ü
ü Casts checked
S = Agreed to test count results in I4.2 (Counted from shelves to sheet)
A = Agreed to test count results in I4.2 (Counted from sheet to shelves)
I6 Page 267 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 I6.1
Subject: Work in Progress cost
Objectives
To confirm that work in progress is carried at the lower of cost and net realizable value.
To identify any R&D expenditure.
Assertion
Valuation of WIP
Method
1 A sample of 2 (I2.2) work in progress jobs were selected for testing. The highest value job plus 1 at random
were selected.
a) The job card was tested for arithmetical accuracy including the sub-totals for labor and materials
cost at the year end.
b) The number of hours labor charged to the job was assessed for reasonableness based on
discussions with Terence Ip as to what he would expect for each type of job.
c) The labor rates were agreed to a table of hourly rates used by TI for pricing job cards.
d) The rates on the table used by TI were checked to payroll records.
e) Materials costs for components booked to the job were agreed to the component stock listings
on I5.
2 The products for the jobs in progress were compared to the finished goods listing to identify:
a) any where the costs to date are significantly in excess of the current cost.
b) any that may be slow moving or obsolescent.
3 Review the WIP listing for any product descriptions that refer to development expenditure.
Results
Detailed checks on the job cards proved satisfactory and no problems were found. The costs per unit on the 2 jobs
checked were very close to the cost of the items in finished goods. The production normally takes up to one week. The
overheads attributable to the work in progress and finished goods were not expected to be material and no absorption
was considered necessary.
The average cost per unit for the jobs in work in progress was in all cases below the cost of the item in finished good (See
I6.5). TI was not aware of any batches where the costs were significantly higher than expected.
All of the lines continue in production and sale, and the selling price of the ultimate finished goods are higher than their
costs (See I7). Therefore there are no problems with slow moving or obsolescent inventories.
No jobs were identified not already recorded on E4.2 that appear to relate to development of new products.
Conclusion
Objectives achieved.
I6.1 Page 268 of 565 APM 2022

Subject: Work in Progress cost
(1e)
Agree
(1c - d)
component
Agree labor
(1b) costs
Materials to Labor to (1a) rates to
Total to Labor hours booked to
Job No Product Batch size date date Sch Check hourly
date $ appear the
$ $ casts rates table
reasonable component
and HR
stock
record
listings on
I5
342-21 X-Fi Xtreme Music - Sound card - 250 75,250 12,250 87,500 I6.3 ü ü ü ü
24-bit - 192 kHz - 109 dB - PCI
336-21 Xforce 3D 8500GT 800MHz 750 222,042 36,146 258,188 I6.4 ü ü ü ü

512MB
This schedule summarizes the results of the work done. Detailed checks were performed on copies of the job cards. See I6.3 and I6.4
I6.2 Page 269 of 565 APM 2022

I6.3
ŋŰţġńŢųť Job no: 342 -21
Product: Batch
X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz - 109 AW
dB - PCI size: 250 21/3
Date created: 28/12/2021 Date costed: TI
Date completed: 15/1/2022 Costed by: 16/1/2022
Date despatched to
16/1/2022
warehouse
Components Unit Cost Total cost
S105 x 250
C
78.06 19,515 ü
C
S106 x 250 66.87 16,718 ü
S113 x 250
C
31.36 7,840 ü
ŜŅŦŵŢŪŭŴġůŰŵġŴűŦŤŪŧŪŦťŞ ĴĲĭĲĸĸ
ŜńŰŮűŰůŦůŵŴġŢťťŦťġŪůġĳıĳĳġůŰŵġŴűŦŤŪŧŪŦťŞ
Total materials cost: 75,250

ü
Labor
Rate per
Date Name Dept Hours Cost
hour
28-Dec An Employee A 32 R 55 1,760

28-Dec An Employee A 32 R 60 1,920
28-Dec An Employee B 32 R 80 2,560
ŜŅŦŵŢŪŭŴġůŰŵġŴűŦŤŪŧŪŦťŞ 6,010 At year end
Year end total 12,250
2021 ü
ŜŅŦŵŢŪŭŴġůŰŵġŴűŦŤŪŧŪŦťŞ 32,000
Total labor cost: 44,250

ü Cast agreed TOTAL COST 119,500 87,500
C Cost agreed to component listing on I5
ü ü
R Rate agreed COST PER UNIT 478
ü
I6.3 Page 270 of 565 APM 2022

I6.4
ŋŰţġńŢųť Job no: 336 -21
Product: Batch
AW
Xforce 3D 8500GT 800MHz 512MB size: 750 21/3
Date created: 27/12/2021 Date costed: TI
Date completed: 25/1/2022 Costed by: 26/1/2022
Date despatched to
26/1/2022
warehouse
Components Unit Cost Total cost
S101 x 750
C
85.05 63,788 ü
C
S103 x 750 18.61 13,958 ü
S106 x 750
C
66.87 50,153 ü
ŜŅŦŵŢŪŭŴġůŰŵġŴűŦŤŪŧŪŦťŞ ĺĵĭĲĵĴ
ŜńŰŮűŰůŦůŵŴġŢťťŦťġŪůġĳıĳĳġůŰŵġŴűŦŤŪŧŪŦťŞ
Total materials cost: 222,042

ü
Labor
Rate per
Date Name Dept Hours Cost
hour
27/12 An Employee A 32 R 50 1,600

27/12 An Employee B 32 R 65 2,080
27/12 An Employee D 32 R 60 1,920
ŜŏŰŵġŴűŦŤŪŧŪŦťġŪůġŮŰťŦŭġŧŪŭŦŞ ĴıĭĶĵķ At year end
Year end total 36,146
2021 ü
ŜŏŰŵġŴűŦŤŪŧŪŦťġŪůġŮŰťŦŭġŧŪŭŦŞ ĵĴĭĳķĵ
Total labor cost: 79,410

ü Cast agreed TOTAL COST 301,452 258,188
C Cost agreed
ü ü
R Rate agreed COST PER UNIT 402
ü
I6.4 Page 271 of 565 APM 2022

MCL AW I6.5
31 December 2021 21/3
Work in Progress JO 1/4
Cost per
Total costs to
Cost per unit unit in
Job No Product Batch size date
at year end finished
$
goods
334-15 Xforce 3D 8600GT 2000MHz 256MB 250 175,500 702 775
335-15 X-Fi Xtreme Music - Sound card - 24-bit - 192 250 185,938 744 875
kHz - 109 dB - PCI
336-15 Xforce 3D 8500GT 800MHz 512MB 750 258,188 344 400
337-15 Xforce 3D 8500GT 800MHz 256MB 500 150,000 300 375
338-15 Ethernet PCI LAN card 500 31,500 63 75
339-15 X-F2 Xtreme Audio card with X-Fi Crystallizer 250 100,625 403 575
PCI
340-15 802.11g Wireless G PCI Network Card 500 29,250 59 75
ü
341-15 Portable Wi-Fi hot spot 250 39,375 158 225
ü
342-15 X-Fi Xtreme Music - Sound card - 24-bit - 192 250 87,500 350 875
kHz - 109 dB - PCI ü
343-15 Xforce 3D 8500GT 800MHz 512MB 750 106,313 142 400
ü ü
344-15 Xforce 3D 8500GT 800MHz 256MB 500 65,625 131 375
345-15 Portable Wi-Fi hot spot 250 19,688 79 225
346-15 X-F2 Xtreme Audio card with X-Fi Crystallizer 500 43,125 86 575
PCI
347-15 802.11g Wireless G PCI Network Card 750 3,375 5 75
ŐŵũŦųġůŰŵġŴűŦŤŪŧŪŦťġŪůġŵũŦġŤŢŴŦġŴŵŶťź 271,998
WIP Valuation HK$ 1,568,000
I6.5 Page 272 of 565 APM 2022

MCL AW I7
31 December 2021 21/3
Inventory listing - Finished goods JO 1/4
Sales
Cost Value
Product Description Quantity price
$ $
$
Xforce 3D 8500GT 800MHz 256MB Graphics card 154 375.00 57,750.00 750.00
S
Xforce 3D 8500GT 800MHz 512MB Graphics card A 161 400.00 64,400.00 810.00
Xforce 3D 8600GT 1400MHz 256MB Graphics card 308 500.00 154,000.00 1,020.00
Xforce 3D 8600GT 2000MHz 256MB Graphics card 889 775.00 688,975.00 1,560.00
S
I7.1 ü
X-FI Xtreme Audio card with X-Fi Sound card 406 225.00 91,350.00 450.00
Crystallizer PCI
X-F2 Xtreme Audio card with X-Fi Sound card A 385 575.00 221,375.00 1,150.00
Crystallizer PCI
X-Fi Xtreme Music - Sound card - Sound card I7.1 763 875.00 667,625.00 1,750.00
24-bit - 192 kHz - 109 dB - PCI ü
802.11g Wireless G PCI Network Network card 826 75.00 61,950.00 150.00
Card
Ethernet PCI LAN card Network card S 367 75.00 27,525.00 140.00
802.11G Wireless USB Network Network adapter A 917 75.00 68,775.00 150.00
Adapter I7.1 ü
802.11G Wireless USB Network Network adapter 1015 150.00 152,250.00 295.00
Adapter (with extension)
A 910 190.00 172,900.00 375.00

Wi-Fi Express repeater Wi-Fi
A 847 250.00 211,750.00 475.00
Wi-Fi Express extender Wi-Fi

I7.1 ü
S 791 225.00 177,975.00 450.00
Portable Wi-Fi hot spot Wi-Fi

I7.1 875 275.00 240,625.00 550.00
Portable Wi-Fi hot spot plus Wi-Fi

ü
Finished goods at cost HK$ 3,059,225.00 I1
ü
Note 1. According to Raymond Chan the remaining memory sticks that were not sold with the business have been
scrapped and omitted from the stock sheets. The precise value is not known, but the amount is likely to be trivial as the
Memory Stick Division inventory had little or no value.
Note 2 The marked selling price exceed the recorded cost in all cases.
Note 3 The key item is the Wi-Fi Express Extender that was in the computer that caught fire and concerning which there is
a possibility of a claim against the company (See N3).
ü Cast and cross cast checked

S = Agreed to test count results in I4.3 (Counted from shelves to sheet)
= Agreed to test count results in I4.3(Counted from sheet to shelves)
A
I7 Page 273 of 565 APM 2022

Subject: Finished goods testing
Objective
To confirm that finished goods inventories are carried on a FIFO basis and at the lower of cost and net realizable value.
Assertion
Valuation of finished goods
Method
1 A sample of 5 items (including 1 key item - the Wi-Fi Express Extender may be the subject of litigation (see
N3) so it was decided to look at these) were selected on the basis of being the 3 highest value items plus 1 at
random and plus the key item (I2.3).
a) The cost per unit was agreed to the job card for latest batch.
b) Where the quantity in stock exceeded the most recent batch size, the cost on the job card for the
previous batch was also checked to the underlying documents.
2 Inventory sales reports were run for each line for January and February.
a) The quantity sold and the prices at which they were sold were noted.
b) The prices and quantities were compared to the volume in stock and the stated selling price to
identify any slow moving lines or lines where the selling price is less than cost.
Results
The tests on the cost of finished goods are set out on I7.2. The result showed that all samples were valued on a FIFO
basis.
The tests on net realizable value are set out on I7.3. Two of the lines were selling at prices slightly below the stated selling
price. However, this is still comfortably in excess of cost.
Conclusion
Objective achieved.
I7.1 Page 274 of 565 APM 2022

Subject: Finished goods cost
Cost Unit cost Quantity in

Product Agreed to Job card
$ $ stock
1 Xforce 3D 8600GT 2000MHz 688,975 775 889 ü Note 1

256MB
2 X-Fi Xtreme Music - Sound card - 667,625 875 763 ü Note 2
24-bit - 192 kHz - 109 dB - PCI
3 Wi-Fi Express Extender 211,750 250 847 ü Note 3
4 Portable Wi-Fi hot spot plus 240,625 275 875 ü Note 4
5 802.11G Wireless USB Network 68,775 75 917 ü Note 5

Adapter
1,877,750
Note 1 Cost for the last batch agreed exactly to the unit cost of HK$775 and the batch size was 400. As this is only a
small proportion of the year-end balance, the previous job card for this product was also checked, which was
also HK$775 (550 units) and agreed to the inventory unit cost.
Note 2 Cost agreed exactly and the batch size was 750. The previous job card for this product was also checked
(550 units): the cost was the same.
Note 3 Cost agreed exactly and the batch size was 500. As this is only a small proportion of the year end balance
the previous job card for this product was also checked (500 units): the cost was the same.
Note 4 Cost agreed exactly and the batch size was 1,000.
Note 5 Cost agreed exactly and the batch size was 1,000.
Conclusion: The finished goods were valued using FIFO method properly.
I7.2 Page 275 of 565 APM 2022

Subject: Finished goods net realizable value
Sales price
Selling
per
Unit Total cost Quantity in Sales in price per
Product inventory
cost $ stock Jan & Feb unit
listing
$
$
1 Xforce 3D 8600GT 2000MHz 775 688,975 1,560 889 675 1,555
256MB
2 X-Fi Xtreme Music - Sound card - 875 667,625 1,750 763 585 1,750
24-bit - 192 kHz - 109 dB - PCI
3 Wi-Fi Express Extender 250 211,750 475 847 798 475
4 Portable Wi-Fi hot spot plus 275 240,625 550 875 580 545
5 802.11G Wireless USB Network 75 68,775 150 917 690 150

Adapter
1,877,750
Note 1 Sales for January and February taken from the inventory sales reports for those months.
We have assessed the accuracy of the sales reports by testing selected items on the report to the underlying sales
order and bank receipts. No exception noted from the test, hence the sales reports are considered as valid. See I7.3a
for work performed [Note. I7.3a not produced in this example file]
Note 2 All lines are moving well and there does not appear to be any issues with slow moving inventory. Further batches
of all lines have been produced since the year end which suggests none are obsolescent.
Note 3 Two of the lines have been sold at prices slightly less than the sales price shown on the inventory listing. However,
the sales price is still comfortably in excess of cost and so does not affect the valuation.
I7.3 Page 276 of 565 APM 2022

Subject: Cut-off - Factory to warehouse
Objective
Test cut-off between inventory transit from factory to warehouse
Assertions
Cut-off of inventory
Method
The last job despatched from the factory is 333-21 according to the information noted at the inventory count. This agrees with the
work in progress listing where the jobs started but not complete are 334-21 to 347-21.
However, when looking at the inventory records at the warehouse the last GRN processed (the factory job number is used as a
GRN in the warehouse) was 322-21.
The missing goods fell into two categories:

1 A delivery was delayed between the factory and the warehouse as the delivery van broke down. The delivery
company notified the warehouse of the delay and these items were recorded as a miscellaneous receivable. See
J5.1 for the adjustment. This accounts for the following job numbers:
Job No. Description HK$

323-21 802.11g Wireless G PCI Network Card x 50 35,438
324-21 X-F2 Xtreme Audio card with X-Fi Crystallizer PCI x 100 402,500
325-21 Xforce 3D 8600GT 2000MHz 256MB 542,500
326-21 X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz 612,500
327-21 Portable Wi-Fi hot spot 157,500
1,750,438 Work on J5.1
2 Goods that were delivered to the warehouse but missed during the count. These were spotted during the count and
the numbers noted on I4.4 represent these items as set out below.
GRN Description Quantity Cost HK$ Value HK$

328-21 Xforce 3D 8500GT 800MHz 256MB 500 375.00 187,500
329-21 Xforce 3D 8500GT 800MHz 512MB 250 400.00 100,000
330-21 Xforce 3D 8600GT 1400MHz 256MB 750 500.00 375,000
331-21 Ethernet PCI LAN card 500 75.00 37,500
332-21 X-FI Xtreme Audio card with X-Fi Crystallizer PCI 250 225.00 56,250
333-21 X-F2 Xtreme Audio card with X-Fi Crystallizer PCI 500 575.00 287,500
1,043,750
Total inventory adjustment 2,794,188

Conclusion
This accounts for all the missing job/GRN numbers.
The missing stock in '1' above has been adjusted on J5.1 and added to B7 Journal #2.
Dr Inventory (Finished goods) 1,750,438
Cr Other receivables 1,750,438
The following journal in respect of '2' has been added to B7 Journal #1.
Dr Inventory (Finished goods) 1,043,750
Cr Cost of sales 1,043,750
I7.4 Page 277 of 565 APM 2022

31-Dec-21 J
M0001
J TRADE & OTHER RECEIVABLES
1 Summary sheet J
2 Lead schedule J1
3 Audit programme J2.1
4 Supplementary programme J2.2
5 Sample selection J2.3
6 Review of top 10 customers J2.4
7 Trade Receivables - Aged analysis J3

Trade receivables circularization J3.1
Subsequent settlement of trade receivables J3.2 - 3.3
8 Allowance for impairment loss on trade receivable J4
Assess management's expected credit losses calculation [Not included in this example file] J4.1
9 Other receivables J5
Owed by warehouse J5.1
Directors' loan account J5.2
Director's confirmation of loan from company J5.3
10 Summary of receivables' circularization results J6

Receivables’ circularization sheet J6.1
11 Prepayment J8
Insurance prepayment J8.1
Telephone and photocopier prepayments J8.2
Ji Page 278 of 565 APM 2022

31-Dec-21 J
M0001
SUMMARY SHEET – TRADE & OTHER RECEIVABLES

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To ensure that trade receivables are Yes/No AW
correctly recorded. 4, 5, 6, 7 1, 2, 3, 4
2 To ensure that adequate allowance for Yes/No AW

impairment and /or uncollectibility has 9, 10
been made for all receivables.
3 To ensure that proper cut-offs has been Yes/No AW

made. 11
4 To ensure that prepayments and other Yes/No AW

receivables (including staff and directors) 12, 13, 14, 5, 6, 7, 8,
are properly valued, classified, and 15 9, 10
verified.
5 To confirm that all necessary disclosures Yes/No AW

concerning receivables have been made
and that the information is appropriately 16, 17, 18,
presented and described. 19
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* trade and other receivables are fairly stated/ * not fairly

Js Page 279 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 J1
Subject: Receivables
2021 2020
Draft Jnl Adj Final
$000 Ref $000 $000 $000
Trade receivables
Sales ledger control J3 15,561 - 15,561 10,808
Sales invoices not despatched at

year end R6.4 - 1 (742) (742) -
Credit note provision R6.5 - 2 (402) (402) -

15,561 (1,144) 14,417 10,808
Allowance for impairment loss J4 (875) 5 336 (539) (595)
14,686 (808) 13,878 10,213
Other receivables J5 1,785 4 (1,750) 35 152
Prepayments J8 952 - 952 1,687
17,423 (2,558) 14,865 12,052

ü ß
Amounts due from directors J5 126 - 126 58

ü ß

J1 Page 280 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 J2.1
M0001
AUDIT PROGRAMME – TRADE & OTHER RECEIVABLES

Y/N Y/N date
General
1 Obtain and check, or prepare, a lead Y Y J1 AW
schedule for the current year ’ s figures and
reconcile this to the general ledger.
(b) review and comparison of key ratios or Y Y B5.1 See final AR AW
other performance indicators;
(c) comparison of the top 10 customers this Y Y J2.4 AW
year with last year.
3 Review for items above performance Y Y J3, J3.1 AW
materiality or that are otherwise unusual and
verify.
Cost/existence
4 Obtain or prepare an aged list of balances Y Y J3 AW
and test the casts.
5 Agree the aged list of balances to the control Y Y J3 AW
account. Obtain explanations for all material
adjustments to the control account.
6 Perform a circularization of trade receivables. J3.1

Ensuring that control of the process is
maintained:
(a) Select a sample of accounts for Y Y AW
confirmation from a complete list of
balances. Record the details on a
working paper.
(b) Confirm with client the receivables you Y Y AW

wish to circularize.
(c) Obtain explanations where the client N N/A
does not want you to circularize
particular balances and consider
alternative procedures that can be
applied.
(d) Consider whether the refusal to allow N N/A
circularization of particular balances will
impose a limitation of scope on the audit
or is an indication of fraud.
(e) Send the confirmation requests. Y Y AW
Enclose a prepaid envelope for return to
the firm. Ensure the reply part of the
letter is properly referenced.
J2.1 Page 281 of 565 APM 2022

Y/N Y/N date
(f) In respect of each reply: Y Y AW
(i) record it on the control sheet;
(ii) agree or reconcile the balance to
that shown in the client's records;
(iii) investigate any exceptions;

(iv) consider whether any of the
exceptions are indicative of fraud or
other misstatement.
(g) Where replies are not received within a N Alternative procedure AW
reasonable period send a follow-up followed in J6 and
letter. J6.1
(h) Perform the alternative procedures for Y Y J6, J6.1 AW
any unfavorable responses or where no
response obtained.
(i) Summarise the results and consider Y Y AW
whether adequate audit comfort has
been obtained for trade debtors.
7 Where circularization has not been carried
out select a sample of trade receivables or
where unsatisfactory results are obtained
carry out alternative procedures.
(a) Examine the ledger for subsequent N AW

settlement.
(b) For unpaid items inspect proof of N AW
delivery or despatch. If no such
documentation is available, inspect the
sales invoice supporting them.
(c) Review correspondence files for items in N AW
(b) to determine whether any disputes
exist.
(d) Consider requesting a transaction N AW

history from key customers.
8 List all credit balances over HK$_________ Y Y None AW
and obtain explanations.
Valuation
9 Review ledger accounts and obtain a list of J3
any debts with balances:
(a) not paid within … … … … months of the Y Y AW
period end;
(b) in excess of their credit limit; N No credit limits
(c) in the hands of liquidators or receivers; N None noted AW
(d) in the hands of lawyers for collection. N None noted AW
J2.1 Page 282 of 565 APM 2022

Y/N Y/N date
10 Compare the client ’ s allowance for Y Y J4.1 Management's AW
uncollectibility for trade receivables with the assessment on
list completed above and consider its [Not expected credit losses
adequacy. Obtain explanations for and justify produced (ECL) reviewed and
any material accounts omitted from the client’ in this assessed on J4.1 [Not
example
s list. produced in this
file]
example file]
Cut-off
11 Cut-off testing is covered in Section R. Y Y R6.2 AW
Prepayments
12 Obtain a list of items included as J8
prepayments:
(a) Test mathematical accuracy. Y Y AW
(b) Vouch material items to bank N J8.1 to They are not material AW
statements and invoices. 8.2 individually. No
vouching performed.
(c) Review for reasonableness and verify Y Y J8.1 to They are not AW
significant/unusual items, comparing 8.2 significantly different
with last year and expectations. from last year. No
unusual nature or
trend noted.
Other receivables
13 Obtain or prepare a list of other receivables. J5
(a) Vouch material items to supporting Y Y J5.1 AW

documentation. J5.2
(b) Compare with previous year and enquire Y Y J5.1 AW
into major differences. J5.2
Loans
14 Ensure that no loans have been made to Y Y J5.2 AW
directors unless within the provisions of
applicable legislation.
Long-term receivables
15 Where a receivable, or portion thereof is None AW
recoverable after more than one year,
consider:
(a) whether any allowance for impairment N
and / or uncollectibility is necessary.
(b) whether adequate disclosure has been N

made.
(c) whether the receivable is properly N
accounted for unless the fair value effect
is immaterial.
J2.1 Page 283 of 565 APM 2022

Y/N Y/N date
(d) Where an impairment provision may be N
required or estimation is involved in the
valuation of a receivable:
(i) Confirm that the valuation or N

impairment has been identified as an
accounting estimate on C4 Section 4.5
and work planned on C4.1; or
(ii) Explain how the approach taken N
540 (Revised).

evidence on the file to support the disclosures in the financial
(2) Disclosure
checklist completed
against management's
disclosure [Not
included in this
example file]
17 Review transactions and balances with Y Y See note 16 to AW

directors and ensure they are properly financial statements
presented as related party transactions.
18 Where a director's loan account is overdrawn Y Y See note 16 to AW
ensure that the necessary disclosures are financial statements
made.
19 Ensure that any factored debts have been N None AW

accounted for in accordance with the
substance of the agreement.
Bespoke tests
summary sheet.
J2.1 Page 284 of 565 APM 2022

Y/N Y/N date
Conclusion
representation or letter of comment and
record on A5 or A6, as appropriate.

23 Assess whether the initial materiality and/or Y Y No change required AW

the audit evidence obtained. Record details
of any necessary adjustments on B6 or B9.
date.
J2.1 Page 285 of 565 APM 2022

M0001
SUPPLEMENTARY PROCEDURES - TRADE & OTHER RECEIVABLES

Y/N Y/N date
1 Ensure the entity has accounted for its trade Y Y PAF 1.6 AW
and other receivables in accordance with
2 If the entity has retained substantially all the N No such items AW

risks and rewards of ownership of any
transferred assets (e.g. discounted bills,
factored trade receivables), ensure the entity
continues recognizing such assets as
receivables and that a financial liability is
recognized for the consideration received.
3 Trade receivables are normally carried at Y Y Carried at amortized AW
amortised cost using the effective interest rate cost
method. Where this is not the case ensure that
the treatment is in accordance with applicable
4 If trade receivable are carried at amortised J4

cost in the balance sheet:
(a) Identify if there is objective evidence that Y Y AW
a trade receivable or group of trade
receivables is impaired after individual
assessment of trade receivables that are
individually significant and collective
assessment of trade receivables that are
not individually significant.
(b) Consider the reasonableness of Y Y AW

estimates of "Present value of estimated
future cash flow" in determining the
amortised cost.
5 Obtain a list of deposits and perform the None AW

following procedures:
(a) Ascertain the nature of the deposits and N

sight deposits receipts to ensure that
they are:
(i) originals;
(ii) in the name of the entity; and
(iii) in the correct amount.
(b) Consider the outstanding amount of N
contract sum in relation to the deposits
paid for assets as capital commitments.
(c) Consider whether any allowance for N

impairment and / or uncollectibility is
necessary.
J2.2 Page 286 of 565 APM 2022

Y/N Y/N date
6 Obtain a list of bills receivables and perform None AW
the following procedures:
(a) Obtain banking facilities letter to see if N
such facilities have been granted by
bank.
(b) Check details of bills receivable balances N
to bills statements.
(c) Check the bills receivable balances to N
bank confirmation.
(d) Check subsequent settlement of bills N
receivable balances to bank statements.
(e) Consider whether any allowance for N

necessary.
7 For material other receivables consider: None AW
(a) Whether any allowance for impairment N
and / or uncollectibility is necessary.
(b) Obtaining confirmation from independent N
third party.
8 For loans receivable:
(a) Obtain confirmations of loans receivable; Y Y J5.3 AW
(b) Verify for loans in existence at the year Y Y J5.2 AW

end that:
- security exists and is in the hands of the
company;
- the value of security is adequate;
- any provision against loans is adequate;
and
- confirmations relating to the loans agree
with the balances.
(c) Check that loans granted during the year Y Y J5.3 Reviewed movement AW
are properly authorized; of the loan to a
director on J5.3.
(d) Check that loan repayments are received Y Y J5.3 AW
on the due date and correctly recorded;
and
(e) Check that interest on loans receivable Y Y AW
is:
- correctly recorded;
- received on the due dates; and
- correctly accrued at the year end.
(f) Consider whether any allowance for Y Y AW
necessary.
9 Ensure the entity accounted for foreign N None AW
10 Confirm that all monetary assets have been N None AW

translated at appropriate closing rate.
J2.2 Page 287 of 565 APM 2022

31-Dec-21 J2.3
M0001
SAMPLE SELECTION PLANNING – TRADE RECEIVABLES



Monetary value of population ( 100 %) J3 HK$ 15,561
Value of items above performance materiality ( 73 %) J3 HK$( 11,439 )
Value of scheduled other “key” items ( 7 %) J3 HK$( 1,061 )
Value of residual population ( 20 %) HK$ 3,061
Sample size =
(See maximum
Plus: Number of items above performance materiality = 4
Number of other “key” items Debtors substantially overdue for > 2 months = 2
Conclusion


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
J2.3 Page 288 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 2/4 J2.4
Subject: Review of top 10 customers
Objective
To identify unusualness of trade receivables by reviewing top 10 customers
Assertions
Completeness and existence of trade receivables
Method
AccNo. Customer 2021 2020 Comments

HK$'000 HK$'000
1 Y010 Ynos 3,476 2,787
2 A001 Abihsot 3,274 2,610
3 L001 Lled 2,563 2,045
4 D001 Drakcap Ttelweh 2,127 1,797
5 R010 Rotxam 722 603
6 S001 Senihcame 536 508
7 O005 Oodoo Computers 525 482
8 Q001 Qapmoc 485 129
9 R005 Reca 266 247
10 X001 Xirtim 253 308
Top 10 customers as at 31-Dec-2021 remained the same as prior year.
Concentration of credit Risk

2021 2020
HK$'000 HK$'000
Total trade receivables J1 13,878 10,213
Largest customer 3,476 2,787

Percentage of total receivables 25% 27% A/C disclosure note 26
Top 5 customers 12,162 9,842

Percentage of total receivables 88% 96% A/C disclosure note 26
Conclusion
Top 10 customers are the same as last year with similar year-end balance as last year.
No irregularities noted.
J2.4 Page 289 of 565 APM 2022

MCL AW J3
31 December 2021 25/3
Trade Receivables - Aged analysis JO 1/4
Acc
Customer Total Current + 1 month + 2 months Older
No.
HK$ HK$ HK$ HK$ HK$
A001 Abihsot c 3,274,075 1,299,725 976,500 910,000 87,850
A005 Agemoi 179,025 107,730 52,045 19,250
D001 Drakcap Ttelweh c 2,126,600 677,110 842,450 607,040
E001 Emit Computers 97,860 56,700 38,010 3,150
E005 Erawneila 29,050 3,150 19,250 6,650
G001 Gnusmas c 64,680 64,680
G050 Gsnnah 155,785 97,650 52,535 5,600
H001 Hcetavon 249,970 119,560 59,745 39,165 31,500
H050 Hsem -
L001 Lled c 2,562,840 821,100 885,850 786,240 69,650
L050 Llewylop -
M001 MBI 5,460 5,460
N001 Nikleb 80,675 51,450 25,725 3,500
N005 Noclaf -
N010 Norcip PC 111,810 61,250 50,560
O001 Onid PC -
O005 Oodoo Computers c 525,000 525,000
Q001 Qapmoc 484,925 207,900 212,625 5,250 59,150
Q050 Qneb -
R001 Raegten 33,750 33,750
R005 Reca c 265,685 244,125 20,090 1,470
R010 Rotxam c 721,700 319,200 402,500
S001 Senihcame c 535,500 535,500
S005 Susa 79,695 79,695
S010 Sysknil 231,875 77,175 51,450 103,250
U001 Ustijuf -
X001 Xirtim 253,015 131,250 115,500 6,265
Y001 Yawetag 16,625 16,625
Y005 Ygrenic -
Y010 Ynos c 3,475,500 1,158,360 1,327,725 894,915 94,500
15,561,100 5,594,435 5,171,770 3,881,360 913,535

ü ü ü ü ü
Total per client's record 15,561,100 5,594,435 5,171,770 3,881,360 913,535
ADJ-1 (R6.4) (742,225) (742,225)
ADJ-2 (R6.5) (401,500) (401,500)
Adjusted balance 14,417,375 4,450,710 5,171,770 3,881,360 913,535
Less: Impaired receivables (539,000) (539,000)
13,878,375 4,450,710 5,171,770 3,881,360 374,535
ü
c
Casts checked
Sample selected for circularization, see J3.1
J3 Page 290 of 565 APM 2022

For disclosure
Gross Expected Loss
At 31 December 2021 (HK$'000) carrying amount loss rates % allowance
Current 4,450 0.1% 4
30-60 days 5,172 0.6% 31
61-90 days 3,881 1.2% 46
91-120 days 914 50% 458
14,417 539
At 31 December 2020 (HK$'000)

Current ß 4,120 0.5% 21
30-60 days 3,227 1.1% 35
61-90 days 2,813 3.0% 84
91-120 days 648 70% 455
10,808 595
ß Agreed to last year's audited accounts
J3 Page 291 of 565 APM 2022

Subject: Trade receivables circularization
Objective
To confirm that trade receivables exist
Assertions
Accuracy, completeness and existence of trade receivables
Method
A sample of 9 balances ( J2.3) were selected for testing. These comprised 4 items above performance materiality, 2
balances that were substantially overdue and 3 selected judgmentally.
Adeline Leung's agreement was obtained to circularize all balances. The letters were sent by N&C in January as soon as
the year end reports were available enclosing reply paid envelopes addressed to N&C.
Alternative procedures as specified on J6.1 were undertaken for all non-replies or where the balance confirmed did not
agree.
Results
The results are summarized on J6. The proportion of replies was reasonable and satisfactory alternative procedures were
performed in respect of all non-replies or differences.
Conclusion
Objective achieved.
J3.1 Page 292 of 565 APM 2022

Subject: Subsequent settlement of trade receivables
Objective
To obtain evidence on management's expected credit losses (ECL) assessment on trade receivables
Assertion
Valuation of trade receivables
Method
Cash received after the year end was reviewed for each account circularized on J6.1.
9 samples were selected for circularization as determined on J2.3.
Cash received was agreed to the remittance advice from the customer as a check that receipts are allocated in the
receivables ledger to the invoices specified on the remittance advice and that the ageing of sales invoices in the ledger
corresponds with the remittance advice.
Results
Cash received
Year end
Balance and agreed to
Acc Ref balance still O/S
HK$ remittance advice
HK$
HK$
Items above performance materiality

Abihsot 3,274,075 3,019,975 J3.3 254,100
Drakcap 2,126,600 1,827,560 J3.3 299,040
Ttelweh
Lled 2,562,840 2,311,190 J3.3 251,650
Ynos 3,475,500 3,212,685 J3.3 262,815
Key items
Oodoo 539,000 - J3.3 539,000
Computers
Senihcame 535,500 210,000 J3.3 325,500 There are some technical problems
that have now been partially
resolved (hence the payments on
account). The remaining issue
should be resolved in the next few
weeks.
Other sample items Now paid AW 15/4/22
Gnusmas 64,680 64,680 J3.3 -
Reca 265,685 250,215 J3.3 15,470
Rotxam 721,700 721,700 J3.3 -
13,565,580 11,618,005 1,947,575
No instances were found of journals being used to move cash within the sales ledger, or of cash being allocated incorrectly
or not in accordance with remittance advices.
Conclusion
The subsequent settlement status is considered in our assessment of management's ECL model in J4.1. [Note. J4.1 is not
produced in this example file]
[Note. If remittance advices are not available or are not checked then other procedures may be necessary to confirm the
accuracy of aging in the receivables ledger.]
J3.2 Page 293 of 565 APM 2022

Receipts on each account were listed from the sales ledger account and agreed to the cash book remittance advice
to ensure proper allocation to the correct account and specified invoices.
Rem.
Date $ Cash book Comments
advice
A001 Abihsot
7-Jan-22 1,000,500 ü ü
13-Feb-22 1,200,975 ü ü
17-Mar-22 818,500 ü ü
3,019,975
D001 Drakcap Ttelweh

23-Jan-22 810,500 ü ü
26-Feb-22 1,017,060 ü ü
1,827,560
L001 Lled
4-Jan-22 1,000,000 ü ü
8-Feb-22 587,140 ü ü
7-Mar-22 724,050 ü ü
2,311,190
Y010 Ynos
16-Jan-22 1,123,550 None ü The client does not issue remittance advices;
however, the receipts were substantially agreed to
13-Feb-22 965,235 None ü
specific invoices on the sales ledger. A number of
19-Mar-22 1,123,900 None ü small credit notes made it hard to agree the
amounts exactly.
3,212,685
O005 Oodoo Computers No cash received
S001 Senihcame
12-Jan-22 105,000 None ü The client does not issue remittance advices;
however, the receipts were agreed to specific
7-Feb-22 105,000 None ü
invoices on the sales ledger.
210,000
G001 Gnusmas
10-Feb-22 64,680 ü ü
J3.3 Page 294 of 565 APM 2022

Receipts on each account were listed from the sales ledger account and agreed to the cash book remittance advice
to ensure proper allocation to the correct account and specified invoices.
Rem.
Date $ Cash book Comments
advice
R005 Reca
25-Jan-22 138,005 ü ü When looking at these remittance advices it was
noted that Reca has the same business address as
28-Feb-22 112,210 ü ü
Chan Computers Limited (owned by Mrs. Chan). On
250,215 checking the website for Chan Computers it was
discovered that Reca Limited is now a wholly
owned subsidiary of Chan Computers and so is a
related party of MCL.
See Note on B9
R010 Rotxam
18-Jan-22 402,500 ü ü
27-Feb-22 319,200 ü ü
721,700
J3.3 Page 295 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 J4
Subject: Allowance for impairment loss on trade receivable
Objective
Obtain evidence on management's expected credit losses (ECL) on trade receivables
Assertion
Valuation of trade receivables
Results
2021 2020
Draft Jnl Adj Final
$000 Ref $000 $000 $000
Balance at 1 January 595 - 595 480

Impairment loss made during the year * 280 5 (280) - 195
Reversal of impairment loss - 5 (56) (56) (120)
Uncollectable amounts written off - - - 40
Balance at 31 December 875 (336) 539 595
In the management accounts, the loss allowance for trade receivable was HK$875K (See J1) before the ECL
assessment. After the ECL assessment, Adeline Leung considered that the loss allowance should be HK$539K hence
the following post year-end journal was made to reduce it to HK$539K:
Recorded on A3 Jn 5:
HK$'000
Dr Allowance for impairment loss 336
Cr Cost of sales - Doubtful debt expense 336
For trade receivables, MCL applies the simplified approach permitted by HKFRS 9 to measure the loss allowance at an
amount equal to lifetime ECL:
Gross Expected Loss
receivables loss rates allowance
At 31 December 2021 HK$'000
Current 4,450 0.1% 4
30-60 days 5,172 0.6% 31
61-90 days 3,881 1.2% 46
91+ days 914 50% 458
14,417 539
Management's assessment on ECL to trade receivables is set out on J4.1.

Management performed the ECL assessment based on historical default rates over the expected life of the debtors and
are adjusted for forward-looking macroeconomic factors (such as GDP and interest rates) that affect the ability of the
debtors as of the reporting date to settle the receivables.
We have assessed management's ECL on its debtors and noted it is reasonable and in line with HKFRS 9 requirements.
See J4.1 on our work and assessment on MCL's ECL assessment. [Note. J4.1 is not produced in this example file]
We further noted that MCL charges its doubtful debt expense to cost of sales. However, it does not relate to the sales of
goods so it should be classified as a line item in the P/L. The net doubtful debt amount charged/reversed to P/L during the
year was greater than clearly trivial, so an unadjusted misstatement on the reclassification was raised to B7; however, as
this affects presentation in the P/L, AL agreed to adjust - see Jnl 19 on A3. Also see R1.5.
Conclusion
Objective achieved.
J4 Page 296 of 565 APM 2022

Subject: Other receivables
2021 2020
Draft Adj Final
$000 $000 $000 $000
Directors' loan J5.2 126 126 58
Owed by warehouse J5.1 1,750 (1,750) - -
Staff loans 35 35 64
Insurance claim - - 25
Sale of plant - - 63
1,785 (1,750) 35 152
Total 1,911 - 1,750 161 210

A/C Note 25
J5 Page 297 of 565 APM 2022

Subject: Owed by warehouse
Objective
Obtain evidence on "Owed by warehouse" balance
Assertion
All on other receivables
Amounts owed by the warehouse represent finished goods that have been despatched by the factory but which had not
been received in the warehouse at the time of the warehouse inventory count.
Factory 2021 2022 ware-

despatch Item $ despatch house
note note? receipt
323-21 802.11g Wireless G PCI Network Card x 50 35,438 ü ü
324-21 X-F2 Xtreme Audio card with X-Fi Crystallizer PCI x 402,500
100 ü ü
325-21 Xforce 3D 8600GT 2000MHz 256MB 542,500 ü ü

326-21 X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz 612,500
ü ü
327-21 Portable Wi-Fi hot spot 157,500 ü ü
1,750,438 J5
All items were agreed to the factory despatch note to confirm that they were despatched from the factory before the year
end. They were then checked to the stock records in the warehouse to confirm that they were received after the year end.
The factory despatch notes use the job number including the suffix for the year so it is relatively easy to identify deliveries
recorded in the warehouse in 2022 with a 2021 code that were not included in work in progress at the year end.
Conclusion
This amount should be included as part of finished goods as goods in transit. See B7 - #2
Dr Inventory (Finished goods - BS) 1,750,438
Cr Other receivables 1,750,438
J5.1 Page 298 of 565 APM 2022

Subject: Directors' loan account
$
Balance brought forward 57,830
Finished goods at selling price

Xforce 3D 8600GT 1,560
X-Fi Xtreme Music - Sound card 1,750
Cash advance 65,000
Balance carried forward J5 126,140
The above summary was prepared from the general ledger account by AW.
The loan account is all in respect of Raymond Chan. The loan is unsecured, interest free and repayable on
demand.
There were no repayments in the year so the year end balance is also the maximum amount outstanding. As
noted above the movements in the year are some goods taken for private use and a cash advance.
The finished goods taken by the director for personal use were not material. Separate disclosure of the details &
the related party transactions was considered not necessary.
The balance on the loan account has been confirmed in writing by R Chan (J5.3) and our knowledge of his
personal circumstances suggests that recoverability is not a problem. The amount is not material so no further
work proposed.
J5.2 Page 299 of 565 APM 2022

Sea Bird Lane
Tai Shui Hang
Hong Kong
ŃġōŦŦ
ŏŪŤŬŭŦţźġħġńũŶŻŻŭŦŸŪŵ
ńŰŶůŵŪůŨġŉŰŶŴŦ
ŌŪůŨŴġœŰŢť
ŉŰůŨġŌŰůŨġŊŴŭŢůť
ŉŰůŨġŌŰůŨ ĳĶĮŎŢųĮĳĳ
ŅŦŢųġŎųįġōŦŦ
ńŰůŧŪųŮŢŵŪŰůġŰŧġŭŰŢůġŧųŰŮġŤŰŮűŢůź
ŊġŤŰůŧŪųŮġŵũŦġŧŰŭŭŰŸŪůŨġťŦŵŢŪŭŴġŪůġųŦŴűŦŤŵġŰŧġŵũŦġŢŮŰŶůŵġŰŸŦťġţźġŮŦġŵŰġŵũŦġŤŰŮűŢůźĻ
ĥġ
ŃŢŭŢůŤŦġţųŰŶŨũŵġŧŰųŸŢųť ĶĸĭĹĴıġ
ŇŪůŪŴũŦťġŨŰŰťŴġŢŵġŴŦŭŭŪůŨġűųŪŤŦ
řŧŰųŤŦġĴŅġĹķııňŕ ĲĭĶķıġ
řĮŇŪġřŵųŦŮŦġŎŶŴŪŤġĮġŔŰŶůťġŤŢųť ĲĭĸĶıġ
ńŢŴũġŢťŷŢůŤŦ ķĶĭıııġ
ŃŢŭŢůŤŦġŤŢųųŪŦťġŧŰųŸŢųť ĲĳķĭĲĵıġ Agreed to J5.2
ŕũŦġŭŰŢůġŪŴġŶůŴŦŤŶųŦťĭġŪůŵŦųŦŴŵġŧųŦŦġŢůťġųŦűŢźŢţŭŦġŰůġťŦŮŢůťį
ŚŰŶųŴġŴŪůŤŦųŦŭź
R Chan
œġńũŢů
ŎŢůŶŧŢŤŵŶųŪůŨġńŰŮűŢůźġōŪŮŪŵŦť
J5.3 Page 300 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 J6
M0001
SUMMARY OF RECEIVABLES’ CIRCULARISATION RESULTS
As at 31 December 2021
No. Value % Value
Total trade receivables 23 HK$ 15,561,100 100%
Total balances circularized (A) 9 HK$ 13,551,580 87%
Results of test:
HK$
Balances confirmed by
9,708,770 71%
circularization (B)
Balances confirmed by cash after

2,521,190 19%
date (D)
Balances confirmed by alternative

1,321,620 10%
procedures (F)
Total (G) 9 13,551,580 100%
Unconfirmed balances i.e., audit

error (A-G) 0 0 0%
Conclusion
Evidence on existence of trade receivables obtained.
J6 Page 301 of 565 APM 2022

M0001
Receivables’ circularization sheet

A B C D E F
Alternative
Balance
Balance verified Remaining procedures Balances verified
confirmed by Unconfirmed Unverified
Balance by subsequent unaudited undertaken on by alternative
Customer confirmation balance (A-B) balances
HK$ settlement balance (C-D) column E items e.g. procedures
received HK$ HK$
HK$ HK$ sample check on HK$
HK$
proof of sale
Items above performance materiality

Abihsot 3,274,075 3,274,075 - - -
Drakcap Ttelweh 2,126,600 2,126,600 - - -
Lled 2,562,840 - 2,562,840 2,311,190 251,650 Agreed to despatch 251,650 -
notes and invoices
Ynos 3,475,500 3,271,500 204,000 204,000 Post year end CN 204,000 -

80009 accrued on
R6.5
Key items
Oodoo Computers 525,000 - 525,000 - 525,000 Agreed to despatch 525,000 -
notes and invoices
Senihcame 535,500 - 535,500 210,000 325,500 Agreed to despatch 325,500 -
notes and invoices
Other sample items

Gnusmas 64,680 64,680 - - - -
Reca 265,685 250,215 15,470 - 15,470 Agreed to despatch 15,470 -
notes and invoices
Rotxam 721,700 721,700 - - - -
13,551,580 9,708,770 3,842,810 2,521,190 1,321,620 1,321,620 -
J6.1 Page 302 of 565 APM 2022

Subject: Prepayments
2021 2020
Draft Adj Final
$ $ $ $
Insurance J8.1 480,036 480,036 492,774
Rates 14,872 14,872 17,919
Telephone and photocopier J8.2 134,253 134,253 416,897
Others (not analyzed) 322,947 322,947 759,322
952,108 - 952,108 1,686,912

J1 J1
J8 Page 303 of 565 APM 2022

Subject: Insurance prepayments
2021 2020
HK$ HK$
Buildings 200,000 230,000
Goods in transit 50,000 45,000
Employers liability 70,000 65,000
Vehicles 160,036 152,774
J8 480,036 492,774
Buildings insurance is paid in December for the next calendar year. MCL have changed insurer and were able to
negotiate a reduction in cost.
Other insurance prepayments are not materially different from last year. As the amounts are below materiality they
have not been investigated further.
J8.1 Page 304 of 565 APM 2022

Subject: Telephone and photocopier prepayments
2021 2020
HK$ HK$
Telephone system 90,000 350,000
Photocopiers 35,000 50,000
Other (not analyzed in this model file) 9,253 16,897
J8 134,253 416,897
The hire of the telephone system was invoiced in December 2020 for the 2021 calendar year. During 2021 MCL
negotiated that in future it would be billed quarterly in advance and HK$90,000 was invoiced in December 2021 in
respect of the first quarter of 2022.
Other leasing prepayments are not material and have not been investigated further.
J8.2 Page 305 of 565 APM 2022

31-Dec-21 K
M0001
K BANK BALANCES AND CASH
1 Summary sheet K
2 Lead schedule K1
3 Audit programme K2
4 Bank reconciliations K3.1 - 3.2
5 Bank confirmation K4
Ki Page 306 of 565 APM 2022

31-Dec-21 K
M0001
SUMMARY SHEET – BANK BALANCES AND CASH

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To establish that all bank balances and 4, 5, 9, 10 Yes/No AW
overdrafts have been included at the
correct amount.
2 To ensure that bank balances and 6, 7, 8 Yes/No AW

overdrafts are correctly disclosed.
3 To ensure that cash balances are genuine 9, 10, 11, Yes/No Cash not material AW
and have been included at the correct 12, 13 & no foreign
amount. currency balances

concerning bank and cash balances have
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* bank and cash are fairly stated/ * not fairly stated as
described below.

Ks Page 307 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 K1
Subject: Bank & cash
2021 2020
Draft Adj Final
$'000 $'000 $'000 $'000
Cash and deposits on hand:
Petty cash 7 C 7 7
Bank current account K3.1 5,648 5,648 -
Deposit account K3.2 14 Y 14 35
5,669 - 5,669 42
ü ß
Bank overdrafts:
Bank current account K3.1 - - - 1,501
- - - 1,501
ü ß
C Cash certificate obtained. [Not reproduced in this example file]
Y Bank confirmation received (K4)
K1 Page 308 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 K2
M0001
AUDIT PROGRAMME - BANK BALANCES AND CASH
Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead schedule Y Y K1 AW
those of prior periods; K1
(b) review and comparison of key ratios or N

3 Review for items above performance Y Y K4 Cash receipts and AW

materiality or that are otherwise unusual and R6.6 payments during the
verify. R7 year are mainly
related to sales or
purchase ledger or
audited in other
sections.
The year-end cash
balance will be
audited substantively
through the use of a
bank confirmation.
Valuation and existence
4 Obtain directly from the bank confirmations for Y Y K4 AW
all bank accounts open at any time during the
year according to the external confirmation
procedures in HKSA 505.7.
5 Obtain or prepare bank reconciliations for all K3.1

accounts and verify.
(a) Check bank balances to bank statement Y Y AW

and bank confirmation.
(b) Check cash book balance to general Y Y AW

ledger.
(c) Check casting of the reconciliations. Y Y AW

(d) Check a sample of uncleared items Y Y AW
through to the new period (noting dates).
Obtain reason where any item has taken
longer than expected to clear.
(e) Obtain explanations and substantiate all Y Y AW

adjustments on the bank reconciliations.
K2 Page 309 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
6 Ensure that all matters dealt with in the bank Y Y K4 AW
confirmations have been referenced to the
relevant schedule/sections.
7 Ensure that bank balances and overdrafts are N No set-off AW
only netted off where a formal right of set-off
exists.
8 Ensure that the company has not exceeded Y Y AW
any restrictions on borrowing powers imposed
in the Articles of Association or any loan
agreement.
Cash
9 For businesses receiving cash income, ensure N None AW
unbanked takings before and after the year
end have been accounted for in the correct
period.
10 For businesses receiving cash income, ensure N AW

that all unbanked takings at the year end have
been timeously banked in the new period.
11 Obtain certificates / confirmations for all cash Y Y K1 [Note. In this AW

balances not counted. example file, the
balance held is
immaterial so this
test would not
normally be
undertaken in these
circumstances.]
Foreign Currencies
12 Ensure the entity accounted for foreign N None
13 Confirm that all monetary assets have been N

translated at the closing rate.

14 Confirm that a disclosure checklist will be Y Y [Note. The AW
completed for this year. Where that is not the disclosure checklist
case explain how the objectives relating to is not included in this
disclosure will be achieved. example file.]
15 Ensure that there is evidence on the file to Y Y AW

support all disclosures made.
16 Review the bank confirmations and Y Y AW

correspondence and ensure that all necessary
disclosures have been made.
Bespoke tests
17 Draft and perform any necessary additional Y Y None AW
sheet.
K2 Page 310 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Conclusion
appropriate.


date.
K2 Page 311 of 565 APM 2022

Manufacturing Company Limited AW K3.1
Bank Reconciliation 28/3
At 31 December 2021 JO 1/4
CURRENT ACCOUNT HK$
Agreed to statement & bank letter K4

Balance per bank statement 6,027,527
Balance per cash book and trial balance K1 5,647,288
Outstanding lodgments:
[Others not specified in case study] 1,762,709
(1,762,709)
Unpresented payments: Cheque

Date Payee Cleared on
28/12 nVidia 3-Jan 554,771
28/12 Ewakcip 3-Jan 359,002
28/12 Telbin Lien 7-Jan 357,539
28/12 Cimonoce 3-Jan 288,673
28/12 Lacinex 3-Jan 190,358
28/12 Normo Rotinom 3-Jan 150,899
28/12 Salta 4-Jan 31,346
28/12 Disrevir 7-Jan 30,576
28/12 Nanrarevni 7-Jan 21,700
28/12 Navazem 5-Jan 10,962
28/12 Soeclac 10,556
28/12 Avivnob 5,425
28/12 Etratic 1,463
xx
xx
[Others not specified in case study] 129,678
2,142,948
A Leung 6,027,527
Agreed to bank conf K4
Notes
1. Schedule prepared by client
2. Reconciliation approved by Adeline Leung
3. Clearance of largest 10 cheques checked by AW (which covers 93% of total unpresented payments)
4. The nature of reconciling items was reviewed. All outstanding lodgments and unpresented payments are related to
the business of MCL Ltd. No unusual items were noted.
K3.1 Page 312 of 565 APM 2022

Manufacturing Company Limited AW K3.2
Bank Reconciliation 28/3
At 31 December 2021 JO 1/4
DEPOSIT ACCOUNT
HK$
Balance per bank statement Agreed to bank confirmation on K4 14,213
Balance per cash book (&TB) A Leung K1 14,213
Notes
1. Schedule prepared by client
2. Reconciliation approved by Adeline Leung
K3.2 Page 313 of 565 APM 2022

To the Manager K4
Wan Chai Bank AW 28/3 JO 1/4
Avenue Road :Office Date: 31-Dec-21
Dear Sir
REQUEST FOR BANK CONFIRMATION OF INFORMATION FOR AUDIT PURPOSES
A/C Manufacturing Company Limited (Customer's name)
For the purposes of our annual audit please complete the attached form to show the following information relating to our affairs with your
bank as at the close of business on 31 December 2021. For each item please state any factors which limit the completeness of your
reply; if there is nothing to report, state "none".
Please confirm the position by completing the section headed "Bankers Confirmation" on the final page of this request.
You are hereby authorized to return this request after completion and together with any remarks you may
have to our auditors, Messrs. Nickleby & Chuzzlewitt
You are hereby authorized to debit any charge for this service to account number 66666666
It is understood that your reply to this request will in no way prejudice your rights in respect of your General Lien as Bankers.
Yours faithfully
A Leung
authorized signatory on behalf of Manufacturing Company Limited
Item 1 Deposits, Fixed or at Call in your books

Receipt No Date Amount Interest rate Due date
Local
currency
Foreign
currency
Item 2 Savings Accounts held in your books
Account No. Balance
Local
12345678 $14,213.00 Cr
currency
Foreign
ü K1, K3.2
currency ü Agreed to client records
Item 3 Current Account Balance/s held in your books. Please state whether in credit (Cr) or overdrawn (Dr)
Account No. Balance
Local
currency
66666666 $6,027,527.00 Cr ü K3.1
Foreign
currency
K4 Page 314 of 565 APM 2022

Item 4 Facilities granted to us. Please state by types of facilities 1
Types of
Facilities Reference No. Interest Rate Amount Maturity Rate Guarantor
Local
currency
Foreign
currency
Item 5 Loan Account Debit Balance/s (excluding Loans in connection with Inward cargoes) in your books
Account No. Balance
87654321 $1,029,787.00 Dr üM4

Local
currency
65432198 $1,640,000.00 Dr ü
Foreign
currency
Item 6 Accounts closed during year to confirmation date

Acc No. Account type Date closed
March
76543219 Loan M4.2
Local 2021
currency
Foreign
currency
Item 7 Advances to Manufacturers and/or Packing Credits Account and/or Exports Loans granted Outstanding in your books
Account No. Balance
None
Item 8 Acceptances Outstanding in your books
Bills receivable by you Reference No. Amount Issue Date Maturity Date
(banker) None
Of which goods released

against trust receipt
Bills held by you for

collection
None
1 Alternatively, banks may complete this section by attaching the relevant bank facility letters. Any relevant information not included
in such letters should be separately included above.
K4 Page 315 of 565 APM 2022

Item 9 Partial payments held by you
Reference No. Amount
On account of item 8
None
Item 10 Irrevocable Letters of Credit Outstanding in your books

Reference No. Balance Utilized Expiry Date
None
Item 11 Bills receivable by us (customer)

Bills purchased by you (and
outstanding at this date) None
Bills held by you for

collection
None
Item 12 Marginal deposits held by you

On account of Item 8 and
Item 10 None
On account of Item 11 None
Item 13 Loans granted in connection with Inward Cargoes Outstanding in your books
Reference No. Amount Details of Cargo
None
K4 Page 316 of 565 APM 2022

Item 14 Guarantees2
Given by you on our behalf To whom Issued Reference No. Notional Amount
i) Shipping Guarantees None
ii) Others None
Received by you on our

behalf
None
Item 15 Derivative Contracts/Structured Product Contracts3 Outstanding

Contract No. Notional Amount Contract Rate Maturity Date
i) Exchange Rate Contracts
None
ii) Interest Rate Contracts None
iii) Other derivative

contracts / structured None
product contracts
Item 16 Other direct or contingent liabilities to you
None
2 Common examples of guarantees include financial guarantees, advance payment guarantees, shipping guarantees and
performance bond, bid bond and retention bond guarantees. Banks are recommended to provide additional explanatory notes for
the items or terms used in the bank confirmation, where the nature of the guarantee is not readily apparent.
3 Common examples of derivative contracts/ structured product contracts include forward rate agreements, option contracts,
futures contracts, swap arrangements, option contracts, bullion contracts, commodity contracts and structured products. Banks
are recommended to provide additional explanatory notes for the items or terms used in the bank confirmation, where the nature
of the derivative contract / structured product contract is not readily apparent.
K4 Page 317 of 565 APM 2022

Item 17 Securities and other documents of title held by you
Charge over the company's premises in the banks' standard form in
Against facilities granted respect of all borrowings
Disclosed in accounts
For Safe Custody None
BANKERS' CONFIRMATION
We confirm that the balances and information which we have inserted under items 1 to 17 above are correct and complete.
This information is given in strictest confidence, for the purposes of your audit, without any responsibility for error or omission on
the part of this Bank, its employees, agents or informants.
Fung Heng Chim Wan Chai

Bank
authorized signatory for and on behalf of the Bank
K4 Page 318 of 565 APM 2022

31-Dec-21 L
M0001
L TRADE & OTHER PAYABLES
1 Summary sheet L
2 Lead schedule L1
3 Audit programme L2.1
4 Supplementary programme L2.2
5 Sample selection planning L2.3 - 2.4
6 Review of top 10 customers L2.5
7 Trade Payables - Aged analysis L3

Trade payables tests L3.1
Review of January 2022 invoices L3.2
8 Accruals L4
9 Lease Summary L6
Lease liabilities L6.1
10 Summary of trade payables' circularization results L7

Trade payables’ circularization sheet L7.1
11 Forward foreign exchange contact - review client's calculation L10

Testing of forward exchange contract valuation L10.1 - 10.2
Assess management's classification of the financial asset L10.3
12 Directors' accounts: summary See J5.2 J5.2
Li Page 319 of 565 APM 2022

31-Dec-21 L
M0001
SUMMARY SHEET – TRADE & OTHER PAYABLES

Planning Final
satisfy procedures
objective*
Audit objectives
1 To ensure that liabilities exist and have AW
been fully and accurately recorded. 4, 5, 6, 7, 8,
1, 2, 3 Yes/No
9
2 To ensure that proper cut-off has been AW

applied. 10 Yes/No
3 To ensure that all leases have been AW

accounted for in accordance with
11, 12, 13,
applicable accounting standards. 4 Yes/No
14
4 To ensure that all material accruals, loans AW

and other payables have been properly 15, 16, 17,
5, 6, 7 Yes/No
accounted for. 18
5 To confirm that all necessary disclosures AW

concerning payables have been made
and that the information is appropriately 19 Yes/No
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* trade and other payables are fairly stated/ * not fairly

Ls Page 320 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 L1
Subject: Payables
2021 2020
Draft Jnl Adj Final
$000 Ref $000 $000 $000
Trade & other payables

Trade payables L3 8,673 ü 8,673 ß 10,225
Accruals L4 1,006 14 37 ü 1,043 ß 1,832
9,679 37 9,716 12,057
Derivative financial instruments L10 79 15 (3) üü 76 ß ß 79

L1 Page 321 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 L2.1
M0001
AUDIT PROGRAMME – TRADE & OTHER PAYABLES
Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead schedule Y Y L1 AW
those of prior periods; L1

other performance indicators;
(c) comparison of the top 10 suppliers this Y L2.5 AW

year with last year.
3 Review for items above performance Y Y L3.1 Balances are for AW

materiality or that are otherwise unusual and major suppliers and
verify. included in
circularization
Existence and completeness
4 Obtain or prepare a list of trade payables. Y Y L3 AW
Agree the list to the control account. Obtain
explanations for all material adjustments to the
control account.
5 Test the casts of the list. Y Y L3 AW

6 List all debit balances over HK$_10,000__ and Y Y None noted. AW
obtain explanations. Ensure they are correctly HK$10,000 is the
treated in the accounts. threshold for clearly
trivial hence it is used
for this procedure.
7 Perform a trade payables' circularisation. L7
Ensuring that control of the process is L7.1
maintained:
(a) Select a sample of accounts from a Y Y AW

complete list of balances for example an
activity report (include nil and debit
balances where applicable). Record the
details on a working paper.
(b) Confirm with client the trade payables you Y Y
wish to circularise.
(c) Obtain explanations where the client does Y Y All allowed AW

not want you to circularise particular
balances and consider alternative
procedures that can be applied.
(d) Consider whether the refusal to allow Y Y No such limitation AW

circularisation of particular balances will
impose a limitation of scope on the audit
or is an indication of fraud.
L2.1 Page 322 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(e) Send the confirmation requests. Enclose Y Y AW
a prepaid envelope for return to the firm.
Ensure the reply part of the letter is
properly referenced.
(f) In respect of each reply:
(i) record it on the control sheet; Y Y AW
(ii) agree or reconcile the balance to Y Y
that shown in the client's records;
(iii) investigate any exceptions; Y Y

(iv) consider whether any of the Y Y No indicators noted.
exceptions are indicative of fraud or
other misstatement.
(g) Where replies are not received within a Y Y AW

reasonable period send a follow-up letter.
(h) Perform the alternative procedures for Y Y L7.1 Satisfactory results AW

any unfavorable responses or where no obtained
response is obtained.
(i) Summarise the results and consider Y Y L7 AW
whether adequate audit comfort has been
obtained for trade payables.
8 Where a circularisation is not carried out, or N AW
the results are unsatisfactory, test trade
payables for completeness as follows:
(a) obtain the year end trade payables listing;
(b) compare to prior year to identify obvious

omissions;
(c) review purchase day book during the year
and payments after the year-end to
identify main suppliers;
(d) review purchase YTD information where

available to identify major suppliers;
(e) enquire to major suppliers not on the list.

Ensure the list is in fact complete;
(f) enquire into low balances with major

suppliers to ensure they are complete;
(g) obtain the file for year end supplier

statements. Check a sample and
agree/reconcile to the list of balances;
(h) for major suppliers (regardless of

recorded balance outstanding) and for all
material recorded balances, identify the
related statement and agree/reconcile to
the creditors’ listing;
(i) where a statement is not available for any

major supplier(s) consider requesting a
copy statement from the supplier(s);
L2.1 Page 323 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(j) review after-date payments. Ensure
those paying off pre-year end items are
included in creditors;
(k) extend the scope of (i) above if

statements are not retained for all
suppliers.
9 Review invoices in the new period to ensure all Y Y L3.2 All material amounts AW
material amounts have been provided for. provided for
Cut-off
10 Cut-off test is covered in Section R. Y Y R7.2 AW
Leasing
11 Complete relevant programmes under App6 Y Y F6 AW
where HKFRS 16 applies.
12 Where an accounting framework does not N AW

apply the approach in HKFRS 16: review the
treatment of all leases.
(a) Confirm that leases are correctly

classified under the relevant accounting
framework, for example, the distinction
between operating and finance leases
where applicable.
(b) Consider any new agreements and

ensure that the accounting treatment is in
accordance with applicable accounting
standards.
(c) Confirm that any assets, liabilities or
finance charges are accounted for in
standards.
13 Confirm that any lease incentives have been N No lease incentives in AW
accounted for in accordance with applicable the leases of MCL
14 Have any sale and lease back transactions in N No sale and lease AW
the period been identified and accounted for in back transactions
accordance with the applicable accounting during the period
standard?
Accruals
15 Review accruals for completeness comparing L4
to:
(a) last year’s list; Y Y AW

(b) expectations. Y Y AW
Income Taxes
16 Agree the current tax liability to Section P. Y Y P1 AW
L2.1 Page 324 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Provisions
17 Carry out audit tests as detailed in Section N. Y Y See section N AW
Other payables
18 Vouch any material other payables to Y Y L4 AW
supporting documentation and ensure that
other payables are carried at amortised cost.

evidence on the file to support all disclosures in the financial
(2) Disclosure
checklist completed
against
management's
disclosure [Not
included in this
example file]
Bespoke tests
sheet.
Conclusion
appropriate.
22 Review the planned extent of reliance on Y Y As planned AW

23 Assess whether the initial materiality and/or Y Y No changes required AW

date.
L2.1 Page 325 of 565 APM 2022

M0001
SUPPLEMENTARY PROCEDURES - TRADE & OTHER PAYABLES

Y/N Y/N date
1 Ensure the entity has accounted for its trade Y Y See AW
and other payables in accordance with PAF
applicable accounting standards. 1.6
2 Where trade payables are valued on a basis N AW

other than amortised cost using the effective
interest method, ensure that the treatment is in
standards.
3 Where trade payables are carried at amortised Y Y AW
cost, consider the reasonableness of the
present value of estimated future cash flow in
determining the amortised cost.
4 For lease liability, consider

(a) Obtain direct confirmation of relevant Y Y L6 AW
details of outstanding lease payments.
(b) Physically inspect the asset, if possible, Y Y F4.1 AW

or determine that the asset exists and is
in use by the client.
5 For bills payable, perform the following None AW

procedures:
(a) Obtain a list of bills payable balances. N
(b) Obtain banking facilities letter to see if N
such facilities have been granted by
bank.
(c) Check details of bills payable balances to N
bills statements.
(d) Check the bills payable balances to bank N
confirmation.
6 Ensure the entity accounted for foreign N AW
7 Confirm that all monetary liabilities have been N AW

L2.2 Page 326 of 565 APM 2022

31-Dec-21 L2.3
M0001
SAMPLE SELECTION PLANNING – TRADE PAYABLES


Test of detail only = Inherent risk factor (table figure) OR N/A
(Section S)*) = Inherent risk factor (table figure) x 2/3 OR 0.93

Monetary value of population ( 100 %) L3 HK$ 8,673
Value of items above performance materiality ( 73 %) L3.1 HK$( 6,288 )
Value of scheduled other “key” items ( 7 %) L3.1 HK$( 650 )
Sample size =
(See maximum
Plus: Number of items above performance materiality See L3 = 5
Number of other “key” items The major supplier of MCL (Lanicex) = 1
Conclusion


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
L2.3 Page 327 of 565 APM 2022

31-Dec-21 L2.4
M0001
SAMPLE SELECTION PLANNING – LEASES LIABILITIES


Test of detail and (substantive analytical procedure (D1 and D1.1)* or test of control (Section
S)*) = Inherent risk factor (table figure) x 2/3 OR N/A
Test of detail and (substantive analytical procedure (D1 and D1.1)* and test of control (Section
S)*) = Inherent risk factor (table figure) x1/2 N/A

Monetary value of population ( 100 %) L6 HK$ 1,313
Value of items above performance materiality ( 0 %) L6 HK$( )
Value of scheduled other “key” items ( 0 %) L6 HK$( )
Sample size =
(See maximum
Plus: Number of items above performance materiality See L6 = 0
Number of other “key” items = 0
Conclusion


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
analytical procedures* or analytical procedures and
tests of control*) tests of control
L2.4 Page 328 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 L2.5
Subject: Review of top 10 suppliers
Objective
To identify unusualness of trade payables by reviewing top 10 customers
Assertions
Completeness and existence of trade payables
2021 2020
AccNo. Supplier Comments
HK$ HK$
1 N005 nVidia 1,734,600 1,697,870 Continues to be main supplier
2 E004 Ewakcip 1,517,775 1,441,886
3 T001 Telbin Lien 1,170,855 988,722
4 C002 Cimonoce 1,040,760 1,012,312
5 N003 Normo Rotinom 823,935 682,738
6 L001 Lacinex 650,475 837,951 Some delivery problems so used

less
7 R001 Raazoc 165,067 - Quality problems with Srepooc so

very little use of this supplier.
Raazoc has been used instead.
8 E002 Edart Reilppus 145,803 123,703
9 S003 Soeclac 130,214 138,513
10 S002 Sitarvon 121,044 184,992
The top ten suppliers are broadly similar to 2020. The only significant changes are:
1 The reduction in use of Srepooc due to quality problems. This also explains why the balance due at 31 December
has not been paid. (See L3)
2 There were also some delivery problems with Lacinex so purchases switched to other suppliers, particularly
Normo Rotinom.
Conclusion
L2.5 Page 329 of 565 APM 2022

MCL AW L3
31 December 2021 28/3
Trade Payables - Aged analysis JO 1/4
Acc
Customer Total Current + 1 month + 2 months Older
No.
HK$ HK$ HK$ HK$ HK$
A001 Aivuna 18,340.00 8,750.00 6,125.00 3,465.00 0.00
A002 Avivnob 49,518.00 19,348.00 17,311.00 12,684.00 175.00
C001 Caud 35,763.00 0.00 23,184.00 12,173.00 406.00
C002 Cimonoce C 1,040,760.00 386,575.00 280,700.00 341,635.00 31,850.00
D001 Disrevir 66,024.00 48,300.00 0.00 17,724.00 0.00
E001 Enimar Tubis 111,874.00 42,756.00 37,702.00 29,281.00 2,135.00
E002 Edart Reilppus 145,803.00 34,636.00 42,399.00 41,412.00 27,356.00
E003 Etrartic 10,087.00 0.00 8,645.00 1,442.00 0.00
E004 Ewakcip C 1,517,775.00 500,766.00 514,990.00 428,561.00 73,458.00
L001 Lacinex C 650,475.00 223,048.00 207,795.00 208,922.00 10,710.00
L002 Lemomsed 31,178.00 11,886.00 0.00 19,292.00 0.00
L003 Lorteze 61,439.00 16,597.00 21,420.00 23,422.00 0.00
L004 Lotis Urted 71,526.00 0.00 71,526.00 0.00 0.00
M001 Maet Dem 48,601.00 20,384.00 18,438.00 0.00 9,779.00
M002 Mut Cafunam 22,925.00 22,925.00 0.00 0.00 0.00
N001 Nanrarevni 55,020.00 16,660.00 16,660.00 21,700.00 0.00
N002 Navazem 40,348.00 19,341.00 16,905.00 4,102.00 0.00
N003 Normo Rotinom C 823,935.00 255,360.00 224,644.00 249,830.00 94,101.00
N004 Norramic 80,696.00 0.00 55,104.00 28,574.00 -2,982.00
N005 nVidia C 1,734,600.00 578,410.00 609,091.00 547,099.00 0.00
O001 Odiben 85,281.00 29,939.00 32,298.00 20,055.00 2,989.00
R001 Raazoc 165,067.00 109,375.00 0.00 55,692.00 0.00
R002 Rocibmis 24,759.00 0.00 0.00 24,759.00 0.00
S001 Salta C 94,451.00 34,860.00 29,281.00 30,310.00 0.00
S002 Sitarvon 121,044.00 21,756.00 38,423.00 41,377.00 19,488.00
S003 Soeclac 130,214.00 67,445.00 62,769.00 0.00 0.00
S004 Srepooc 12,838.00 0.00 0.00 0.00 12,838.00
T001 Talevom 77,028.00 0.00 34,251.00 42,777.00 0.00
T001 Telbin Lien C 1,170,855.00 387,702.00 416,381.00 366,772.00 0.00
U001 Ulfimat 33,012.00 33,012.00 0.00 0.00 0.00
X001 Xavomuen 75,194.00 23,016.00 44,772.00 7,406.00 0.00
… Other balances 66,566.00 18,273.00 21,728.00 17,815.00 8,750.00
below HK$1,000
L1 8,672,996.00 2,931,120.00 2,852,542.00 2,598,281.00 291,053.00

A ü ü ü ü ü
ü Cast agreed
A Balance agreed to control account
C Balance circularized, see L7 and L7.1
L3 Page 330 of 565 APM 2022

Subject: Trade payables tests
Objective
To obtain evidence on accuracy, completeness, cutoff and existence of trade payables and that controls in this area
are operating effectively.
Assertions addressed
Accuracy, completeness, cutoff, existence of trade payables
Method
1 Year-end trade payables were compared to the prior year. See L1.
2 The top 10 suppliers in 2021 were also compared to the top 10 in 2020 and explanations sort for any
fluctuations. See L2.5.
3 Purchases 'year to date' information stored by the client's system was used to identify the major suppliers as
follows:
a) Cimonoce Balance > performance materiality
b) Ewakcip Balance > performance materiality
c) Lacinex Key item
d) Normo Rotinom Balance > performance materiality
e) nVidia Balance > performance materiality
f) Telbin Lien Balance > performance materiality
All are included in the year end trade payables listing. (See L3)
4 A circularization was performed for a sample of 7 suppliers (L7.1). The sample comprised 5 balances above
performance materiality (also major suppliers), 1 other major supplier and 1 balance selected at random (L7 and
L7.1). Adeline Leung's agreement was obtained to circularize all balances. The letters were sent by N&C in
January as soon as the year end reports were available enclosing reply paid envelopes addressed to N&C.
5 For suppliers where no reply was received, balances were agreed to supplier statement or where a statement
was not available either, balances were agreed to invoices and goods receipt notes (L7.1).
6 The following tests of controls are performed:

a) Supplier statement reconciliation had been properly completed and reviewed by Adeline Leung. Any
adjustments arising from the reconciliation had been approved by Adeline Leung and accrued where
necessary. (S3-4)
A sample of 11 (1 per month excluding December) statements for major suppliers was selected at random
throughout the year to ensure that the control testing cover the operating effectiveness throughout the
year. The sample size is calculated according to N&C audit methodology.
b) Weekly posting from purchase day book and cash book to the purchase ledger and the posting is
reviewed by Adrian Walker (S3-4). A sample of 10 weekly postings are selected for testing. The sample
size is calculated according to N&C audit methodology.
[Note: Detail working to the test of control in 6(a) and (b) is not included in this example file]
8 Invoices processed in January 2022 were reviewed to ensure that none related to December 2021 or earlier.
(L3.2)
L3.1 Page 331 of 565 APM 2022

Results
The suppliers used during the year were largely consistent with 2020. The only obvious omission is Smahceeb who
went out of business in mid 2021, and so would not be expected to be on the list. Minor changes in the top ten
suppliers are explained on L2.5.
The results of the circularization were very good with a substantial proportion of the balances with the main suppliers
agreed to circularization replies or supplier statements. See L7.1.
The testing of control S3-4 [Note. This test of control is not included in this example file] showed that controls in this
area were working well throughout the year. Reliance on controls in this area is justified.
The review of January invoices did not identify any that related to December 2021 or earlier that had not already been
identified and accrued. See L3.2.
The reason that trade payables have fallen despite the increase in purchases is that suppliers are being paid faster.
According to Adeline Leung, this is because of a change of payment terms by some suppliers and the company does
not want any interruptions to supply due to stops being placed on their account.
Conclusion
Objectives achieved.
L3.1 Page 332 of 565 APM 2022

Subject: Review of January 2022 invoices
Objective
Obtain evidence that post-year end invoices relating to 2021 were properly accrued.
Assertions addressed
Completeness, cutoff of trade payables
Method
Review all purchase ledger invoices processed in January 2022 for any relating to 2021 that have not already been
accrued.
Results
The following invoices processed in January 2022 were reviewed:
[Details not specified]
No invoices relating to 2021 were found that had not already accrued for 2021.
Conclusion
Objective achieved.
[Note. It is necessary to consider the normal operating cycle of the business when carrying out this test. In this example a
review of January invoices is considered sufficient because MCL's debtors would normally be paid within 30 days. But for
other businesses it may be necessary to review February, March or even later months to capture all year end creditors.]
L3.2 Page 333 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 L4
Subject: Accruals
2021 2020
Draft Adj Final
$ $ $ $
Purchase ledger N1 - - - 224,314
Power N2 540,132 - 540,132 1,102,110
Audit and accountancy 115,956 - 115,956 120,123
Telephone 168,915 - 168,915 181,470
Holiday pay accrual 103,500 36,556 140,056 123,500
[Others not specified in the case study] 78,263 - 78,263 81,208
1,006,766 36,556 1,043,322 1,832,725
Purchase ledger
Last year's balance were accruals for goods/supplies received, but not yet posted to the purchase ledger (although they
were trade payables in nature) because invoices were not received. This was a reclassification misstatement we noted last
year and raised to the unadjusted misstatement last year.
Acting on N&C advice last year, management had reclassed the accrual to trade payables this year before the accounts
were closed. Hence nil balance for 2021.
Power
Current year's accrual were for power and utilities incurred in December 2021 (one month). We have verified that the
balance was paid in January 2022.
Last year's accrual were for power and utilities incurred in November and December 2020 (two months). We have verified
that the balance was paid in January 2021.
Noted that MCL processed the power and utilities payment faster in 2021, so there was a decrease in power accrual.
Other accruals were not material and year-end balances similar to last year. We have scrutinized their breakdown with no
irregularities noted. No further audit work is proposed.
L4 Page 334 of 565 APM 2022

MCL AW L6
31 December 2021 28/3
Lease Summary JO 1/4
REPAYMENT ANALYSIS Summary on 2021 2020

PAF <1 year 2 to 5 years >5 years Total <1 year 2 to 5 years >5 years Total
$ $ $ $ $ $
MITSUBISHI FGC20N 7.4.1 22,134 - - 22,134 62,368 22,134 - 84,501
MITSUBISHI EOP15-24 7.4.2 19,857 - - 19,857 55,953 19,857 - 75,810
3 x Mini Cooper S 7.4.3 221,778 142,647 -c 364,425 193,030 364,425 - 557,455
2 x MITSUBISHI PMWT11N 7.4.4 74,487 152,853 - 227,339 - - - -
Flux Capacitor 7.4.5 132,656 546,966 - 679,622 - - - -
470,912 842,466 - 1,313,378 311,351 406,416 - 717,767
FACTORY 7.4.6 682,351 3,920,000 4,190,124 8,792,475 563,292 3,443,762 5,348,713 9,355,767
1,153,264 4,762,466 4,190,124 10,105,853 874,643 3,850,179 5,348,713 10,073,534

A/C disclosure Note 20
c Agreed to confirmations from finance company. See L6.1 for audit work.
[Confirmations are not reproduced as part of this model file.]
L6 Page 335 of 565 APM 2022

Total contractual undiscounted cash flows
2021
Total
More than 1 More than 2
More than 5 contractual
but less than but less than
years undiscounted
2 years 5 years
<1 year cash flows
MITSUBISHI FGC20N 7.4.1 22,554 - - 22,554
MITSUBISHI EOP15-24 7.4.2 20,234 - - 20,234
3 x Mini Cooper S 7.4.3 254,120 148,237 402,357
2 x MITSUBISHI PMWT11N 7.4.4 95,917 95,917 71,937 263,770
Flux Capacitor 7.4.5 188,874 188,874 440,706 818,454
FACTORY 7.4.6 1,580,258 1,580,258 4,740,774 4,740,774 12,642,063
2,161,957 2,013,285 5,253,417 4,740,774 14,169,432
Total cash outflows for leases

2021
MITSUBISHI FGC20N 7.4.1 67,663
MITSUBISHI EOP15-24 7.4.2 60,703
3 x Mini Cooper S 7.4.3 254,120
2 x MITSUBISHI PMWT11N 7.4.4 23,979
FACTORY 7.4.6 1,580,258
Photocopiers F6.3 450,000
Computers F6.3 850,000
3,412,639
A/C disclosure Note 12a
L6 Page 336 of 565 APM 2022

Subject: Lease liabilities
Objective
To confirm the completeness and accuracy of lease liabilities and related disclosures.
Method
1 Prepare summaries for the permanent file summarizing of the terms of any new leases taken out during
the year.
2 Review the lease terms and ensure that it is appropriate to treat the leases as leases. The assessment is
performed on F1.1 [Not included in this example file] .
3 Agree the clients summary of finance leases on L6 to the summaries of lease agreements on the PAF.
Each PAF schedule was checked to the original lease agreement when the lease was first taken out.
4 Select a sample of 1 lease to be circularized as per L2.4. The lease for the 3 mini coopers was selected
judgmentally on the basis that the leases for the Mitsubishi PMWTs and the Flux Capacitor have been
checked already as new leases this year in order to prepare the PAF summaries (7.4.1 to 7.4.5).
[Note. Detail work on confirmations is not included in this example file]
Results
All tests satisfactory. The client summary is in accordance with the individual leases and the confirmation
received was also agreed.
All leases were reviewed and the terms summarized on 7.4.4 and 7.4.5.
Conclusion
Objective achieved.
L6.1 Page 337 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 L7
M0001
SUMMARY OF TRADE PAYABLES’ CIRCULARISATION RESULTS
As at: 31 December 2021
No. Value % Value
Total trade payable balances 57 HK$ 8,672,996 100%
Total balances circularized (A) 7 HK$ 7,032,851 81%
Results of test:
Balances confirmed by
4 3,693,746 53%
circularization (B)
Balances verified by supplier

2 2,688,630 38%
statement reconciliations (D)
Balances verified by alternative

1 650,475 9%
procedures (F)
Total (G) 7,032,851 100%
Unverified balances (A-G) 0 HK$ 0 0%
Conclusion
Only one balance was not confirmed by circularization or reconciliation to supplier statements. This balance was agreed
to individual invoices and all invoices were dated 2021. Invoices were also reviewed for Lacinex (i.e. the major supplier of
MCL) in January 2022 and noted all invoices posted to the account in January were dated 2022.
L7 Page 338 of 565 APM 2022

M0001
Trade payables’ circularization sheet

A B C D E F
Balance Balance checked

Remaining Alternative Balances verified
confirmed by Unconfirmed to supplier Unverified
Balance unaudited procedures by alternative
Supplier confirmation balance (A-B) statement dated balances
HK$ balance (C-D) undertaken on procedures
received HK$ 31-Dec-2021 HK$
HK$ column E items HK$
HK$ HK$
Cimonoce 1,040,760 1,040,760 - - -
Ewakcip 1,517,775 1,517,775 1,517,775 - -

Agreed to invoices
& goods received
notes
Lacinex 650,475 650,475 650,475 650,475 -
Normo Rotinom 823,935 823,935 - - -
nVidia 1,734,600 1,734,600 - - -
Salta 94,451 94,451 - - -
Telbin Lien 1,170,855 1,170,855 1,170,855 - -
7,032,851 3,693,746 3,339,105 2,688,630 650,475 - 650,475 -
[Note: circularization replies and supplier statements have not been reproduced as part of this example file.]
L7.1 Page 339 of 565 APM 2022

Forward foreign exchange contact AW L10
Review client's calculations 28/3
JO 1/4
Forward foreign exchange contract added
Manufacturing Co Ltd started trading with a new French based customer in 2019. Transactions are in
euros.
Scenario for Y/E 31-Dec-20
Manufacturing Co Ltd sold goods to VLF which were despatched on 10-Oct-20.

The invoice is for €175,000 to be settled in 3 months time on 10-Jan-21.
On 10 October 20 the company enters into a forward contract with its bank to sell €175,000 on 10-Jan-21
at a contracted rate of HK$1: €0.137.
Spot rate Forward rate

€: HK$1 €:HK$1
10-Oct-20 0.133 0.137
31-Dec-20 0.126 0.129
10-Jan-21 0.116
Transaction date - 10-Oct-21
Debtor - recognize €175,000 at spot rate (HK$1: €0.133)
DR - Debtor 1,315,789 (175,000 / 0.133)
CR - Sales 1,315,789
Y/E 31-Dec-2020
Debtor - retranslate at Y/E spot rate (HK$1:€0.126)
DR - Debtor 73,099 (175,000/0.126 - 175,000/0.133)
CR - FX gain 73,099
Derivative - recognize at fair value
DR - Loss on derivative 79,217 (175,000/0.129 - 175,000/0.137)
CR - Derivative liability 79,217
L10 Page 340 of 565 APM 2022

2021
FX Gains FX Losses
Following entries - settlement unwinds in Y/E 31-Dec-21
Settlement date 10-Jan-21
Derivative - fair value change at settlement date
DR - Loss on derivative 152,032 152,032

(175,000/0.116 - 175,000/0.129)
Debtor - retranslate at settlement date
DR - Debtor 119,732
CR - FX gain 119,732 119,732

(175,000/0.116 - 175,000/0.126)
Debtor and derivative settlement
DR - Cash 1,277,372 (175,000/0.137) Agreed to note 26
DR - Derivative liability 231,248 (79217+152032)
CR - Debtor 1,508,621
(1315789+73099+119732)
Y/E 31-Dec-21 scenario:
Manufacturing Co Ltd sold goods to VLF which were despatched on 25-Nov-21.

The invoice is for €200,000 to be settled in 3 months time on 25-Feb-22.
On 25-Nov-21 the company enters into a forward contract with its bank to sell €
200,000 on 25-Feb-22 at a contracted rate of HK$1: €0.139.
Spot rate Forward rate

€: HK$1 €: HK$1
25-Nov-21 0.136 0.139
31-Dec-21 0.129 0.132
25-Feb-22 0.119
L10 Page 341 of 565 APM 2022

Transaction date - 25-Nov-21
Debtor - recognize €200,000 at spot rate (HK$1: €0.136)
DR - Debtors 1,470,588
CR - Sales 1,470,588
Y/E 31-Dec-21
Debtor - retranslate at Y/E spot rate (HK$1: €0.129)
DR - Debtor 79,799
CR - FX gain 79,799 79,799
Derivative - recognize at fair value
DR - Loss on derivative 76,303 76,303
CR - Derivative liability 76,303 L1

199,531 228,334
R1.1 Q2.1
Following entries for info only to show settlement unwinds
Y/E 31-Dec-22
Settlement date 25-Feb-22
Derivative - fair value change at settlement date
DR - Loss on derivative 165,521

(200,000/0.119 - 200,000/0.132)
Debtor - retranslate at settlement date
DR - Debtor 130,285
CR - FX gain 130,285
(200,000/0.119 - 200,000/0.129)
Debtor and derivative settlement
DR - Cash 1,438,849 (200,000/0.139) Agreed to note 26.
DR - Derivative liability 241,823 (76303+165521)

CR - Debtor 1,680,672
(1470588+79799+130285)
[Note: The exchange rates used are illustrative and not representative of actual exchange rates.]
Conclusion
No irregularities noted in client's calculations.
L10 Page 342 of 565 APM 2022

Subject: Testing of forward exchange contract valuation
Objective
To test the client valuations of the foreign currency debtors and foreign exchange forward contract at 31/12/2021 and
31/12/2020 and ensure they are not materially misstated.
Method
1 Review the forward exchange contract on PAF 7.5 [Not produced in this example file] and ensure that the terms listed
by Management in their valuation are correct.
2 Assess management's classification of the assets at fair value through profit or loss. The assessment is performed on
L10.3 [Not produced in this example file]; management's classification is considered appropriate. Also, the
assessment does not note any embedded derivative in the contract.
3 Compare the Spot and Forward rates used by the client in the calculations as at 31 December 2021 and 31 December
2020 at L10 to a third party source (FT.com). Enquire of Management as to the source of the spot and forward rates
used by them in their calculations.
4 Recalculate the foreign currency debtor and forward exchange contract derivative as at 31 December 2021 and 31
December 2020 using the rates obtained from FT.com. Compare to the client's calculations at L10 and ensure that
differences are less than clearly trivial (HK$10K) between our calculation and the amount recorded by the client.
5 Review Management's double entries posted in respect of the valuations and ensure these are in line with HKFRS 9.
Results
1 The forward exchange contract for 2021 was reviewed and the following terms were agreed:
Start date: The contract was entered into before the year-end and the settlement date is post
25-Nov-21
year-end and therefore a derivative FI exists at the year-end. The settlement date
Date of sale is within 3 months of the year-end and hence the liability should be shown as a
of Euros: 25-Feb-22 current liability.
Contracted €0.139/HK$1
rate:
Settlement € 200,000
Amount:
The forward exchange contract for 2020 was reviewed and the following terms were agreed:
Start date: 10-Oct-20 The contract was entered into in 2020 and the settlement date was in January
2021 and therefore a derivative FI existed at the 2020 year-end (prior year-end).
Date of sale The settlement date was within 3 months of the 202 year-end, hence the liability
of Euros: 10-Jan-21
was shown as a current liability.
Contracted €0.137/HK$1
rate:
Settlement € 175,000
Amount:
L10.1 Page 343 of 565 APM 2022

2 The forward rates used by Management at 31 December 2021 to value the derivative and foreign currency debtor
were obtained from the Company's bank. These compare to the rates obtained from FT.com as per below:
Date Client Rate FT.com Rate

10-Oct-20 Spot €0.133/HK$1 €0.1326/HK$1
10-Oct-20 Forward €0.137/HK$1 €0.1371/HK$1
31-Dec-20 Spot €0.126/HK$1 €0.1263/HK$1
31-Dec-20 Forward €0.129/HK$1 €0.1289/HK$1
10-Jan-21 Spot €0.116/HK$1 €0.1164/HK$1
25-Nov-21 Spot €0.136/HK$1 €0.1355/HK$1
25-Nov-21 Forward €0.139/HK$1 €0.1392/HK$1
31-Dec-21 Spot €0.129/HK$1 €0.1282/HK$1
31-Dec-21 Forward €0.132/HK$1 €0.1318/HK$1
The rates used by the client are from a reliable source and are comparable to the rates obtained from FT.com.
3 See L10.2 for recalculations of the foreign exchange debtor and the foreign exchange contract derivative. The
differences between our expectation and the client calculation are within 10% of each other.
4 The double entries prepared by the client have been reviewed. Movement on the financial instrument and the foreign
currency debtor are both recognized in profit in the year as is appropriate under HKSA 21 and HKFRS 9.
Conclusion
Objective achieved.
Notes.
1. The derivative financial instruments are not material in either year however testing has been shown for example
purposes only.
2. In this illustration, the discount factor to derive the year-end balance is ignored.
3 The exchange rates are not indicative of true market conditions and are for illustrative purposes only.
L10.1 Page 344 of 565 APM 2022

2021 Calculation 2020 Calculation
Date FT.com Rate €/HK$1 Date FT.com Rate €/HK$1

25-Nov-21 Spot 0.1355 10-Oct-20 Spot 0.1326
25-Nov-21 Forward 0.1392 10-Oct-20 Forward 0.1371
31-Dec-21 Spot 0.1282 31-Dec-20 Spot 0.1263
31-Dec-21 Forward 0.1318 31-Dec-20 Forward 0.1289
10-Jan-21 Spot 0.1164
€ HK$ € HK$
Settlement in Euros 200,000 Settlement in Euros 175,000
Debtor at point of sale 1,476,015 (200,000/0.1355) Debtor at point of sale 1,319,759 (175,000/0.1326)
Debtor at year-end 1,560,062 (200,000/0.1282) Debtor at year-end 1,385,590 (175,000/0.1263)
Exchange gain 84,048 Exchange gain 65,831
Exchange gain per client 79,799 L10 Exchange gain per client 73,099 L10
Difference 4,249 Difference 7,268
Derivative FI at year-end 80,669 (200,000/0.1318 - 200,000/0.1392) Derivative FI at year-end 81,201 (175,000/0.1289 - 175,000/0.1371)
Derivative per client 76,303 L10 Derivative per client 79,217 L10
Difference 4,366 Difference 1,984
L10.2 Page 345 of 565 APM 2022

Settlement of 2020 Forward Exchange Contract

in 2021
FV movement on Deriv since y/e 145,795 (175,000/0.1164 - 175,000/0.1289)
Per client 152,032 L10
Difference -6,237
Forex movement on debtor 117,847 (175,000/0.1164 - 175,000/0.1263)
Per client 119,732 L10
Difference -1,885
[Note: The exchange rates used are illustrative and not representative of actual exchange rates.]
L10.2 Page 346 of 565 APM 2022

31-Dec-21 M
M0001
M LONG-TERM LOANS AND DEFERRED INCOME
1 Summary sheet M
2 Lead schedule M1
3 Audit programme M2.1
4 Supplementary procedures M2.2
5 Loan analysis and disclosures M4, 4.1-4.3
6 Intercompany loan from parent M5
7 Review of bank loan agreement [Not included in this example file] M6
Mi Page 347 of 565 APM 2022

31-Dec-21 M
M0001
SUMMARY SHEET - LONG-TERM LOANS AND DEFERRED INCOME

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To ensure that all material loans have 4, 5, 6 1, 2, 3, 4 Yes/No AW
been correctly accounted for.
2 To ensure that deferred income has been 7 Yes/No None AW

correctly accounted for and is complete.
3 To confirm that all necessary disclosures 8 Yes/No AW

concerning long-term loans and deferred
income have been made and that the
information is appropriately presented and
described.
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* long-term loans and deferred income are fairly stated/ *
not fairly stated as described below.

Ms Page 348 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 M1
Subject: Long-term loans
2021 2020
Draft Jnl Adj Final
$'000 Ref $'000 $'000 $'000
Current liabilities
Bank loans:
A/c 87654321 M4.1 A 83 - 83 79
A/c 76543219 M4.2 - - - -
A/c 65432198 M4.3 - - - -
83 - 83 79
ü ß
Lease liabilities L6 1,153 1,153 875
ü ß
1,236 - 1,236 954
Non-current Liabilities
Bank loans: N3
A/c 87654321 M4.1

A 947 - 947 1,030
A/c 76543219 M4.2 - N2 - - 651
A/c 65432198 M4.3 A 1,640 N1 - 1,640 -
M4 2,587 - 2,587 ß 1,681
ü
17,
Loan from parent company M5 5,000 18 (726) 4,274 -
Non-current borrowings 7,587 (726) 6,861 1,681
Lease liabilities L6 8,953 - 8,953 ß 9,199

ü
16,540 (726) 15,814 10,880

A Agreed to bank letter on K4
Audit notes:
N1 New bank loan advance agreed to loan agreement. Advance confirmed as a current account receipt on 3
March 2021.
N2 Bank loan repaid from new loan advance. Repayment confirmed as a current account payment on 3 March
2021. Bank letter to directors confirming closure of account also viewed.
N3 For bank loans classified as non-current liabilities, reviewed the bank loan agreement to confirm there is no
overriding repayment on demand clause and hence no implications for HK-Int 5. Also noted that the current
and non-current portion was correctly classified by management based on the anticipated repayment
schedule according to the loan agreement. Refer to M6 for extract of bank loan agreement and the review
performed.
[Note. M6 is not reproduced in this model file]
M1 Page 349 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 M2.1
M0001
AUDIT PROGRAMME – LONG-TERM LOANS AND DEFERRED INCOME
Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead Y Y M1 AW
schedule for the current year ’ s figures and
(a) comparison of the current figures with Y Y M1 AW
(b) review and comparison of key ratios or N Not needed AW

3 Review for items above performance Y Y M1 Current and new loans AW

verify.
Loans
4 Obtain direct confirmation from lenders and Y Y K4/M1 AW
confirm that other matters such as security
have been dealt with.
5 Review loan agreements and consider the Y Y M6 No breaches noted. AW

implications of any breach of covenants. Assessment preformed
on M6 [Not included in
this example file]
6 Calculate the apportionment of loan between Y Y M4 AW

non-current and current portion.
Deferred income
7 Review the basis for deferring income N None AW
(a) vouch to supporting documents; and
(b) ensure that it is valid, complete and has
been correctly and consistently applied
with the prior year and applicable

8 Ensure that there is sufficient appropriate Y Y M4 (1) Amounts disclosed in AW
evidence on the file to support all disclosures the financial statements
made. agreed to audit work
performed.
(2) Disclosure checklist

completed against
management's
disclosure [Not included
M2.1 Page 350 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Bespoke tests
summary sheet.
Conclusion
record on A5 or A6 as appropriate.
11 Review the planned extent of reliance on N No reliance placed AW

12 Assess whether the initial materiality and/or Y Y No change needed AW

the audit evidence obtained. Record details
of any necessary adjustments on B6 or B9.
date.
M2.1 Page 351 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 M2.2
M0001
SUPPLEMENTARY PROCEDURES - LONG-TERM LOANS AND DEFERRED INCOME

Y/N Y/N date
1 For long-term loans,
(a) Check supporting evidence for loan Y Y M1 AW
advance and repayment during the year.
(b) Check memorandum of satisfaction for Y Y M4.2 One loan repaid from AW
loan relating to charges previously filed new advance
with Company Registry.
(c) Determine split of loans between Y Y M4 AW

secured/unsecured and interest
bearing/non-interest bearing.
(d) Verify interest charged for the period and Y Y Q2.1 AW

the adequacy of accrued interest.
(e) Confirm that loans payable more than Y Y M4 AW
one year from the balance sheet date are M6
measured in accordance with applicable
2 Ensure the completeness of loans by :

(a) examining board minutes (Ref. Section Y Y O4 AW
O);
(b) reviewing bank confirmation and other Y Y K4 AW
correspondences (Ref. Section K);
(c) performing search for unrecorded Y Y T2.1 Discussed with client AW
liabilities (Ref. Section T).
3 Ensure the entity accounted for foreign N None AW
4 Confirm that all monetary liabilities have been N None AW

M2.2 Page 352 of 565 APM 2022

Manufacturing Company Limited M4
Loans Analysis AW 28/3
Year ended 31 December 2021 JO 1/4
C/fwd at 31 C/fwd at 31
Repayment Analysis Dec 21 < 1 year >1 year Dec 20 < 1 year >1 year
$ $ $ $ $ $
A/c 87654321 M4.1 ü 1,029,787 83,015 946,772 1,109,000 79,213 1,029,787
A/c 76543219 M4.2 - - - 651,000 - 651,000
A/c 65432198 M4.3 ü 1,640,000 - 1,640,000 - - -
2,669,787 83,015 2,586,772 1,760,000 79,213 1,680,787
ü Agreed to bank letter, K4 M1 M1
Total
Obligation Analysis - 2021 obligation <1 year 1-2 years 2-5 years >5 years
$ $ $ $ $
A/c 87654321 M4.1 1,319,776 132,445 132,445 397,335 657,551
A/c 76543219 M4.2 - - - - -
A/c 65432198 M4.3 2,363,960 78,720 78,720 540,375 1,666,145
3,683,736 211,165 211,165 937,710 2,323,696

Total
Obligation Analysis - 2020 obligation <1 year 1-2 years 2-5 years >5 years
$ $ $ $ $
A/c 87654321 M4.1 1,452,221 132,445 132,445 397,335 789,996
A/c 76543219 M4.2 661,416 661,416 - - -
2,113,637 793,861 132,445 397,335 789,996
All loans are secured by the Company's land and buildings which have a carrying value of HK$8,302,000 (see F1) (2020:
HK$7,035,000) and interest bearing of rate ranging from 4% (deemed interest rate of the group loan, see M5) to 4.8% per
annum.
Detailed analysis of each loan appears on M4.1 to M4.3.

Sensitivity analysis
At 31 December 2021, if interest rates at that date had been 100 (2020: 100) basis points higher/lower, with all other
variables held constant, the Company's profit for the year and reserves would have been HK$22,000 (<M4.1> $8,500 +
<M4.3> $13,500) (2020: HK$15,000) lower/higher. This is mainly attributable to the Company's exposure to interest rates
on its variable-rate bank loans.
The sensitivity analysis has been prepared with the assumption that the change in interest rates had occurred at the
balance sheet date and had been applied to the exposure to interest rate risk for the relevant financial instruments in
existence at that date. The changes in interest rate represent management's assessment of a reasonably possible
change in interest rates at that date over the period until the next annual balance sheet date.
M4 Page 353 of 565 APM 2022

MANUFACTURING COMPANY LIMITED M4.1
31-Dec-21 AW 28/3
Repayment of mortgage & other related disclosures - A/c 87654321 JO 1/4
The following schedule is an estimate of how the loan will be repaid based on repayments of $132,445 per annum and
the current interest rate of 4.8%. This is the prime rate less 0.2% as per the loan agreement (See PAF 7.3). ŜŏŰŵ
ŪůŤŭŶťŦťġŪůġŵũŪŴġŦŹŢŮűŭŦġŧŪŭŦįŞ
Interest rate 4.8% Per loan agreement

Annual payments $132,445 Per loan agreement
Repayable
B/fwd Interest Capital analysis
Year (Advanced) @4.8% Repaid C/fwd repaid (gross)
HK$ HK$ HK$ HK$ HK$
2020 1,184,585 56,860 (132,445) 1,109,000
2021 1,109,000 53,232 (132,445) 1,029,787 31-Dec-21

2022 1,029,787 49,430 (132,445) 946,772 83,015 132,445 +1
2023 946,772 45,445 (132,445) 859,772 87,000 132,445 +2
2024 859,772 41,269 (132,445) 768,596 91,176 +3
2025 768,596 36,893 (132,445) 673,043 95,552 +4
2026 673,043 32,306 (132,445) 572,905 100,139 397,335 +5
2027 572,905 27,499 (132,445) 467,959 104,946
2028 467,959 22,462 (132,445) 357,976 109,983
2029 357,976 17,183 (132,445) 242,714 115,262
2030 242,714 11,650 (132,445) 121,919 120,795
2031 121,919 5,852 (127,771) - 121,919 657,551
Total obligation including interest 1,452,221 Capital 1,029,787 1,319,776
Interest rate sensitivity

HK$ Tax effect HK$
Interest bearing debt: 1,029,787
Total 1,029,787
Notional interest charged at 1% 10,298 (1,699) 8,599 Say $8,500

M1
M4.1 Page 354 of 565 APM 2022

31-Dec-21 AW 28/3
This loan was fully repaid during the year. The interest rate was 4.8%, being the prime rate less 0.2% as per the loan
agreement (See PAF 7.3). [Not included in this example file]
Repayable
B/fwd Capital analysis
Year (Advanced) Interest Repaid C/fwd repaid (gross)
HK$ HK$ HK$ HK$ HK$ HK$
2021 651,000 10,416 (661,416) - 651,000 31-Dec-21
Total obligation including interest 661,416 Capital 651,000 -

Not applicable as loan fully repaid at year end.
Note. A memorandum of satisfaction for this loan was filed with the Company Registry. A copy was obtained as part of
the company search (See O2.1-4) and filed on PAF 4.4 [Not included in this example file].
M4.2 Page 355 of 565 APM 2022

31-Dec-21 AW 28/3
The following schedule is an estimate of how the loan will be repaid based on repayments of $182,500 per annum (after
initial 3 years with interest payments only) and the current interest rate of 4.8%. This is the prime rate less 0.2% as per
the loan agreement. See PAF 7.3ġ[Not included in this example file].
Interest rate 4.8% Per loan agreement

Annual payments $180,125 Per loan agreement
Repayable
B/fwd Interest Capital analysis
Year (Advanced) @4.8% Repaid C/fwd repaid (gross)
2021 1,640,000 59,040 (59,040) 1,640,000 31-Dec-21
2022 1,640,000 78,720 (78,720) 1,640,000 - 78,720 +1
2023 1,640,000 78,720 (78,720) 1,640,000 - 78,720 +2
2024 1,640,000 78,720 (180,125) 1,538,595 101,405 +3
2025 1,538,595 73,853 (180,125) 1,432,323 106,272 +4
2026 1,432,323 68,751 (180,125) 1,320,949 111,374 540,375 +5
2027 1,320,949 63,406 (180,125) 1,204,230 116,719
2028 1,204,230 57,803 (180,125) 1,081,908 122,322
2029 1,081,908 51,932 (180,125) 953,714 128,193
2030 953,714 45,778 (180,125) 819,367 134,347
2031 819,367 39,330 (180,125) 678,572 140,795
2032 678,572 32,571 (180,125) 531,019 147,554
2033 531,019 25,489 (180,125) 376,382 154,636
2034 376,382 18,066 (180,125) 214,324 162,059
2035 214,324 10,288 (180,125) 44,486 169,837
2036 44,486 534 (45,020) (0) 44,486 1,666,145
Total obligation including interest 2,423,000 Capital 1,640,000 2,363,960

HK$ Tax effect HK$
Interest bearing debt: 1,640,000
Total 1,640,000
Notional interest charged at 1% 16,400 (2,706) 13,694 Say $13,500
M1
M4.3 Page 356 of 565 APM 2022

AW M5
Inter company loan from parent to Manufacturing Co Ltd 28/3
JO 1/4
Y/E 31 December 2021

At the beginning of 2021, MCL took out an interest free loan from the parent of HK$5,000K with a five year fixed term. We
have checked to the receipt remittance of the HK$5m and also the directors' meeting minutes (O4) which discussed and
confirmed the arrangement of the loan from parent.
We have checked to the BankInc. Database and also sent an enquiry to MCL's bank [not included in this example file] , the
market rate of interest for similar debt instruments is 4% in December 2021.
5
Recognize the loan initially at its present value of HK$5,000,000 / (1+4%)
B/F Interest at 4% Cash out C/F
2021 4,109,635 164,385 - 4,274,020

2022 4,274,020 170,961 - 4,444,981
2023 4,444,981 177,799 - 4,622,780
2024 4,622,780 184,911 - 4,807,692
2025 4,807,692 192,309 (5,000,000) 0
At 31 December 2021:
Client has already recorded Dr Bank deposit

a/c 5,000 Cr Loan from parent 5,000
DR - Bank 5,000,000
CR - Loan payable 4,109,635 4,109,635
CR - Capital contribution - equity 890,365 O1
Initial recognition of the loan
DR - P&L - Interest expense 164,385

CR - Loan payable 164,385 164,385 Q2.1
Application of amortized cost method
At 31 December 2021 4,274,020 M1

A/C disclosure
For account disclosure:

- Carrying value of the loan @ 31 December 2021 4,274,020 Per above
- Fair value of the loan @ 31 December 2021 was determined to approximate the carrying
value on 31 December 2021 after considering the year-end market interest rate. Work
performed in M5.1 [not included in this example file].
M5 Page 357 of 565 APM 2022

31-Dec-21 N
M0001
N PROVISIONS, CONTINGENT LIABILITIES AND FINANCIAL

COMMITMENTS
1 Summary sheet N
2 Lead schedule N1
3 Audit programme N2.1
4 Using the work of management's expert - legal counsel [Not included in this example file] N2.2
5 Litigation and claims N3
6 Recall costs N3.1
7 Sales reports in November and December 2021 [Not included in this example file] N3.2
8 Test the costing of replacement components [Not included in this example file] N3.3
Ni Page 358 of 565 APM 2022

31-Dec-21 N
M0001
SUMMARY SHEET - PROVISIONS, CONTINGENT LIABILITIES AND FINANCIAL

COMMITMENTS
Planning Final
Reference Reference Have the Comments Initials
of key tests to supple- objectives
satisfy procedures
objective*
Audit objectives
1 To ensure that adequate provision has 4, 5, 6, 7, 8, Yes/No AW
been made for all liabilities or losses 11, 12, 13,
which are likely to be incurred, or certain 14, 15, 16
to be incurred, but uncertain as to the
amount or date on which they will arise.
2 To ensure that all contingent liabilities 9, 10, 11, Yes/No AW

have been identified. 12, 13, 14,
15, 16
3 To ensure that capital and other 17, 18 Yes/No AW

commitments have been properly
accounted for.
concerning provisions, contingent
liabilities and commitments have been
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* provisions for liabilities and charges, contingent liabilities
and financial commitments are fairly stated/ * not fairly stated as described below.

Ns Page 359 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 N1
Subject: Provisions
2021 2020
Draft Adj Final
$'000 $'000 $'000 $'000
Faulty card claim N3.1 1,200 - 1,200 -
Faulty WiFi Express Extender N3 - -
1,200 - 1,200 -
ü ß
N1 Page 360 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 N2.1
M0001
AUDIT PROGRAMME – PROVISIONS, CONTINGENT LIABILITIES AND FINANCIAL

COMMITMENTS
Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead Y Y N1 AW
schedule for the current year’s figures and

(a) comparison of the current figures Y Y C6.1 AW
with those of prior periods; N1
(b) review of key ratios or other N AW
performance indicators.
3 Review for items above performance Y Y N3 Only the recall provision AW
materiality or that are otherwise unusual N3.1 HK$1.2m identified. See
and verify. N3 and N3.1 for
assessment.
Liabilities and charges

4 Where the company operates a defined N Only a defined AW
benefit pension scheme, complete the contribution scheme
optional programme for such schemes or and contributions paid
document why this is not required. up to date
5 Obtain or prepare a list of other obligations N3
of uncertain timing and amount existing at
the balance sheet date. Ensure its
completeness by reviewing:
(a) the previous year ’ s provisions and Y Y AW

contingent liabilities;
(b) items recorded on the bank Y Y AW
confirmations;
(c) minutes of meetings; Y Y O4 AW
(d) major contracts; Y Y AW
(e) correspondence; and Y Y AW
(f) others (specify)
6 Discuss the list with the client and ensure Y Y N3 AW
that it is complete and that adequate
provision has been made for likely losses.
7 For each provision made consider N3

whether:
(a) there is a present obligation in Y Y AW
respect of a past event;
(b) it is probable that payment will be Y Y AW
made; and
N2.1 Page 361 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(c) the amount can be measured with Y Y AW
sufficient reliability.
8 Where a provision may be required: N3
(a) Confirm that each separate provision Y Y C4.1 Recall provision added AW
has been identified as an accounting to C4 (C4.1-5)
estimate on C4 Section 4.8 and work
planned on C4.1; or
(b) Explain how the approach taken Y Y AW

complies with the requirements of
HKSA 540 (Revised).
Contingent liabilities
9 Review the list in 5 above for contingent Y Y N3 AW
liabilities.
10 Discuss the list with the client and ensure Y Y N3 AW
that it is complete and that adequate
disclosure has been made for all
contingent liabilities.
Laws and regulations

11 In respect of laws and regulations where
non-compliance may have a material
impact on the accounts:
(a) Enquire of the directors whether they Y Y Not aware of any non- AW
are on notice of any possible compliance
instances of non-compliance with
such laws or regulations.
(b) Update the permanent audit file for Y Y PAF 1.4 AW

any changes identified since the
planning stage.
(c) Review correspondence files of any Y Y AW

relevant licensing or regulatory
authorities for any indications of
breaches of laws and regulations.
(d) Confirm compliance with those laws Y Y PAF 1.4 AW

and regulations by completing the
tests set out in the audit approach
column of the register of laws and
regulations. (PAF05)
(e) Draft specific representations for Y Y AW

inclusion in the letter of
representation.
N2.1 Page 362 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
12 In the event of any actual or suspected No actual or suspected
non-compliance with laws and regulations: non-compliance
(a) Obtain an understanding of the N AW

nature of the act, the circumstances
in which it has occurred and whether
it was intentional;
(b) Obtain further information to evaluate N AW

the possible effect on the accounts;
(c) Discuss the matter with management N AW

and, where appropriate, those
charged with governance. (Where
the non-compliance was intentional
this should be as soon as
practicable.)
(d) Evaluate the implications in relation N AW

to other aspects of the audit,
including the risk assessment and
the reliability of written
representations.
(e) Consider whether there are any N AW

requirements to report the non-
compliance to external regulators.
(f) Consider taking legal advice where N AW

those charged with governance are
involved or where it seems likely that
insufficient action will be taken.
(g) Ensure that the above procedures N AW
together with any significant
professional judgments and
conclusions are fully documented.
Litigation and claims

13 To identify any possible claims or litigation
against the company:
(a) Make appropriate inquiries of Y Y AW
management.
(b) Review minutes of those charged Y Y O4 AW
with governance and
correspondence with the company's
legal advisers.
(c) Examine legal expense accounts. Y Y N3 AW
N2.1 Page 363 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
14 Where actual or potential litigation or
claims against the company have been
identified:
(a) Consider whether direct Y Y T2.2 AW

communication with the entity ’ s Faulty WiFi Express
external legal counsel is required. Extender: The legal
advisor considered
highly unlikely that any
claim would succeed
(T2.2). On this basis it
was determined that no
provision or disclosure
would be required on
the matter.
We have assessed the
lawyer's objectivity etc.
using standard
programme Using the
work of management's
expert. No irregularities
noted. See N2.2. [Not
included in this
example file]
Note. Where there are material

claims or litigation or a risk that there
may be, HKSA 501.10 requires
direct communication with the
entity's external legal counsel.
(b) Consider alternative procedures N

where the legal counsel refuses to
reply or where the reply is unhelpful.
15 If permission is refused by management to N AW

contact the company's legal counsel
directly, or if the legal counsel refuse to
reply: consider the impact on the audit
opinion (B8).
N2.1 Page 364 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
16 Obtain written representations that all Y Y A5 Letter obtained AW
known actual or possible litigation or
claims that might have a material effect on
the financial statements have been
disclosed to the auditor.
Capital and other commitments

17 Review the management minutes and Y Y No other provision/ AW
after year-end date invoices and ensure commitments identified
that all material capital commitments have other than those on N1
been identified.
18 Obtain details of lease arrangements and Y Y F5 AW

ensure they are correctly disclosed. F6.3
L6

19 Ensure that there is evidence on the file to Y Y (1) Amounts disclosed AW
support all disclosures made. in the financial
statements agreed to
(2) Disclosure checklist

completed against
management's
disclosure [Not included
20 Where disclosures about provisions or Y Y A5 AW

contingent liabilities include
management's opinion on an issue ensure
that these opinions are confirmed in the
letter of representation.
Bespoke tests
21 Draft and perform any necessary Y Y Yes - see below AW
additional tests such as those required by
C8.3 and cross reference with the
objectives on the summary sheet.
Review accident book for evidence of Y Y Accident book reviewed. AW
problems with compliance with health & Matters in 2021 all
safety legislation. related to the broken
down of two of the
major machines. No
accidents seen which
would imply a breach of
the health and safety
legislation.
N2.1 Page 365 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Conclusion
22 Consider whether there are any items (in Y Y None AW
addition to laws and regulations) which
record on A5 or A6 as appropriate.
23 Review the planned extent of reliance on N No reliance placed AW

24 Assess whether the initial materiality Y Y No changes required AW

and/or risk assessment should be revised
in view of the audit evidence obtained.
Record details of any necessary
adjustments on B6 or B9. Consider the
impact on the remainder of the audit work
and on any work undertaken to date.
N2.1 Page 366 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 N3
Subject: Litigation and claims
Objective
To identify any actual or potential claims against the company.
Enquiry of management
I enquired into possible claims or litigation against MCL with Adeline Leung.
Faulty Ethernet cards

She explained firstly that a batch of faulty Ethernet cards had been released for sale and these are now subject to recall.
The estimated costs amount to HK$1.2m which have been provided in the accounts. (See N3.1) This has been added to
C4.1-5 as an accounting estimate for obtaining understanding and assessment following HKSA 540 (Revised)
requirements.
Faulty WiFi Express Extender

The company has received notice of legal proceedings. It has been alleged that a faulty WiFi Express Extender caused a
fire at the offices of an end user. The potential claim could amount to HK$1.5m. Adeline Leung explained that the
company's lawyers had reviewed the claim and had advised that the claim was highly unlikely to be successful since there
was no direct evidence that the WiFi Express Extender had actually caused the fire. Based on this advice no provision has
been made in the accounts. (See T2.2)
Regarding management's reliance of legal advice on the matter, we have assessed the lawyer's objectivity etc. using
standard programme Using the work of management's expert . No irregularities noted. See N2.2. [Not included in this
example file]
Review of minutes
Extracts of directors meeting minutes are shown on O4 and these support the above representations. The letter from the
company's legal advisers in relation to the advice on the fire allegedly caused by the WiFi Express Extender has been
examined and the advice confirmed. A copy is located on N5.1. [N5.1 not reproduced in example file]
Examine legal expense accounts

The solicitor's invoices throughout the year have been examined. There are no instances of charges being made for claims
or litigation other than as shown above. [Work not reproduced in this example file]
Company's legal advisers

A request for confirmation of certain matters as sent to the company's legal advisers, Shyster, Leech & Shyster, and the
reply is on schedule T2.2. This letter confirms the directors assessment of the claims concerning the claims that the WiFi
Express Extender was faulty and the recall of Ethernet cards.
Other third party evidence

On 28 March 2022, we have performed search of "Manufacturing Company Limited" on the news and company information
databases [name of the database not specified in this example file] . These searches covered 1 Jan 2021 to 28 Mar 2022.
From the search results, no other third party evidences are located in relation to MCL.
Conclusion
Objective achieved.
N3 Page 367 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 N3.1
Subject: Recall costs
Objective
To assess the appropriateness of the recall costs provided (accuracy, valuation)
Assertions
Accuracy, valuation, existence
Method
In December, MCL noted a difficulty with the design of a batch of Ethernet PCI LAN card so that with extended continuous
use the card would short circuit. On 11-Dec-21, MCL issued a recall to all customers for the relevant serial numbers
(#126591 to #126900). The recall would involve posting a replacement card to customers affected. Management expected
that costs relating to the recall would be HK$1.2m.
We have checked the recall notice issued by MCL to affected customers on 20 December, specifying that a replacement
would be sent to them in June 2022. Per discussion with Adeline Leung, staff is now processing the recall and expect that
the timeline in June 2022 can be met.
Management had classified the provision as non-current liabilities, while evidence suggests that it should be current. A
Leung agreed that a journal (#20 on A3) be raised to re-classify it to current liabilities.
The following is the directors' estimate of the recall costs
HK$
Ethernet PCI LAN card
Replacement components (N1)
12,000 cards at $75 N2 900,000
Shipping costs
12,000 cards at $11 N3 132,000
Refund postage
12,000 cards at $7 N3 84,000
1,116,000
Provide say 1,200,000
N1. Checked to MCL's sales report in 2021 that Ethernet PCI LAN card with serial numbers #126591 to #126900 were
initially sold in November 2021. When the problem was identified in December, a total of 12,000 cards within the serial
numbers were sold. Therefore, management's recall provision covered 12,000 cards.
To provide evidence on the accuracy of the sales report (thus the validity that 12,000 cards require provision), we consider
the following:
- Controls on the accuracy of sales reports were tested; no irregularities noted. See R6 and R6.1.
- We further verified the sales reports in November and December 2021 by tracing selected items on the sales reports to
the underlying sales invoices, despatch notes and bank receipts. No irregularities noted. See N3.2 for results. [N3.2 not
N3.1 Page 368 of 565 APM 2022

N2. Cost of the card per inventory records on I7. To establish the costing of HK$75 per card, we agreed it to the underlying
job card and costs on the job card tested were checked to the underlying documents. No irregularities noted. See N3.3 for
results. [N3.3 not included in this example file]
N3. We noted from MCL's inventory record that each Ethernet PCI LAN card weighs 110g. We have verified this by
sighting the weighing exercise performed by a MCL staff - the weight for the selected cards weighted ranged from 108g to
112g.
MCL's estimation of shipping costs and refund postage was based on the charging table of HongKong Post published in
December 2021 for a local parcel of 120g. We have agreed them to the HongKong Post latest charging table and noted
agreement.
[Note. To establish that the provision is appropriate, it is necessary to:
(1) justify the accuracy of numbers used by management. In this case, numbers used in client's estimation were extracted
from MCL's sales reports, inventory list and HongKong Post charging table. Accordingly, relevant procedures (either tests
of controls or tests of details) were performed to validate these numbers.
(2) justify the calculation formula used by management, which is simple and straight forward in this case.]
Conclusion
Management's provision of recall cost is reasonable.
N3.1 Page 369 of 565 APM 2022

31-Dec-21 O
M0001
O SHARE CAPITAL, RESERVES AND STATUTORY RECORDS
1 Summary sheet O
2 Lead schedule O1
3 Audit programme O2.1
4 Supplementary programme O2.2
5 Share capital O3
6 Review of minutes O4
Oi Page 370 of 565 APM 2022

31-Dec-21 O
M0001
SUMMARY SHEET - SHARE CAPITAL, RESERVES AND STATUTORY RECORDS

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To ensure that the statutory records have 4, 5, 6 1, 2 Yes/No AW
been properly maintained and are up to
date.
2 To ensure that any changes in share 11, 12, 13 3, 4 Yes/No AW
capital are supported by appropriate
resolutions and are properly reflected in
the financial statements.
3 To ensure that capital instruments and 7, 8, 9, 10, 5, 6, 7, 8 Yes/No Only ordinary AW
the related interest or dividends are 11, 12, 13 shares
properly presented in accordance with
the substance of the arrangements.
4 To confirm that all necessary disclosures 14, 15 9 Yes/No AW

concerning reserves and other statutory
information have been made and that
they are appropriately presented and
described.
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* share capital and reserves are fairly stated/ * not fairly

Os Page 371 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 O1
Subject: Capital & Reserves
2021 2020
Draft Jnl Adj Final
$'000 Ref $'000 $'000 $'000
Issued share capital
Ordinary shares O3 9,975 - 9,975 9,450

ü ß
Reserves:
See
Profit and loss 10,997 A3 (357) 10,640 4,396
Property revaluation Note 1,442 13 (238) 1,204 -
Capital contribution from parent M5 0 17 890 890 -
12,439 295 12,734 4,396

ü ß

Note Movement of property revaluation reserve

2021
$'000
Revaluation on the Company's land and building (F1: $1,099 + 343) F1 1,442
Deferred tax liability thereon @ 16.5% (238)
1,204
O1 Page 372 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 O2.1
M0001
AUDIT PROGRAMME – SHARE CAPITAL, RESERVES AND STATUTORY RECORDS

Y/N Y/N date
General
1 Obtain and check, or prepare, a lead schedule Y Y O1 AW
2 Carry out analytical procedures such as: N Not considered AW
(a) comparison of the current figures with necessary
(b) review and comparison of key ratios or

3 Review for items above performance Y Y All items on O1 agreed AW

materiality or that are otherwise unusual and to relevant working
verify. papers
Statutory records
4 Perform a company search and obtain original Y Y PAF 4.4 [Documents not AW
statutory records for this period and up to the included in example
date of the auditor's report. file]
5 Ensure that all changes in directors and N No change in directors AW

secretaries and their interests in shares or and secretaries and
debentures have been properly authorized and their interests in the
entered into the relevant register. company. New shares
were issued to Tiffany
Wai in 2021 who is not
a director/ secretary of
MCL.
6 Agree details in the share/director/charges

register to:
(a) the financial statements; Y Y AW

(b) the annual return; and Y Y
(c) the directors’ report. Y Y
Dividends
7 Where a dividend is proposed or has been N No dividends paid or AW
paid in the period, consider whether the proposed
distribution is legal.
8 Where a dividend is illegal consider whether: N Not applicable AW

(a) this is adequately disclosed in the
accounts;
(b) a debtor or contingent asset should be

shown.
9 Have interest, dividends, losses or gains N Not applicable AW

relating to a financial instrument or a
component that is a financial liability been
recognized as income or an expense in the
income statement?
10 Have distributions to holders of equity N Not applicable AW
instruments been debited directly to equity?
O2.1 Page 373 of 565 APM 2022

Y/N Y/N date
Share capital
11 Record details of any changes in share capital Y Y O3 AW
in this period and ensure that these have been
properly authorized and reflected in the
12 For capital instruments issued in the period, Y Y Only ordinary shares in AW

have these (or their components) been issue
classified on initial recognition as a financial
liability, a financial asset or an equity
instrument in accordance with the substance of
the contractual arrangement and the definitions
of a financial liability, a financial asset and an
equity instrument?
Share-based payments
13 Ensure share-based payment are verified and N None AW
properly accounted for in accordance with
applicable accounting standards. (Refer to
Section R for details of audit procedures)
Reserves
14 Review schedule of all movements in reserves. O1
(a) Ensure that transfers between reserves Y Y AW

are correctly treated and authorized.
(b) Ensure that the treatment of other Y Y AW

movements in reserves is correct.
Control
15 Ascertain details of the ultimate controlling Y Y The directors AW
party and ensure that correct disclosure is
made in the financial statements.
Bespoke tests
sheet.
O2.1 Page 374 of 565 APM 2022

Y/N Y/N date
Conclusion
17 Consider whether there are any points which Y Y A6 Letter on A6 Point 1 - AW
need to be included in a letter of representation Minutes of directors
or letter of comment and record on A5 or A6 as meetings are not very
appropriate. detailed and do not
include all key
decisions
18 Review the planned extent of reliance on N AW

19 Assess whether the initial materiality and/or Y Y No changes AW

date.
O2.1 Page 375 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 O2.2
M0001
SUPPLEMENTARY PROCEDURES - SHARE CAPITAL, RESERVES AND STATUTORY

RECORDS
Y/N Y/N date
1 Obtain a copy of the Articles of Association Y Y PAF 4.6 [Document not AW
("A&A"). included in example
file ]
2 Review minutes for: O4
a) proper approval and authorisation for Y Y AW
additions, disposals, impairment loss
provided and reversal of impairment loss
on assets during the year;
b) major contracts or capital commitments; Y Y AW
c) changes in share capital; Y Y AW
d) dividend proposed and distribution; Y Y None noted AW
e) changes in directors and shareholders; Y Y No change noted AW
f) proper approval and authorisation for Y Y AW

loan advance from / to;
g) other matters that may affect the audit. Y Y AW
3 Check issued share capital with A&A or Y Y O3 AW
resolution for subsequent increase.
4 Check evidence for receipt of consideration for Y Y O3 AW
shares issued in the period.
5 Ensure the entity accounted for foreign N Not applicable AW
6 Have the different components of compound N Not applicable AW
financial instruments been classified separately
as financial liabilities, financial assets or equity
instruments in accordance with applicable
accounting standards?
7 When a derivative financial instrument gives N Not applicable AW

one party a choice over how it is settled has it
been treated as a financial asset or a financial
liability except where all of the settlement
alternatives would result in it being an equity
instrument?
O2.2 Page 376 of 565 APM 2022

Y/N Y/N date
8 Where a dividend is proposed or has been N No dividends paid or AW
paid in the period, consider whether the proposed
distribution is properly authorized and paid out
of distributable profits.
(a) Check calculation and the payment for

cash dividend.
(b) Ensure proper amount has been
transferred from retained profits to the
share capital accounts for stock dividend.
9 Ensure prior-year adjustments are properly N No adjustment from AW

reflected in the financial statements. prior year required
O2.2 Page 377 of 565 APM 2022

MCL AW O3
31-Dec-21 28/3
Share capital JO 1/4
The company is a wholly owned subsidiary of Holding Company Limited (see group structure on PAF 1.1.3).
During the year 35,000 shares in the company were issued to Tiffany Wai-yin for HK$525K. The shares were
issued by the directors as a means of giving Tiffany a stake in the group to try and ensure she does not leave and
also as an incentive. This had no impact on the share capital in this company. However, the directors decided that
this company should issue further shares to Holding Company Limited to match those issued by that company.
The shares were paid in cash and issued in accordance with the Companies Ordinance.
HK$ No. of shares

At 1 January 2021 O1 9,450,000 9,450,000
Shares issued February 2021 525,000 350,000
At 31 December 2021 O1 9,975,000 9,800,000
Audit work
Proceeds were agreed to MCL's bank statements in February 2021.
The statutory records were reviewed to ensure that the share issue had been properly recorded.
The issue of shares was agreed to the minutes. (O4)
No. of shares were checked and agreed to the latest return submitted to the Companies Registry on
15 June 2021.
O3 Page 378 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 25/4 O4
Subject: Review of minutes
The directors hold formal board meetings; however, the minutes are not always that detailed. The following
issues were noted from the minutes of meeting held from 1 January 2021 to 25 April 2022.
From meeting held 31 January 2021

Raymond reported that Tiffany Wai-yin was interested in buying shares in the holding company. Everyone
agreed that it would be good to give her a stake in the company and agreed that up to $600k of shares could
be issued depending upon how many she wanted to buy. It was also agreed that MCL would issue shares to
HCL to match those issued to Tiffany.
A Leung reported that a HK$5m interest-free loan was taken from the parent with a five year fixed term.
From meeting held 22 February 2021

The loan agreement for the new HK$1,640K bank loan was presented to the directors. The directors
approved this loan and instructed A Leung to sign the agreement on behalf of the board. It was noted that
HK$651k of this loan advance would be immediately used to pay off loan account 76543219.
See M4.2 & M4.3
From meeting held 10 October 2021

Adeline reported back to the directors on the situation regarding the claim for fire damage allegedly caused by
a WiFI Express Extender. At a meeting with the company's solicitors, they advised that it was extremely
unlikely the claim would stand in court. This advice has subsequently been confirmed in writing. A copy of the
solicitor's letter was provided to those present.
See N5.1 [Not included in this
example file]
From meeting held 12 December 2021

Tony reported that the recent difficulties with the Ethernet PCI LAN card had now been fully resolved. There
had been a difficulty with the design of the card so that with extended continuous use the card would short
circuit. A recall has been issued to all customers for the relevant serial numbers. It is expected that costs
relating to the recall will amount to HK$1.2m.
This amounts has been provided. See provision on N1
The terms of sale of the Memory Stick division were agreed and RC was given authority to sign the contract
on behalf of the company.
A copy of the contract has been placed on the PAF [Not included in this
model file]
From meeting held 10 January 2022

[Details not illustrated in this example file]
From meeting held 1 April 2022

[Details not illustrated in this example file]
[Note. Review of minutes should cover meetings held during the year and from the year-end date to the
auditor's report date.]
O4 Page 379 of 565 APM 2022

31-Dec-21 P
M0001
P INCOME TAXES
1 Lead schedule P1
2 Audit programme P2.1
3 Supplementary procedures [Not included in this example file] P2.2
4 Tax account [Not included in this example file] P3
5 Tax computations [Not included in this example file] P3.1
6 Tax reconciliation [Not included in this example file] P4
7 Deferred tax [Not included in this example file] P5
8 Deferred tax calculation [Not included in this example file] P5.1, 5.2
Pi Page 380 of 565 APM 2022

31-Dec-21 P
M0001
SUMMARY SHEET - INCOME TAXES

Planning Final
Reference Reference Have the Comments Initials
of key tests to supple- objectives
satisfy proce-
objective* dures
Audit objectives
1 To ensure that the current tax is 4, 5 1, 2, 3 Yes/No AW
computed and accounted for in
accordance with applicable regulations
and financial reporting standards
respectively.
2 To ensure that deferred taxation has 6 4, 5, 6, 7 Yes/No AW
been correctly accounted for.
3 To confirm that all necessary disclosures 7 8, 9 Yes/No AW

concerning current and deferred tax have
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* income taxes are fairly stated/ * not fairly stated as
described below.

Ps Page 381 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 P1
Subject: Taxation
2021 2020
Draft Jnl Adj Final
$ Ref $ $ $
Balance sheet
Current taxation P3/L1 1,092 10, 11 285 1,377 681
12, 13,
Deferred taxation P5.1 1,552 16 385 1,937 1,589
2,644 670 3,314 2,270

ü ß
Income statement
Provision for the year P3 1,127 10 250 1,377 821
Under-provision in 2020 P3 - 11 35 35 -
Deferred tax P5.1 - 12 110 110 1,295
1,127 395 1,522 2,116

ü ß

[Note: Audit work with respect to income taxes and deferred taxes in P2.2, 3.1, 4, 5, 5.1 and 5.2 are not
P1 Page 382 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 P2.1
M0001
AUDIT PROGRAMME - INCOME TAXES

[Note: Audit work with respect to income taxes and Test Results Sch Ref Comments Initials
deferred taxes in P2.2, 3.1, 4, 5, 5.1 and 5.2 are not required satisfactory and
produced in this example file] Y/N Y/N date
General
1 Obtain and check, or prepare, a lead schedule Y Y P1 AW
(a) comparison of the current figures with Y Y P1 AW
(b) review and comparison of key ratios or N
3 Review for items above performance Y Y P1 All balances verified AW
materiality or that are otherwise unusual and and tied to relevant
verify. working papers
Current tax
4 Obtain and check, or prepare the following:
(a) tax computations; Y Y P3.1 AW
(b) an analysis of movement on the current Y Y P3 AW
tax account (including local tax and
overseas tax);
(c) a proof of tax/tax reconciliation. Y Y P4 AW

5 Ensure profit before tax used in the Y Y AW
computation agrees to profit and loss account.
Deferred taxation
6 Calculate or review the calculation of the full Y Y P5 AW
potential deferred tax liability and consider
what provision, if any, is necessary.

7 Ensure that there is sufficient appropriate Y Y (1) Amounts AW
evidence on the file to support all disclosures disclosed in the
made. financial statements
agreed to audit work
performed.
(2) Disclosure
checklist completed
against
management's
disclosure [Not
included in this
example file]
P2.1 Page 383 of 565 APM 2022

[Note: Audit work with respect to income taxes and Test Results Sch Ref Comments Initials
deferred taxes in P2.2, 3.1, 4, 5, 5.1 and 5.2 are not required satisfactory and
produced in this example file] Y/N Y/N date
Bespoke tests
8 Draft and perform any necessary additional N None required AW
summary sheet.
Conclusion
9 Consider whether there are any items which Y Y None AW
this on A5 or A6 as appropriate.

11 Assess whether the initial materiality and/or Y Y No change required AW

date.
P2.1 Page 384 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 P3
Subject: Tax Account
B/fwd Charge Paid/rec'd Adj C/fwd

$ $ $ $ $
b a
2020/21 681,000 35,000 (716,000) - -
^
2021/22 P3.1 - 1,377,185 - - 1,377,185
^
681,000 1,412,185 (716,000) - 1,377,185
b per prior year working paper

a checked to IRD notice of assessment and bank statement
[Note: Audit work with respect to income taxes and deferred taxes in P2.2, 3.1, 4, 5, 5.1 and 5.2 are not produced in this
example file]
P3 Page 385 of 565 APM 2022

31-Dec-21 Q
M0001
Q INCOME/ EXPENDITURE
1 Directors and key personnel remuneration Q1
2 Directors' remuneration letters Q1.1 - 1.3
3 Interest cost Q2.1
4 Overdraft interest Q2.2
5 Legal and professional expenses Q6
6 Advertising Q7
7 Sundry expenses Q20
8 Pension contributions Q21
9 Machinery maintenance Q22
10 Foreign exchange loss See L10
Qi Page 386 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 Q1
Subject: Directors and key personnel remuneration
2021 2020
Remuneration Draft Adj Final
Salaries Certificate HK$ HK$ HK$ HK$
Directors
R Chan Q1.1 750,000 750,000 700,000
A Leung Q1.2 750,000 750,000 700,000
T Ho Q1.3 750,000 750,000 700,000
2,250,000 2,250,000 2,100,000
A/C disclosure
note 11
Other key personnel

[Breakdown not illustrated] 700,000 700,000 600,000
Total key management personnel compensation 2,950,000 2,950,000 2,700,000

A/C disclosure
note 28
Post employment benefits Remuneration

Certificate
R Chan Q1.1 37,500 37,500 35,000

A Leung Q1.2 37,500 37,500 35,000
T Ho Q1.3 37,500 37,500 35,000
112,500 112,500 105,000
A/C disclosure
note 11
Other key personnel

[Breakdown not illustrated] 472,000 472,000 465,000
472,000 472,000 465,000
A/C disclosure
note 28
Q1 Page 387 of 565 APM 2022

Q1.1
AW 25/4
JO 25/4
Sea Bird Lane
Tai Shui Hang
Hong Kong
B Lee
Counting House
Kings Road
Hong Kong Island
Hong Kong 25 April 2022
Dear Sirs
Directors' Remuneration
I confirm that the total emoluments receivable by me* as a director from or in respect of
Manufacturing Company Limited which were required by the Companies Ordinance to be stated
in the company’s accounts for the year ended 31 December 2021 are as follows:
HK$
Emoluments 750,000
Retirement benefits 37,500
Termination benefits -
Consideration provided or receivable by a third party -

in respect of services
HK$ 787,500
Signature R Chan
Raymond Chan
Date 25 April 2022

* Including amounts receivable by connected persons (unless directors in their own right) or by companies controlled by me
Q1.1 Page 388 of 565 APM 2022

Q1.2
AW 25/4
JO 25/4
Sea Bird Lane
Tai Shui Hang
Hong Kong
B Lee
Counting House
Kings Road
Hong Kong Island
Dear Sirs
HK$
Emoluments 750,000

HK$ 787,500
Signature RA Chan
Leung
Adeline Leung
Date 25-Apr-22
Q1.2 Page 389 of 565 APM 2022

Q1.3
AW 25/4
JO 25/4
Sea Bird Lane
Tai Shui Hang
Hong Kong
B Lee
Counting House
Kings Road
Hong Kong Island
Dear Sirs
HK$
Emoluments 750,000

HK$ 787,500
Signature T Ho
Anthony Ho
Date 25 April 2022

Q1.3 Page 390 of 565 APM 2022

MCL Q2.1
Interest costs JO 1/4
Sch HK$
Loans
A/c 87654321 M4.1 53,232
A/c 76543219 M4.2 10,416
A/c 65432198 M4.3 59,040
122,688
Overdraft interest Q2.2 109,237
Lease interest PAF

Mitsubishi FGC20N 7.4.1 5,295
Mitsubishi EOP15-24 7.4.2 4,750
Mini Coopers (3) 7.4.3 61,090
Mitsubishi PMWT11N (2) 7.4.4 6,819
Factory 7.4.6 1,016,966
1,140,458
Charge per management accounts 1,372,383
Auditor adjustment:
Parent company loan M5 164,385
Charge per statutory accounts 1,536,768
Losses on derivative financial

instruments L10 228,334
Q2.1 Page 391 of 565 APM 2022

MCL Q2.2
Overdraft Interest JO 1/4
The bank overdraft at the end of each month was as follows:
Interest at
6% for
Overdraft month
HK$'000 HK$'000
January 2,019 10
February 2,389 12
March 2,356 12
April 2,267 11
May 2,296 11
June 2,399 12
July 1,865 9
August 1,677 8
September 1,409 7
October 1,267 6
November 956 5
December 412 2
105
As per ledger 109 Q2.1
Difference 4 less than clearly trivial

% 3.7%
The overdraft figures are the month end figures taken from the bank statements.
According to the current bank facility letter interest is calculated daily at 6%. The above estimate using the month-end
balance is very close and suggested that the overall charge is reasonable.
The charge for the year appears reasonable.
[Note: This above illustration is a substantive analytical procedure which involves evaluating the reliability of source
data; develop an expectation of the recorded amount; determining the acceptable level of difference and evaluating the
difference identified.
HKSA 520.5 has a number of specific requirements that must be followed when undertaking substantive analytical
procedures. In performing a substantive analytical procedure, users should consider the need to apply audit
programmes D1 and D1.1 which are not used in this example.]
Q2.2 Page 392 of 565 APM 2022

Subject: Legal & professional expenses
Objective
Consider any irregularities in relation to the legal and professional expenses requiring further procedures
Results
Fees re: HK$
Product feasibility study 400,000
Patent renewal charges 350,000
Review of employment contracts 300,000
Debt collection charges 250,000
Rent negotiation 200,000
Customer claim re fire damage claim 200,000
Faulty product recall 100,000
Other (not analyzed) 58,000
Charge per accounts 1,858,000
Conclusion
No irregularities noted from the nature and description posted in the purchase day book and ledger and the
invoices inspected.
The nature of the above costs are consistent with our knowledge obtained in other procedures.
Agreed to invoice
Q6 Page 393 of 565 APM 2022

Subject: Advertising expenditure
Objective
To obtain evidence on accuracy and occurrence of advertising expenditure
Results
Agreed to
Supplier Details of advertising HK$ invoice Agreed to magazine
PC Universe 12 monthly full page 400,000 Ads for Jan Jun and
Dec seen
Computer Security 12 monthly full page 390,000 Ads for Jan Jun and
Management Dec seen
Networking World Last 6 months of year, 600,000 Adds for Sep and Dec
double page spread seen
Hong Kong Computing 12 monthly full page 450,000 Ads for Jan Jun and
Forum Dec seen
Microsoft Monthly 12 monthly full page 800,000 Ads for Feb, Jul and
plus 6 advertising Nov seen plus features
MonthlyMac 4 quarterly half page 200,000

Ads for Mar and Sep seen
Others [not analyzed in 752,000

this case study ]
Charge per accounts (A8) 3,592,000
The client had retained original hardcopies of every issue of every magazine in which an MCL advertisement
appeared. The issues checked were selected at random and every one selected was available.
Agreed to invoice
Q7 Page 394 of 565 APM 2022

Subject: Sundry expenses
HK$
Printing charges 150,000
Stationery costs 200,000
Canteen 100,000
Employee training costs 80,000
Trade fair costs 90,000
Other [not analyzed in this example file] 1,619,000
No irregularities noted from the nature and description posted in the purchase day book and ledger.
The above costs pass through the purchase ledger so they are audited on sch R7.
Q20 Page 395 of 565 APM 2022

Subject: Pension contributions
Objective
Obtain evidence on the accuracy and occurrence of pension contribution.
Assertions
Accuracy and occurrence of pension contribution.
Method
1. Agree the pension contributions to remuneration certifications returned by directors.
Results: No irregularities noted. See below.
2. Agree the pension contributions to statements from pension administrators.

Results: No irregularities noted. See below.
3. Agree selected pension contributions to evidence of payment to pension administrators [Detail work not included
Results: No irregularities noted.
Remuneration 2021 2020

Certificate HK$ HK$
Directors
Raymond Chan Q1.1 37,500 45,000
Adeline Leung Q1.2 37,500 30,000
Anthony Ho Q1.3 37,500 30,000
Others
Terence Ip 17,500 15,000
Tiffany Wai-yin 17,500 15,000
Others [not analyzed in this model file] Note 1 786,500 612,000
Charge per accounts 934,000 747,000
Co
Contributions agreed to statements from pension administrators
Th directors decided to increase the sums paid into their pension plans following advice that their
The
current contributions were insufficient to provide the desired level of income in retirement.
Note 1. Testing of 'Others'

The contributions in respect of 1 employee, selected at random, were agreed to statements from pension
administrators. The sampling is calculated in Q21.2 [Not included in the example file] and according to N&C audit
methodology.
G Wong
Conclusion
Objective achieved.
Q21 Page 396 of 565 APM 2022

Subject: Machinery maintenance
HK$
Maintenance for:
Machine 1 450,000
Machine 2 450,000
Others [not analyzed in this example file] 973,221
No irregularities noted from the nature and description posted in the purchase day book and ledger.
The above costs pass through the purchase ledger so they are audited on sch R7.
Q22 Page 397 of 565 APM 2022

31-Dec-21 R
M0001
R PROFIT AND LOSS
1 Lead schedule
Summary sheet R
Income statement R1.1
Continuing & discontinued operations R1.2
Memory Stick Division R1.3
Controls on classifying transactions to the Memory Stick division [Not included in this example R1.3.1
file]
Test transactions of the Memory Stick division [Not included in this example file] R1.3.2
Sales R1.4
Purchases and expenses R1.5
Distribution and administrative expenses R1.6
2 Income statement
Audit programme R2.1
Supplementary procedures R2.2
Sample selection planning - income statement (revenue) R2.3
Sample selection planning - income statement (expenses) R2.4
3 Audit work summary

Audit approach R3
4 Detailed profit and loss schedule

Detailed profit and loss schedule R4
5 Salaries and wages

Payroll R5
Payroll analytical procedures R5.1
Substantive analytical procedures working paper (payroll) R5.2
Payroll: substantive analytical procedures R5.2.1
Payroll controls R5.3
Payroll tests Direct and distribution wages R5.4
6 Audit work on sales revenue

Audit of sales revenue R6
Accuracy, completeness, cut-off and occurrence of sales R6.1
Sales cut-off R6.2
Sales cut-off R6.3
Sales cut-off - quantifying error R6.4
Review of post year end credit notes R6.5
Review of bank receipts R6.6
Assessment of MCL's revenue recognition policy [Not included in this example file] R6.7
Ri Page 398 of 565 APM 2022

31-Dec-21 R
M0001
R PROFIT AND LOSS
7 Audit work on purchases

Genuineness of purchases R7
Purchases tests R7.1
Purchases cut-off R7.2
Purchases cut-off R7.3
Cash book payments R7.4
8 Related party transactions

Supplementary procedures R8.2
Related party tests R8.3
9 Revenue under HKFRS 15

App 5: Revenue under HKFRS 15 R10.1
Summary sheet R10.2
Ri Page 399 of 565 APM 2022

31-Dec-21 R
M0001
SUMMARY SHEET - INCOME STATEMENT

Planning Final
which satisfy mentary been met?
objective* proce-
dures
Audit objectives
1 To ensure that income is fairly stated and 4, 5, 6, 7, 8, 1, 2, 3, 4, Yes/No AW
correctly classified. 9, 10 5, 6, 7, 8, 9
2 To ensure that expenditure is fairly stated, 11, 12, 13 10, 11, 12 Yes/No AW
authorized and correctly classified.
3 To ensure that wages and salaries are 14, 15, 16, 13, 14, 15, Yes/No AW
correctly accounted for. 17 16, 17
4 To ensure that items requiring specific 18, 19, 20 Yes/No AW

disclosure are correctly reported.

concerning the profit and loss account
have been made and that the information
is appropriately presented and described.
Planning conclusion
Materiality or, where applicable, section specific materiality, (C7) has been set at HK$700k for income, HK$933k for
expenses, HK$71k for directors' remuneration, HK$71k for related party transactions.
Materiality for related party transactions was reduced to HK$62.5k as a result of reassessment of risk following
identification of a previously unidentified related party as noted on R8.1.
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* the income statement is fairly stated/ * is not fairly stated
as described below.

Rs Page 400 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 R1.1
Subject: Income statement
2021 2020
Draft Jnl Adj Final
HK$'000 Ref HK$'000 HK$'000 HK$'000
Revenue R1.4 112,014 1, 2,6 (19,918) 92,096 75,775
Cost of sales R1.5 (59,628) 3,5,7 20,232 (39,396) (34,671)

Net reversal / (recognition) of impairment
losses on trade receivables J4 (280) 5 336 56 (75)
(59,908) 20,568 (39,340) (34,746)
Other gains and losses:

Profit on sale of fixed assets 266 266 175
Foreign exchange gains L10 200 15 3 203 49
Losses of Forex Fis L10 (228) (228) -
Distribution costs R1.6 (9,163) 8 1,379 (7,784) (8,631)
Administrative expenses R1.6 (32,275) 9, 14 1,126 (31,149) (25,223)
Finance costs Q2.1 (1,372) 18 (164) (1,536) (1,444)
10,
Taxes (1,127) 11, (395) (1,522) (2,116)
12
6,7,8,
Loss from discontinued operation (1,806) 9 (2,956) (4,762) -
6,601 (357) 6,244 3,839

A3 ü ß
Continuing and discontinued operations are analyzed on R1.2
The results of the Memory Stick division are analyzed separately on R1.3

R1.1 Page 401 of 565 APM 2022

Subject: Continuing & discontinued operations
2021 2020
Total
Continuing Discontinued Total
Continuing
HK$'000 HK$'000 HK$'000 HK$'000
Revenue 92,096 18,774 110,870 55,673
Cost of sales (39,395) (19,188) (58,583) (15,979)
Other gains and losses 241 - 241 224
Net reversal / (recognition) of

impairment losses on trade
receivables 56 - 56 (75)
Distribution costs (7,784) (1,379) (9,163) (7,079)
Administrative expenses (31,149) (1,163) (32,312) (24,116)
Finance costs (1,537) - (1,537) (1,444)
Taxes (1,522) - (1,522) (2,116)
Loss from discontinued operation - (1,806) (1,806) (1,249)
11,006 (4,762) 6,244 3,839

ü ß
The results of the Memory Stick division are analyzed separately on R1.3

R1.2 Page 402 of 565 APM 2022

Subject: Memory Stick division
Objective
Assess the accuracy and disclosure of the Memory Stick division
Assertions
All - including that the disclosed amounts of the Memory Stick division did occur.
Results
The Memory Stick division was sold on 31 December 2021. Its results, which have been separately identified and
classified in the financial statements as results from discontinued activities, are set out below. We have checked this
information against the accounting system and noted that it has been correctly extracted by the client.
We have tested the operating effectiveness of MCL's processes in identifying and classifying transactions relating to the
Memory Stick division and inputting them to the Memory Stick division ledger in the accounting system. The control
description and work performed are on R1.3.1. No irregularities noted [R1.3.1 not included in this example file]. The
control testing provides evidence that information from the accounting system on the Memory Stick division is accurate
and complete for disclosure in the financial statements.
We have also selected transactions recorded in the Memory Stick division and tested to the underlying documents and
note that they related to the Memory Stick division. See results on R1.3.2 ]Not included in this example file].
From other sales and purchases tests in section R, we tested transactions disclosed as continuing transactions and
noted that none related to the Memory Stick division.
The above substantive procedures provide evidence on the accuracy, completeness, occurrence and disclosure of the
Memory Stick division.
[Note. It is necessary to obtain evidence that the Memory Stick division results for disclosure in the financial statements
are accurate, either through tests of control or substantive procedures]
2021 2020
HK$'000 HK$'000
Revenue 18,774 20,102
Cost of sales (19,188) (18,692)
Other gains and losses - -
Loss on sale of goodwill and plant E3 (1,806) -
Finance costs - -
Income tax - -
Loss from discontinued operation (4,762) (1,249)
Conclusion
The Memory Stick division results are properly disclosed as discontinued operations.
R1.3 Page 403 of 565 APM 2022

Year end: 31-Dec-21 Rev by: JO Date: 1/4 R1.4
Subject: Sales breakdown
2021 2020
Continuing Discontinued Total Total
Draft Jnl Adj Final

HK$'000 Ref HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Sound & graphics 55,860 1, 2 (978) 54,882 - 54,882 31,990
Network 24,066 1, 2 (130) 23,936 - 23,936 22,156
WiFi & Bluetooth 13,314 1 (36) 13,278 - 13,278 1,527
USB memory sticks - 6 - - 18,774 18,774 20,102
93,240 (1,144) 92,096 18,774 110,870 75,775

ü ü ü ß
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R1.4 Page 404 of 565 APM 2022

Subject: Purchases and expenses breakdown
2021 2020
Draft Jnl Adj Final
Cost of sales
Purchases (adj for
inventories) 29,568 3 (1,044) 28,524 16,028 44,552 26,539
Factory rates 120 - 120 - 120 110
Machine maintenance 1,340 COSG = - 1,340 533 1,873 633
39,396
Depreciation 2,730 - 2,730 - 2,730 1,967
Direct wages 5,973 - 5,973 2,627 8,600 4,917
Other direct costs 709 - 709 - 709 505
Bad debts (J4) 280 (336) (56) -
5 N1 (56) 75
40,720 (1,380) 39,340 19,188 58,528 34,746
Distribution costs 7,784 - 7,784 1,379 9,163 8,631
Administrative expenses 31,112 14 37 31,149 1,163 32,312 25,223
Finance costs 1,372 19 164 1,536 - 1,536 1,444
80,988 (1,179) 79,809 21,730 101,539 70,044
ü ü ü ß
Less items audited elsewhere
Factory depreciation Section F 980
Factory direct wages R5 8,600
Distribution labor costs R5 1,802

Salaries = 19,534
Administration: (Disclosure
Note 10)
Wages R5 6,882
Directors pay Q1 2,250
Pension contributions Q21 934
Audit & accountancy Agreed to fee proposal 473
Legal & professional Q6 1,858
Advertising Q7 3,592
Faulty card provision N3 1,200
Finance costs Q2 1,536
30,107
Balance to be tested by sampling on R2.4 (being costs that are captured via
the purchase ledger system) 71,432

R1.5 Page 405 of 565 APM 2022

Subject: Distribution & Admin expenses breakdown
2021 2020
Draft Jnl Adj Final

Distribution costs
Labor 1,802 - 1,802 - 1,802 1,425
Packing materials 3,082 8 (458) 2,624 458 3,082 3,011
Freight and shipping 3,852 8 (921) 2,931 921 3,852 3,698
Other distribution costs 427 - 427 427 497
9,163 (1,379) 7,784 1,379 9,163 8,631

ü ü ü ß
Wages 6,845 14 37 6,882 - 6,882 6,503
Directors pay 2,250 - 2,250 - 2,250 2,100
Pension contributions 934 - 934 - 934 747
Staff welfare 715 - 715 - 715 632
Power 2,054 - 2,054 - 2,054 1,773
Insurance 595 - 595 - 595 542
Cleaning 366 - 366 - 366 351
Repairs and maintenance 472 - 472 - 472 568
Motor expenses 1,705 9 (432) 1,273 432 1,705 1,437
Advertising 3,592 9 (323) 3,269 323 3,592 1,462
Travelling 1,166 9 (408) 758 408 1,166 849
Entertaining 34 - 34 - 34 26
Telephone & internet 415 - 415 - 415 402
Computer costs 912 - 912 - 912 440
General office costs 1,220 - 1,220 - 1,220 1,129
Postage 984 - 984 - 984 915
Laundry and cleaning 12 - 12 - 12 11
Telephone and photocopier 1,650 - 1,650 - 1,650 1,738
Audit and accountancy 473 - 473 - 473 452
Legal and professional 1,858 - 1,858 - 1,858 1,711
Bank charges 358 - 358 - 358 342
Miscellaneous 2,239 - 2,239 - 2,239 506
Charitable donations 79 - 79 - 79 75
R & D amortization 147 - 147 - 147 512
Faulty card provision 1,200 - 1,200 - 1,200 -
32,275 (1,126) 31,149 1,163 32,312 25,223

ü ü ü ß
R1.6 Page 406 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 R2.1
M0001
AUDIT PROGRAMME – INCOME STATEMENT

Y/N Y/N date
General
1 Obtain and check, or prepare, a lead schedule Y Y R1.1 AW
(b) review and comparison of key ratios or Y Y C6.1 AW
3 Review for items above performance Y Y Other than disposal of AW
materiality or that are otherwise unusual and Memory Stick division
verify. - none found
Income
4 Identify all material sources of income: R3
(a) specify how each source has been Y Y AW
audited; and
(b) ensure recognition of income in Y Y AW
standards.
5 Select a sample of copy sales invoices, and N AW

vouch to supporting documentation.
(a) Compare data on the sales invoice to the Not considered
sales day book, customer orders, necessary.
despatch and other supporting Overstatement tested
documents; by work on existence
(b) Review the sales invoices for evidence of and recoverability of
approval, clerical accuracy, terms and trade receivables.
prices in relation to pricing policies and
credit limits.
6 Select a sample of goods despatched notes, R6
including a number of items around the year
end (where required) and vouch to supporting
documentation.
(a) Ensure details are correctly reflected on Y Y AW

the sales invoice.
(b) Agree invoices through to the sales Y Y AW
ledger and general ledger.
(c) Ensure items are properly approved and Y Y AW
accounted for in the correct period.
(d) Investigate any unusual delays between Y Y AW

date of despatch and the date of
invoicing.
R2.1 Page 407 of 565 APM 2022

Y/N Y/N date
7 Where goods despatched notes are not N AW
used/retained, specify the audit work (e.g. the
verification of contract and delivery to the
customer) to ensure that all sales made are
invoiced.
-
Cut-off on sales
8 Test sales cut-off as follows:
(a) Review credit notes after the year end Y Y R6.5 AW
and consider whether these have been
accounted for in the correct period.
(b) If the company has despatch records, Y Y R6.2 AW

examine sales and despatch records
before and after the year end and ensure
that:
- all goods despatched before the year Y Y AW

end are excluded from inventories and
included in sales and trade receivables
where appropriate.
- all goods despatched after the year end Y Y AW
are included in inventories and excluded
from sales and trade receivables where
appropriate. (Refer to notes from
physical inventory counting.)
(c) If the company does not have despatch N AW

records, specify the audit work to ensure
that cut-off has been correctly applied.
Cash sales
9 Select a sample of till rolls or sales dockets, N No cash sales AW
and vouch to supporting documentation.
(a) Check the additions.

(b) Check the numerical sequence and
investigate any missing items.
(c) Check the pricing.
(d) For till rolls, ensure that the level of “ no
sales” is acceptable.
(e) Check total cash sales to the cash book.
Sales returns
10 Review sales returns and, where material, N AW
select a sample. Sales returns are rare
and unlikely to be
(a) Check the quantity and description on the material. No additional
credit note to a goods returned note or work is required
other documentary proof of receipt of beyond the review of
goods. credit notes on R6.5.
(b) Ensure the details agree to the original
invoice.
R2.1 Page 408 of 565 APM 2022

Y/N Y/N date
Expenditure Under-statement of
11 Check numerical sequence of goods received N purchases tested by AW
notes and investigate missing items. reviewing of invoices
processed after the
year end (L3.2).
12 Select a sample of purchases from the R7

purchases day book:
(a) Review the supplier invoice and Y Y AW
supporting data for evidence of approval,
suppliers' name, clerical accuracy,
quantities and prices in relation to the
purchase order and supporting
documentation, reasonableness of the
expenditure; and
(b) Check the goods received note and Y Y AW

purchase order with the supplier invoices,
payments made and other supporting
records.
(c) Consider whether there is adequate N AW
control over the issue of cheques.
Cut off on purchases

13 Test cut-off on purchases as follows: R7.2
(a) If the company retains goods received Y Y AW
records, examine the goods
received/purchased records immediately
before and after the year end and ensure
that:
- all goods received prior to the year end Y Y AW
are included in inventories, purchases
and trade payables where appropriate;
- all goods received after the year end Y Y AW

are excluded from inventories, purchases
and trade payables where appropriate.
(b) If the company does not have goods N AW

received records, specify below the audit
work to ensure that cut-off has been
correctly applied.
Wages and salaries
14 Reconcile a list of employees and their gross Y Y R5 AW
pay to the staff costs charge in the accounts.
Explain and verify any material differences.
15 Where considered necessary in view of the

results of the above test:
(a) check the casts and crosscasts; N AW
(b) check the postings to the general ledger; N AW
(c) check details of the gross to net pay Y Y R5.4 AW

calculation.
R2.1 Page 409 of 565 APM 2022

Y/N Y/N date
16 Obtain details of emoluments paid and Y Y Q1 AW
payable, including benefits-in-kind for directors
and key management personnel.
17 For any share based payments complete the N No share based AW

optional audit programme Share Based payments
Payment (Rapp04).
Related party transactions
18 In respect of related party transactions:
(a) Confirm with management that the Y Y PAF AW
information on the permanent file and 1.1.1(9),
considered at the planning meeting is up 1.5
to date.
(b) Enquire of the directors whether the Y Y AW

company has entered into any
transactions in which one or more of
those related parties have an interest.
(c) Where this is the case ascertain the type N AW

and purpose of the transaction(s).
(d) Ensure all members of the audit team are Y Y Team advised of AW
aware of identified related parties and further related party
transactions and are vigilant in looking for
any unidentified ones.
(e) Obtain written confirmation in the letter of Y Y A5 AW

representation that the information
provided regarding related parties and
transactions disclosures is complete and
appropriately accounted for.
19 Where there are a number of related parties N Planning indicated

and related party transactions, more complex programme was not
transactions, significant transactions outside Y Y R8.1 required but it has AW
the normal course of business, a risk of now been completed
unidentified transactions or actual previously as a result of
unidentified transactions; complete the identifying a further
optional Related Party Transactions audit related party during
programme. (Rapp02) the course of the audit
Other
20 Prepare analysis schedules for any expense Y Y Q AW
categories where this is required for tax or
disclosure purposes not yet shown in Q
section. Specify below the accounts to be
analyzed:
Interest costs Q2
Advertising expenditure Q7
Miscellaneous expenses Q20
Machinery maintenance Q22
R2.1 Page 410 of 565 APM 2022

Y/N Y/N date
21 Ensure that there is sufficient appropriate Y Y R1.3 (1) Amounts disclosed AW
evidence on the file to support all disclosures in the financial
(2) Disclosure
checklist completed
against
management's
disclosure [Not
included in this
example file]
22 Consider whether related party transactions Y Y R8.1 AW

have been properly accounted for and
disclosed in the accounts.
Bespoke tests
summary sheet.
Conclusion
24 Consider whether there are any points which Y Y Systems weaknesses AW
need to be included in a letter of noted on A6
25 Review the planned extent of reliance on Y Y Planned reliance AW

internal controls in this area and consider appropriate
26 Assess whether the initial materiality and/or Y Y Risk was increased to AW

risk assessment should be revised in view of high for related parties
the audit evidence obtained. Record details of following the
any necessary adjustments on B6 or B9. discovery of an
Consider the impact on the remainder of the undisclosed related
audit work and on any work undertaken to party. However, this
date. does not impact on
the overall risk
assessment or the
work required in other
areas.
R2.1 Page 411 of 565 APM 2022

M0001
SUPPLEMENTARY PROCEDURES - INCOME STATEMENT

Y/N Y/N date
Income statement
1 Where pre-numbered invoices, goods Y Y R6 AW
despatched notes and credit notes are used,
check the sequence and investigate missing
items and determine the full population.
2 Test the sales day book/ledger as follows:

(a) Test the casts and crosscasts. N Not considered AW
(b) Test posting of the totals to the general N necessary. The client
ledger. uses an off the shelf
accounting package,
(c) Test vouch entries in the sales day book N the bank and sales AW
with copies of invoices. ledger control is
regularly reconciled
(d) Trace entries from the cash book to the N
and risk of material
sales ledger.
error considered to be
(e) Scrutinise unusual entries. N remote.
3 Check to ensure that cash sales are banked N No cash sales AW

regularly.
4 For sales returns,
(a) Review the credit notes and supporting Y Y R6.5 AW
data for evidence of approval, clerical
accuracy and nominal coding.
(b) Compare the credit note to entries in the N AW

sales ledger.
(c) Examine paid cheques if a refund was N AW
issued to the customer.
(d) Consider the effect that any normal delay Y Y R6.5 AW
between receipt of returned goods or
customers' request for credit and the
recording of the credit note may have on
cut-off.
5 In respect of government grants: N None AW
(a) Check that, prima facie, all grants to
which the client is entitled have been
claimed and recognized.
(b) Confirm that there is reasonable

assurance that the entity will comply with
the conditions attaching to all grants
recognized.
(c) Have grants been recognized in the

income statement in accordance with
applicable accounting standards?
R2.2 Page 412 of 565 APM 2022

Y/N Y/N date
6 Vouch any material other income (e.g. fair N None AW
value changes, written back of provision and
gain on disposal of assets) to supporting
documentation and ensure that it is correctly
accounted for.
7 Test the receipts side of the cash book as N Not considered AW

follows: necessary. The bank
is regularly reconciled
(a) Test casts and crosscasts. and risk of material
(b) Test postings to the general ledger. error considered to be
remote.
8 Check rental income to tenancy agreement. N None AW

9 Check reasonableness of interest income. N None AW
10 Select a sample of goods received notes and N Under-statement of AW
purchase orders for the goods / services purchases tested by
received: reviewing invoices
processed after the
(a) Examine for supplier's name, approval, year end (L3.2).
clerical accuracy, delivery terms and
other information.
(b) Check the goods received note and

purchase order with the supplier invoices,
payments made and other supporting
records.
(c) Trace the details of invoices for inventory

items to posting in the perpetual
inventory records (if any) and purchase
day book.
11 For expenses other than purchases, select a N Not considered AW

sample of entries: necessary as all
purchases and
(a) compare the information on the cheques expenses pass
to entries in the cash book and check through the purchase
dates, amounts, payees, signatures and ledger system. See
endorsements. R7.4.
(b) test vouch with invoices and other
supporting evidence, checking accuracy
of the expense.
(c) investigate cheques, especially those

payable to cash, banks, directors,
employees, subsidiary and related
companies, which appear unusual.
12 Test the payment side of the cash book: N Not considered AW

(a) Test casts and crosscasts. necessary. The bank
is regularly reconciled
(b) Test postings to the general ledger. and risk of material
error considered to be
remote.
R2.2 Page 413 of 565 APM 2022

Y/N Y/N date
13 Ensure that the payroll is authorized by a N AW
responsible official.
14 Select a sample of employees and check to N Testing on R2.1 test AW
supporting documents (e.g. employment 14 provides sufficient
contracts, time cards, employer's returns). audit evidence. Work
on R5
15 Enquire into unclaimed wages and verify the N AW
explanations.
16 Where payments to causal workers are N AW
significant, check the validity and authority of
such payments (e.g. approved time cards,
wage rate and overtime payments).
17 Verify whether the directors' emoluments and Q1

interests in contracts are properly stated in the
financial statements by reference to:
(a) Service contracts Y Y AW
(b) Board minutes Y Y AW
(c) Articles of Association Y Y AW
R2.2 Page 414 of 565 APM 2022

31-Dec-21 R2.3
M0001
SAMPLE SELECTION PLANNING – INCOME STATEMENT (Revenue)

in year: 1,850 level risk (C1) H 1.6 2.1 2.5

Test of detail only = Inherent risk factor (table figure) x 1/2 OR 0.8
HK$'000
Monetary value of population (See R1.4) ( 100 %) HK$ 110,870
Sample size =
(See maximum
Residual population x Sampling risk factor HK$ 110,870 x 0.8 = * 79 below)
Number of other “key” items = (49)
* Sample size is reduced from 79 to 30
in line with maximum sample size table
Conclusion below.


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
R2.3 Page 415 of 565 APM 2022

31-Dec-21 R2.4
M0001
SAMPLE SELECTION PLANNING – INCOME STATEMENT (Expenses)

in year: 6,000 level risk (C1) H 1.6 2.1 2.5

Test of detail only = Inherent risk factor (table figure) x 1/2 OR N/A
Test of detail and (substantive analytical procedure (D1 and D1.1)* or test of control See S3
(Section S)*) = Inherent risk factor (table figure) x 1/3 OR 0.4
HK$'000
Monetary value of population (See R1.5) ( 100 %) HK$ 71,432
Sample size =
(See maximum
Number of other “key” items = (13)
* Sample size of 26 is reduced to
Actual sample size 13 in line with maximum sample 13
Conclusion size table below.


L M H L M H L M H
H 30 35 40 H 20 23 26 H 15 18 20
R2.4 Page 416 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 1/4 R3
Subject: Audit Approach
Income
All sales are for goods despatched therefore completeness and occurrence of income is tested by checking R6 - test
from despatch notes to sales invoices and the sales ledger. 3(a)
Sales are posted daily to sales day book, and then to sales ledger according to the terms and period of the R6 - test
sales (S3-5). The operating effectiveness of this area is tested to ensure the posting occurs and is reviewed. 3(c) and (d)
The same samples are also tested substantively to ensure the amount posted is accurate and according to
the correct terms and period.
Cut-off is expected to be a problem area as the systems here are poor. Sales cut-off was therefore looked at R6.2
in detail. R6.5
All sales are on credit terms through the sales ledger. Genuineness/ over-statement of sales is therefore J3.1
addressed by work on trade receivables.
Income is recognized when goods are despatched. This is a standard policy and does not present any PAF 1.6
problems with HKFRS 15. Review MCL revenue recognition policy against HKFRS 15, and select sales R6.7
samples to test that revenue is recognized according to its policy and HKFRS 15. Work on R6.7 [Not
produced in this example file]
Purchases
Most purchases are for components and pass through the purchase day book and are supported by orders R7
and goods received notes. Other than wages, most other expenses also pass through the purchase day
book. Purchases and expenses are tested through testing control and also substantively.
Controls over the purchase of components are good and cut off is not expected to cause problems. R7.2
Substantive tests are performed to review a sample of the last deliveries in 2021 and the first in 2022.
A review of cash book payments that do not relate to the purchase ledger or wages was undertaken to R7.4
ensure there are no other material purchases.
All purchases are on credit terms from reputable suppliers. Completeness of purchases is addressed by L3.2
reviewing invoices after the year end as part of the trade payables testing.
Payroll
Historically the payroll has been well controlled so it is expected that sufficient audit evidence will be available
from:
- substantive analytical procedures to prove the total; R5.2
R5.2.1
- checks on the effective operation of controls. R5.3, R5.4
R3 Page 417 of 565 APM 2022

Manufacturing Company Limited R4
Detailed profit and loss account AW 28/3
For the year ended 31 December 2021 JO 1/4
2021 2020
HK$'000 HK$'000
Revenue
Sound & graphics 55,860 31,990
Network 24,066 22,156
USB memory sticks 18,774 20,102
112,014 75,775
Cost of sales
Purchases (adjusted for inventories) 45,595 26,539
Factory rates 120 110
Machine maintenance 1,873 633
Depreciation 2,730 1,967
Direct wages 8,600 4,917
Other direct costs 989 580
(59,907) (34,746)
Gross profit 46.5% 52,107 54.1% 41,029
Other gains and losses

Profit on disposal of plant 266 175
Forex gains 200 49
Distribution costs
Shipping 3,852 3,698
Packaging 3,082 3,011
Labor 1,802 1,425
Other distribution costs 427 497
(9,163) (8,631)
Carried to next page 43,410 32,622
R4 Page 418 of 565 APM 2022

Manufacturing Company Limited R4
Detailed profit and loss account (continued) AW 27/3
For the year ended 31 December 2021 JO 2/4
Brought forward from previous page 43,410 32,622
Wages 6,845 6,503
Directors pay 2,250 2,100
Pension contributions 934 747
Staff welfare 715 632
Power 2,054 1,773
Insurance 595 542
Cleaning 366 351
Repairs and maintenance 472 568
Motor expenses 1,705 1,437
Advertising 3,592 1,462
Travelling 1,166 849
Entertaining 34 26
Telephone & internet charges 415 402
Computer costs 912 440
General office costs 1,220 1,129
Postage 984 915
Laundry & cleaning 12 11
Telephone and photopier systems 1,650 1,738
Audit and accountancy 473 452
Legal and professional 1,858 1,711
Bank charges 358 342
Miscellaneous 2,239 506
Charitable donations 79 75
Research and development amortization 147 512
Faulty card provision 1,200 -
(32,275) (25,223)
Finance costs
Lease interest 1,141 1,227
Group loan interest - -
Loan interest 123 79
Overdraft interest 109 138
Losses on Forex FIs 228 -
(1,601) (1,444)
Tax (1,127) (2,116)
Profit after tax 8,407 3,839
Loss on disposal of Memory Stick division assets (1,806) -
R4 Page 419 of 565 APM 2022

Subject: Payroll
Objective
Obtain evidence that charge for staff costs in the accounts is not materially misstated.
Assertions
Accuracy, occurrence and completeness of payroll
Method
Substantive testing
1 Review total payroll costs on R5.1.
2 Perform substantive analytical procedures in respect of each category of wage expense.
Controls testing
3 For a sample of payrolls, check that they have been properly authorized (S3-8). A sample of 10 weekly payrolls
and 4 monthly payrolls is judged to be reasonable in the context of the low risk assessment in this area. The
sample size is also in line with N&C audit methodology.
4 A sample of 10 (see R5.4) payroll calculations were checked for direct and distribution employees.
Results
The review of total payroll costs on R5.1 is satisfactory.
The substantive analytical procedures on administrative wages were satisfactory and no further work is required in this
area. See R5.2
The substantive analytical procedures on direct and distribution wages were sufficient to reduce the extent of detailed
testing in this area.
The payrolls were properly authorized for the weeks/months selected for testing. (R5.3) The control over the authorization
of payroll is operating effectively. (S3-8)
The testing of individual payroll calculations for direct and distribution employees was satisfactory.
Conclusion
Objective achieved.
R5 Page 420 of 565 APM 2022

Subject: Payroll analytical procedures
2021 2020 Percent

Audit work $'000 $'000 Increase Increase
Turnover R6 110,870 75,775 35,095 46%
Factory direct wages R5.2.1 8,600 4,917 3,683 75%

Distribution costs R5.2.1 1,802 1,425 377 26%
Administrative wages R5.2.1 6,882 6,503 379 6%
Directors' remuneration Q1 2,250 2,100 150 7%
19,534 14,945
The increase in direct factory wages was expected as there has been a substantial increase in production and turnover.
However, the increase in wages is greater proportionately than would be expected from looking at turnover.
According to enquiries of Raymond Chan there are two reasons for this:
1. Competition has meant pressure on the sales price and as a result margins have been squeezed. The increase in
production volume is therefore proportionately greater than the increase in turnover. This can be evidenced by the
drop in profit margin.
2. The company is expanding into new areas such as network and wi-fi units. These products are more complicated
than memory sticks and hence the workforce needs a broader range of skills and so the company has to pay more for
labor.
The increase in sales volumes has had an effect on payroll costs in the warehouse. However, the effect is stepped and
the staff can cope with the increased volumes at present. However, further additional staff will be required if volumes
continue to grow.
For administrative functions the increased sales volumes have had little impact so the increase here is not so marked.
R5.1 Page 421 of 565 APM 2022

M0001 (D1.1)
SUBSTANTIVE ANALYTICAL PROCEDURES: WORKING PAPER

HKSA 520.5 has a number of specific requirements that must be followed when undertaking substantive analytical
procedures. Proper completion of this working paper will satisfy those requirements.
This working paper should be separately completed for each substantive analytical procedure and filed in the relevant
section, not in Section D.
Objective of test
To confirm the reasonableness of the costs of administrative and sales & distribution wages.
Summary of substantive analytical procedures

Determine expected values for (1) administrative wages and (2) direct & distribution wages by taking the 2020 charge
and adjusting this for changes in staff numbers, pay rises and the accrual of holiday pay.
Suitability of procedure to satisfy objective

Administrative wages are based on fixed wage rates and not affected by overtime.
Direct & distribution wages are based on fixed wage rates and overtime, the latter not expected to be material so not
considered in the test.
Information on changes in staff numbers and rates of pay is readily available from the Human Resources department.
Reliability of source data

The starting point is taken from the previous years audited results and is therefore reliable.
Information on changes in staff numbers and rates of pay were taken from records maintained by Human Resources
department. The records were tested against the underlying P-files and supporting documents with satisfactory results
[Detail work not included in this example file]. The rate of pay increase was notified to employees and hence was
generally know.
Expectation of result including precision

Expected wages would be the combined effect of changes in headcount, pay rise and expected overtime incurred
Acceptable level of difference

The expected results should be close to the actual results; hence acceptable level of difference between the two should
be within 5% and within the performance materiality of HK$933k.
Outcome of substantive analytical procedures

The results of the substantive analytical procedures are considered satisfactory.
The detailed work is set out on R5.2.1.
Conclusion
In view of the controls over payroll and the evidence from this substantive analytical review no further work is
considered necessary.
R5.2 Page 422 of 565 APM 2022

MCL R5.2.1
For the year ended 31 December 2021 AW 28/3
Payroll: substantive analytical procedures JO 1/4
Administrative wages
HK$'000
Administrative wages 2020 6,503
- Expected increase due to increase in average number from 25 to 26 (As per HR
260
headcount report*)
- Impact of 4% wage rise from 1 October 2021 (As per HR circular) 68
Expected administrative wages 2021 6,831
Actual administrative wages 2021 6,882 -0.7%
The difference between the expected and actual amount is below performance materiality and within 1%. Hence, the
administrative wages in 2021 were considered reasonable and consistent with our expectation.
Direct and distribution wages

Direct and distribution wages are both affected by the numbers of staff and the hours worked which can include overtime.
The effect of overtime is not considered in the reasonableness calculation below because it is expected to be immaterial.
HK$'000
Direct and distribution wages 2020 6,342
- Expected increase due to increase in average number from 21 to 35 (As per HR
headcount report*) 4,228
- Impact of 4% wage rise from 1 October 2021 (As per HR circular) 106
Expected direct and distribution wages 2021 10,676
Actual direct and distribution wages 2021 10,402 2.6%
The difference between actual and expected amounts is below performance materiality and around 3%. The slightly higher
% of difference noted (as against the 1% difference in the admin wages test above) is properly due to the omission of
overtime from our calculation. Nonetheless the difference is still within the acceptable range, so we consider the direct and
distribution wages were reasonable and consistent with expectation.
Note * We have tested the HR headcount report containing headcount movement in 2021 via a two-way testing:
test selected movements from the report to underlying P-files; and test selected P-files to the report. Test
results were satisfactory, hence we conclude that the HR headcount report is a reliable input to perform
the substantive analytical procedures above. See work on R5.2.1(a) for testing of HR headcount report
performed. [Not produced in this example file]
Note # We have checked the HR circular sent to all MCL staff through email on 30-Sep-21 announcing the 4%
pay rise. We also checked that the HR circular was approved by MCL directors before the circulation.
R5.2.1 Page 423 of 565 APM 2022

Client: MCL Prep by: DT Date: 28/03 Ref:
Year end: 31 December 2021 Rev by: AW Date: 28/3 R5.3
Subject: Payroll Controls
Objective
To check that weekly and monthly payrolls are authorized
Assertions
Accuracy, occurrence of payroll
Method
A sample of 10 weekly payrolls and 4 monthly payrolls were selected at random to check that they have been authorized
by Terence Ip (factory) or Tiffany Wai-yin (Warehouse). This is low risk and these samples are considered reasonable and
in accordance with N&C audit methodology. [not produced in this example file]
Factory Warehouse Monthly Posted to

Date authorized authorized authorized ledger
properly
Weekly payrolls
wc 4/1/21 Y Y Y
wc 8/2/21 Y Y Y
wc 15/3/21 Y Y Y
wc 19/4/21 Y Y Y
wc 25/5/21 Y Y Y
wc 5/7/21 Y Y Y
wc 9/8/21 Y Y Y
wc 20/9/21 Y Y Y
wc 11/10/21 Y Y Y
wc 22/11/21 Y Y Y
Monthly payrolls
March Y Y
June Y Y
September Y Y
December Y Y
Conclusion
Payrolls have been correctly authorized and posted.
R5.3 Page 424 of 565 APM 2022

Subject: Payroll tests Direct and distribution wages
Objective
To check that direct and distribution wages are correctly calculated
Assertion
Accuracy of payroll
Method
There is an average of 35 employees which gives a total of 1,820 individual payrolls for the year.
The sampling method gives a sample size of 3 payrolls [detail of sample size calculation not included in this example file]. A
total of 10 was selected instead based on professional judgment in view of the significant number of individual payrolls.
Gross wage is correctly Payroll All figures Details

calculated and overtime deductions agreed to agreed to
Payroll Employee is correctly calculated correctly weekly employee
date name and authorized calculated payroll file
wc 4/1/21 A Y Y Y Y
wc 8/2/21 B Y Y Y Y
wc 15/3/21 C Y Y Y Y
wc 19/4/21 D Y Y Y Y
wc 25/5/21 E Y Y Y Y
wc 5/7/21 F Y Y Y Y
wc 9/8/21 G Y Y Y Y
wc 20/9/21 H Y Y Y Y
wc 11/10/21 I Y Y Y Y
wc 22/11/21 J Y Y Y Y
Conclusion
Direct and distribution wages have been correctly calculated
R5.4 Page 425 of 565 APM 2022

Subject: Audit of sales revenue
Objective
To confirm that sales were not understated by checking that:
(1) Sales invoiced were despatched and cash received (occurrence of sales)
(2) Controls over selected sales processes, i.e. review of customer order and posting of sales to sales day book and ledger
were operated as intended by management (accuracy of sales)
Assertions
Accuracy, completeness, cut-off and occurrence of sales
Method
1 Cut-off test performed on R6.2 to R6.4. The first and last numbers as used in the cut-off testing are:
The first despatch note is 70001
The last despatch note is 71744
We have also performed procedures to ascertain that sales invoices, customer orders and despatch notes used by
MCL are pre-numbered and in numerical order [Detail work not included in this example file].
2 th
A sample of 30 (R2.3) despatch notes was selected by taking every 58 item from a random start point of number
70011.
The sample size is considered appropriate for both test of details and test of control according to N&C's audit
methodology. [not included in this example file]
3 Each despatch note was then checked as follows. See work on R6.1:
a) Agree despatch note to the corresponding sales invoice and picking list. This is to confirm the effectiveness of
management's control that the picking list, despatch note and sales invoice are part of the same 5-part
document and goods cannot be despatched without an invoice being raised. (S3-5)
This test also serves as a substantive test to agree details of the sales invoice to the picking list and despatch
note, i.e. provide evidence that sales recognized according to the invoice were despatched per the despatch
note.
b) Reperform calculations on the sales invoice, i.e. they were correctly calculated.
c) Check that the sales invoice was posted to the sales day book daily and the posting was reviewed. (S3-5)
d) Check that the sales invoice was posted to the sales ledger daily in the proper period according to the terms,
and the posting was reviewed. (S3-5)
The tests in (c) and (d) serve two purposes:
(1) Tests of controls - ensuring management's control effectiveness that sales are posted daily to sales day
book and sales ledger, and the posting is reviewed; and
(2) Test of details - ensuring that the amount is correctly posted and in the proper period according to the
terms of the sales.
e) Agree the sales invoices to the customer order (i.e. sales invoices are properly supported by customer order)
f) Check that the customer order was reviewed for approval by Adeline Leung for credit worthiness, ability to
satisfy order etc. (Test of control - S3-5)
g) Check the subsequent settlement of sale transaction to official receipt or bank paying-in slip.
4 Inspect credit notes issued in January 2022 and identify those related to sales incurred in 2021, hence the relevant
sales should be reverted from 2021. Work on R6.5.
5 Inspect the cash book for the year to identify any regular or material receipts that do not relate to the sales ledger.
Work on R6.6.
R6 Page 426 of 565 APM 2022

Subject: Audit of sales revenue
6 Review MCL revenue recognition policy against HKFRS 15, and select sales samples to test that revenue is
recognized according to its policy and HKFRS 15. Work on R6.7 [Not included in this example].
Substantive test 1, 3a, 3b, 3c, 3d, 3e, 3g, 4, 5, 6

Operating effective test (Test of controls) 3a, 3c, 3d, 3f
Results
See work on R6.1 to R6.6.
R6 Page 427 of 565 APM 2022

Subject: Accuracy, completeness, cut-off and occurrence of sales
Steps in R6(3): (a) (b) (c) (d) (e) (f) (g)
Sales posted to
Sales posted to sales ledger Customer order
sales day book correctly and in authorized and
Invoice Sales Inspected
Agreed to correctly and the proper terms reviewed for
calculations invoice subsequent
sales invoice the posting was and period, and credit worthiness
HK$ reperformed agreed to settlement
and picking performed daily the posting was and ability to
and noted customer and the date
list and reviewed performed daily satisfy order etc.
correctness order checked
(dual purposes and reviewed (Test of control
Despatch testing) (dual purposes S3-5)
note - testing)
Number Date Customer Description of goods
1 70011 12/1/21 Lled 100 x Xforce 3D 8500GT 800MHz 512MB Y Y Y Y Y Y 28/02/21
100 x Wi-Fi Express Extender 275,660
2 70098 1/2/21 Ynos 200 x Ethernet PCI LAN card Y Y Y Y Y Y 10/04/21

28,000
3 70185 20/2/21 Abihsot 150 x X-FI Xtreme Audio card with X-Fi Crystallizer PCI Y Y Y Y Y Y 02/04/21
75 x X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz
- 109 dB - PCI 198,750
4 70272 12/3/21 Reca 200 x Xforce 3D 8500GT 800MHz 512MB Y Y Y Y Y Y 20/05/21

162,000
5 70359 30/3/21 Lled 250 x X-F2 Xtreme Audio card with X-Fi Crystallizer PCI Y Y Y Y Y Y 02/06/21
287,500
6 70446 18/4/21 Lled 100 x Ethernet PCI LAN card Y Y Y Y Y Y 10/06/21

150 x 802.11g Wireless G PCI Network Card 184,300
7 70533 7/5/21 Abihsot 150 x Xforce 3D 8600GT 2000MHz 256MB Y Y Y Y Y Y 12/07/21

234,000
8 70620 25/5/21 Drakcap 100 x X-F2 Xtreme Audio card with X-Fi Crystallizer PCI Y Y Y Y Y Y 03/07/21
Ttelweh 115,000
9 70707 14/6/21 Ynos 200 x X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz Y Y Y Y Y Y 31/08/21
- 109 dB - PCI 350,000
10 70794 3/7/21 Gnusmas 50 x Portabel Wi-Fi hot spot plus Y Y Y Y Y Y 15/09/21

50 x 802.11G Wireless USB Network Adapter (with 37,250
extension)
[Note. For the purposes of this model file only the first 10 items in the sample have been produced]
R6.1 Page 428 of 565 APM 2022

Subject: Sales cut-off
Objective
To confirm that cut-off in respect of the despatch and sale of goods is correctly applied.
Assertions
Accuracy, cut-off of sales
Method
1 The first and last numbers as recorded during attendance at the inventory count were:
The first despatch note is 70001
The last despatch note is 71744
2 The following procedures were undertaken:

a) Picking sheets that had not been processed and were listed at the inventory attendance were followed up.
(R6.3)
b) Picking sheets that had been processed but not despatched and were also recorded at the inventory
attendance were followed up. (R6.3)
c) The last despatch note numbers recorded at the inventory count were compared with the last sales invoice
recorded in the sales day book.
Last number in sales day book for December 2021 was 71746, but the last despatch note is 71744.
Apparently picking sheets and despatch notes of 71745 and 71746 had not been passed down to the
warehouse and delivered, but sales recognized in December. This is further considered on R6.3.
d) Credit notes for the month of January 2022 were inspected for any that appear to relate to 2021 sales.
(R6.5)
3 Goods are never sent out without a despatch note (as verified in R6 step (3a) - operating effectiveness of control
S3-5), so goods despatched but not invoiced is not considered a risk factor.
Results
There were cut off errors falling into three categories:
a) Goods picked ready for despatch but not despatched.
b) Picking lists received in the warehouse that had not been processed.
c) Sales invoices generated in accounts where the despatch notes and picking lists had not yet been passed to
the warehouse.
These are listed on R6.3. The invoices in accounts but picking sheets not processed were all dated 31 December
2021. From discussion with the client the problem was that staff were involved in preparation for the inventory
count and therefore none of the despatches for that day were processed.
We should recommend to the client (see A6-11) that, if all the warehouse staff are involved in the year-end
inventory count, then accounts should not process any customer orders to generate the sales invoice etc. if they
know that it will not be processed.
The cut-off error is totaled on R6.4
Further cut-off errors were found from a review of credit notes issued in January 2022. These are set out on R6.5.
Conclusion
The objective will be achieved once the adjustment quantified on R6.4 and R6.5 are processed.
R6.2 Page 429 of 565 APM 2022

Subject: Sales cut-off
Picking sheets not processed after warehouse closed for business on 31 December 2021 (Listing as provided at the
inventory count).
Picking
sheet Description Quantity
71736 Xforce 3D 8500GT 800MHz 256MB 75
71737 Xforce 3D 8600GT 2000MHz 256MB 25
X-Fi Xtreme Music - Sound card - 24-bit - 192 25
kHz - 109 dB - PCI
802.11G Wireless USB Network Adapter (with 25
extension)
71738 Xforce 3D 8600GT 1400MHz 256MB 50
71739 Xforce 3D 8600GT 1400MHz 256MB 150
71740 802.11G Wireless USB Network Adapter (with 40
extension)
802.11g Wireless G PCI Network Card 45
71741 802.11g Wireless G PCI Network Card 100
71742 Xforce 3D 8600GT 1400MHz 256MB 100
The following despatches had been picked from the shelves but not sent:
71743 Wi-Fi Express Extender 75
71744 X-Fi Xtreme Music - Sound card - 24-bit - 192 25
kHz - 109 dB - PCI
802.11G Wireless USB Network Adapter (with 40
extension)
The following sales invoices had been generated from orders but the picking sheets and despatch notes had not been
passed down to the warehouse
Invoice Quantity Price Invoice total Post to

number HK$ HK$ SDB
71745 Ethernet PCI LAN card 75 140 10,500
802.11G Wireless USB Network Adapter (with 75 295 22,125
extension)
32,625 Dec-21
71746 X-F2 Xtreme Audio card with X-Fi Crystallizer 50 1,150 57,500
PCI
Xforce 3D 8500GT 800MHz 256MB 50 750 37,500
Xforce 3D 8500GT 800MHz 256MB 50 750 37,500
132,500 Dec-21
All misstatements are quantified on R6.4.
R6.3 Page 430 of 565 APM 2022

Subject: Sales cut-off - quantifying error
Picking sheets not processed
Picking Actual
sheet WiFi & delivery
/Sales Inv Quantity Sales price Value S&G Network Bluetooth date
71736 75 750 56,250 56,250 4-Jan-22
71737 25 1,560 39,000 39,000 4-Jan-22
25 1,750 43,750 43,750
25 295 7,375 7,375
71738 50 1,020 51,000 51,000 4-Jan-22
71739 150 1,020 153,000 153,000 4-Jan-22
71740 40 295 11,800 11,800 4-Jan-22
45 150 6,750 6,750
71741 100 150 15,000 15,000 5-Jan-22
71742 100 1,020 102,000 102,000 5-Jan-22
Picked but not sent
71743 75 475 35,625 35,625 4-Jan-22

71744 25 1,750 43,750 43,750 4-Jan-22
40 295 11,800 11,800
577,100
Invoices generated but not passed to warehouse
71745 75 140 10,500 10,500 4-Jan-22

75 295 22,125 22,125
71746 50 1150 57,500 57,500 4-Jan-22
50 750 37,500 37,500
50 750 37,500 37,500
165,125
HK$ 742,225 621,250 85,350 35,625
Adjustment:
Dr Sales S&G 621,250
Dr Sales Network 85,350
Dr Sales WiFi & Bluetooth 35,625
Cr Trade receivables 742,225
This adjustment was agreed with AL and added directly to A3-1.
R6.4 Page 431 of 565 APM 2022

Subject: Review of post year end credit notes
Objective
To identify whether credit notes issued in January 2022 related to sales incurred in 2021, hence the relevant sales should
be reverted from 2021.
Assertion
Sales cut-off
Results
The pattern of credit notes during the year is fairly consistent. Most are issued within 30 days from sales for goods invoiced
and posted as sales, but cannot be delivered when they are out of stock. This occurs because the warehouse stock
records are not up-to-date.
Considering the credit sales cycle of MCL, credit notes for January 2022 were reviewed [Review details not included] . We
noted the following items related to 2021 sales invoices:
Date Value S&G Network

HK$ HK$ HK$
80009 4/1/22 204,000 204,000
80017 7/1/22 153,000 153,000
80025 9/1/22 29,500 29,500
80046 11/1/22 15,000 15,000
401,500 357,000 44,500
Adjustment:
Dr Sales - S&G 357,000
Dr Sales - Network 44,500
Cr Trade receivables 401,500
Adjustment agreed by AL and added straight to A3-2.
R6.5 Page 432 of 565 APM 2022

Subject: Review of bank receipts
Objective
The cash book was reviewed for the year to identify any regular or material receipts that do not relate to the sales ledger.
Assertion
Completeness of sales
Results
The following other categories of receipts were identified:
1. Receipts from sale of plant (total as per F4.3)
2. Issue of new shares (as per O3)
3. New loan (as per M4.3)
4. Proceeds from the sale of the Memory Stick division
There were no other receipts that are material individually or collectively.
Conclusion
R6.6 Page 433 of 565 APM 2022

Subject: Genuineness of purchases
Objective
To confirm that all purchases are genuine and properly authorized and that reliance on the effective operation of controls
in this area is justified (dual purpose testing for test of details and test of control).
Assertions
Accuracy and occurrence of purchases
Method
1 A sample of 13 (R2.4) purchase invoices were selected judgmentally from the purchase day book to cover all types
of purchase and expense. The sample size is considered appropriate for both test of details and test of control
according to N&C's audit methodology. [not included in this example file]
2 The invoice details were checked on irregularities contrary to MCL's business and operations.
3 The invoice is checked to confirm it was authorized by Adrian Walker and further approved by Adeline Leung after
her review of supporting documents (S3-2). The same invoice is tested for correct posting (substantive test).
4 Agree to purchase order authorized by Terence Ip or Raymond Chan (where >$15k) (S3-6)
5 Confirm that expenses outside the normal production process are authorized by a director.
6 Agree to GRN signed by the factory stores manager as evidence that the goods were received. (S3-1)
7 The factory stock records are updated from the GRN. The postings to the stock records were checked for the items
in the sample. (S3-1)
8 The subsequent settlement date of purchase transaction was checked to official receipt or bank statement.
Test (1) to (8) above are performed on R7.1
9 Test purchase cut-off by testing a sample of the last deliveries in 2021 and the first in 2022. Work on R7.2 and
R7.3.
10 Review January invoices to identify any that relate to December 2021 or earlier that had not already been identified
and accrued. Work on L3.2.
11 Review the cash book to identify any irregular or material payments that do not relate to the purchase ledger or to
salaries or wages. Work on R7.4.
Substantive test 2, 3, 8, 9, 10, 11

Operating effective test (Test of controls) 3, 4, 5, 6, 7
Results
These are set out on R7.1. All tests were completed satisfactorily.
None of the invoices tested were outside the normal production process so it was not possible to check whether
they were authorized by Raymond Chan. A suggestion is proposed in A6-7 to solve this problem.
Conclusion
The objective has been achieved.
It is appropriate to rely on the operation of controls over purchases.
R7 Page 434 of 565 APM 2022

Client: MCL Prep by: DT Date: 28-Mar Ref:
Subject: Purchase tests
Steps in R7: Step (2) Step (3) Step (4) Step (6) Step (7) Step (8)
Details & Invoice authorized by

calculations Adrian Walker and Agreed to
checked for Adeline Leung and authorized Agreed to Stock
irregularities correctly posted purchase order Agreed to GRN Records Subsequent
Amount Agreed to (Test of control: S3- (Test of control: Part number / (Test of (Test of control: settlement
Date Supplier HK$ Invoice Ref invoice 2)(Dual purpose test) S3-6) Component control: S3-1) S3-1) date checked
1 10/1/21 Normo Rotinom 5,980.70 007/32/20 Y Y Y Y TV402, TV404, Y Y 9/4/21

TV410
2 22/1/21 Odiben 3,346.40 1101658 Y Y Y Y N303, N304 Y Y 25/4/21

3 1/2/21 Enimar Tubis 3,362.50 MC06021 Y Y Y Y Network card Y Y 5/4/21
component
4 13/2/21 nVidia 17,150.00 42-14-0045 Y Y Y Y G204, G205, Y Y 10/5/21
G206, G210
5 28/3/21 Chung Yuen Electrical 1,047.00 2422-01-11184 Y Y Y N/A N/A N/A N/A 26/6/21
6 29/3/21 Ulfimat 1,664.50 UF12/07/03/M05 Y Y Y Y ?? * Y Y 5/7/21
7 18/4/21 Cimonoce 5,602.75 MAC221186 Y Y Y Y S104, S105, G202, Y Y 20/6/21
G203
8 27/4/21 Lacinex 17,358.00 902743 Y Y Y Y S101, S102 Y Y 28/7/21
9 7/5/21 Cimonoce 4,941.00 MAC222431 Y Y Y Y S104, G203, G211 Y Y 9/8/21
10 17/5/21 Telbin Lien 8,053.00 61592000 Y Y Y Y TV414, TV415 Y Y 18/8/21
* The part number / component description was not detailed on the invoice, however purchase ledger staff easily identified the component and were able to direct me to the correct goods received note and stock record.
[Note 1 : For the purposes of this model file only the first 10 items in the sample have been produced.]
R7.1 Page 435 of 565 APM 2022

Subject: Purchases cut-off
Objective
To confirm that cut-off in respect of the receipt and purchase of goods is correctly applied.
Method
1 From the goods received book, select a sample of the last deliveries in 2021 and the first in 2022. Based on the
time to process goods received and the pattern of deliveries around the year-end, a sample of the last 5 in 2021
and the first 5 in 2022 should provide sufficient days coverage either side of the year end.
a) Check the entry to the stores copy of the goods received note and confirm the date of receipt.
b) Check the posting to the inventory records and confirm date posted.
c) Trace to the purchase invoice and confirm date posted to the purchase ledger.
All deliveries received by the logistic team are recorded in a goods received book. This lists the date, supplier,
goods received note number and purchase order number.
We validate the accuracy of the goods received book by selecting samples to the underlying documents. See work
on R7.3.1 [Not produced in this example file] . No irregularities noted.
2 Review January invoices to identify any that relate to December 2021 or earlier that had not already been identified
and accrued. See L3.2.
Results
The results of '1' above are set out on R7.3. Testing the first and last 5 deliveries included 4 days either side of the
year end which is sufficient to identify any issues. There were no problems arising.
The review of January invoices did not identify any that related to December 2021 or earlier that had not already
been identified and accrued. See L3.2.
Conclusion
Objective achieved.
R7.2 Page 436 of 565 APM 2022

Subject: Purchases cut-off
Post to Post to
Date of GRN Terms of Cut-off
Supplier GRN Ref inventory Trace to purchase invoice purchase
receipt checked delivery correct?
records ledger
Dec-21
28/12/21 nVidia 0712-453 Y Dec-21 63-14-7822 FOB Dec-21 Y
28/12/21 Telbin Lien 61595335 Y Dec-21 61595335 FOB Dec-21 Y
31/12/21 Lacinex 446722 Y Dec-21 904881 FOB Dec-21 Y
31/12/21 Ewakcip 3477 Y Dec-21 3477-2245 FOB Dec-21 Y
31/12/21 Caud 71228 Y Dec-21 3452 FOB Dec-21 Y
Jan-22
02/01/22 Normo Rotinom XX-7763 Y Jan-22 787763 FOB Jan-22 Y
03/01/22 Soeclac A6698 Y Jan-22 A6698 FOB Jan-22 Y
04/01/22 Enimar Tubis 232219 Y Jan-22 648357 FOB Jan-22 Y
04/01/22 Telbin Lien 61595396 Y Jan-22 61595396 FOB Jan-22 Y
04/01/22 Avivnob X00453 Y Jan-22 88453X FOB Jan-22 Y
R7.3 Page 437 of 565 APM 2022

Subject: Cash book payments
Objective
The cash book was reviewed for the year to identify any irregular or material payments that do not relate to the purchase
ledger or to salaries or wages.
Assertion
Completeness of purchases
Results
From our review, the following other categories of expenditure were identified:
1. Factory rent
2. Finance lease payments
3. Taxation
4. Loan payments
5. Interest costs
There were no other payments that are material individually or collectively.
Conclusion
R7.4 Page 438 of 565 APM 2022

M0001
AUDIT PROGRAMME- RELATED PARTY TRANSACTIONS

Y/N Y/N date
General
1 Review information provided by those charged
with governance and management identifying
the names of all known related parties and
perform the following procedures in respect of
the completeness of this information:
(a) Review the permanent file and prior year Y Y PAF Updated re Reca AW
working papers for names of known 1.1.1, 1.5 Limited
related parties.
(b) Review the company ’ s procedures for Y N Discussed with the AW

identification of related parties. directors. Agreed
that existing
informal
procedures no
longer sufficient.
See A6
(c) Enquire as to the affiliation of those Y Y We have confirmed AW

charged with governance and officers that none of the
with other companies. directors have any
interests in other
businesses. Mrs.
Chan is the only
spouse in business,
the others are in
employment.
(d) Review shareholder records to determine Y Y PAF1.1.3 AW

the names of principal shareholders or, if
appropriate, obtain a listing of principal
shareholders from the share register.
(e) Review minutes of the meetings of Y Y O4 AW

shareholders and those charged with
governance and other relevant statutory
records such as the register of directors ’
interests.
R8.1 Page 439 of 565 APM 2022

Y/N Y/N date
(f) Enquire of other auditors currently N No others involved AW

involved in the audit, predecessor for several years
auditors or internal auditors as to their
knowledge of additional related parties.
(g) Review the company ’ s tax returns and Y Y P3.1 [P3.1 not included AW
other information supplied to the tax in this example file]
authorities.
(h) Review invoices and correspondence Y Y N3.2 [N3.2 not included AW

from lawyers for indications of the in this example file]
existence of related parties or related
party transactions.
(i) Enquire of the names of all pension and Y Y See PAF AW

other trusts established for the benefit of
employees and the names of their
management.
2 Consider the adequacy of control activities Y N A6 As noted above AW
over the authorisation and recording of related systems for
party transactions and transactions outside the identification and
normal course of business. authorization of
related party
transactions are
insufficient.
3 Ensure all members of the audit team are Y Y C9 Other members of AW
made aware of all identified related parties and team informed
informed of all newly identified ones. about Reca
Directors
4 Prepare a schedule of movements on the loan Y Y J5.2 AW
account for each director and other connected
person.
5 Review all month-end sales and purchase Y Y Aged analyses of AW

ledger balances to identify any accounts in the receivables and
names of related parties. payables reviewed
at year-end and up
to 28-Mar-2022. No
other related
parties seen
6 Enquire as to the interest of the directors in Y Y PAF 1.1.1 PAF 1.5 discussed AW
other companies, unincorporated businesses 1.5 with directors and
and partnerships. updated
R8.1 Page 440 of 565 APM 2022

Y/N Y/N date
Transactions
7 Review the accounting and other records for
large or unusual transactions or balances, in
particular transactions recognized at or near
the end of the financial period and for those
outside the normal course of business. For
example:
(a) Transactions with abnormal terms. Y Y

(b) Transactions that appear to lack a logical Y Y
business reason for their occurrence.
(c) Transactions in which substance differs Y Y

from form.
(d) Transactions processed or approved in a Y Y

non-routine manner.
(e) High volume or significant transactions Y Y No such AW

with certain customers or suppliers as transactions
compared with others. identified
(f) Unrecorded transactions such as the Y Y

receipt or provision of management
services at no charge.
(g) Sales transactions with unusually large Y Y

discounts.
(h) Circular transactions - sales with a Y Y

commitment to repurchase.
(i) Transactions under contracts whose Y Y

terms are changed before expiry.
(j) Bank and legal confirmations obtained as Y Y K4 AW

part of audit procedures.
(k) Minutes of meetings of shareholders and Y Y O4 AW

of those charged with governance.
(l) Such other records or documents as Y Y None AW

considered necessary in the
circumstances of the entity.
8 Discuss the nature, purpose and terms of any Y Y No unusual AW

unusual transactions with management and transactions
enquire as to whether related parties are identified
involved.
R8.1 Page 441 of 565 APM 2022

Y/N Y/N date
Significant transactions outside the normal

course of business
9 Ensure that any previously unidentified related Y Y None found outside AW
party transactions outside the normal course of the normal course
business are documented in the Assertion Risk of business.
Action Plan (C8.3) as high risks.
10 Inspect the underlying contracts or N There are no such AW

agreements, if any, and evaluate whether; items
(a) Related parties are involved.

(b) The business rationale suggests they
have been entered into to engage in
fraudulent financial reporting.
(c) The transaction terms are consistent with

management explanations.
(d) The transactions have been properly
accounted for and disclosed.
(e) The transactions have been properly
authorized. Where no such formal
controls exist obtain management
representations as to the validity of the
transactions and consider management
involvement in the transactions.
Transactions at arms length

11 Where the financial statements state that a Disclosure will refer AW
related party transaction was conducted at to agreed terms
arms length:
(a) Consider the appropriateness of N

management's process for supporting this
assertion.
(b) Verify the source of and/or external data N

supporting the assertion. Test for
accuracy, completeness and relevance.
(c) Assess the reasonableness of the N

assumptions made.
Previously unidentified or undisclosed related
parties or significant related party transactions
12 Where potential related parties or potential Y Y R8.3 AW

related party transactions are identified that
management had not previously identified or
disclosed, determine whether the underlying
circumstances confirm the existence of the
relationship or transaction.
R8.1 Page 442 of 565 APM 2022

Y/N Y/N date
13 Where confirmation is obtained :

(a) Promptly inform the audit team of these Y Y AW
details.
(b) Ask management to identify all Y Y R8.3 Sch. of Reca sales AW
transactions with the newly identified provided by
related party. management
checked for
completeness
(c) Enquire as to why these had not been Y Y R8.3 Explained on AW

identified previously and why any controls schedule
in place failed to pick them up.
(d) Review accounting records for further Y Y R8.3 AW

transactions with this party.
(e) Verify the terms of the transactions and Y Y R8.3 AW
ensure that they have been appropriately
accounted for and disclosed.
(f) Enquire into the nature of the relationship. Y Y R8.3 AW
(g) Ask management whether there are any Y Y A5 Confirmed by AW

further undisclosed related parties or management and
transactions. included in Letter of
representation
(h) Where management has intentionally Y Y Failure to disclose AW
failed to disclose related parties and to us was a
significant related party transactions misunderstanding
consider whether it is necessary to re- and not intentional
evaluate the reliability of all management
responses and representations.
Disclosure
14 Obtain sufficient appropriate audit evidence as Y Y Amount due from a AW
to whether identified related party transactions director and loan
have been appropriately accounted for and from parent
disclosed. company and sales
to a related party
properly accounted
for and disclosed in
note 15, 16 and 18
of the financial
statements
R8.1 Page 443 of 565 APM 2022

Y/N Y/N date
15 Obtain sufficient appropriate audit evidence Y Y O3 Disclosure of AW

that disclosures in the financial statements shareholding and
relating to control of the company are properly identify of the
stated. parent company is
included in note 22
and 29 of the
financial
statements
Note. This may include obtaining corroboration

from the ultimate controlling party.
Management representations
16 In respect of related party relationships and
transactions obtain written representations
from management concerning:
(a) The completeness of information Y Y

provided;
(b) The appropriateness of the accounting Y Y

treatment; A5 AW
(c) The adequacy of disclosure in the Y Y

Letter of comment
17 Where those charged with governance include Y Y A6-10 AW
people other than those involved in
management include details of any significant
matters arising from the audit of related party
transactions in the letter of comment.
Conclusion
18 Consider whether sufficient appropriate audit Y Y Sufficient evidence AW
evidence concerning all related parties and now obtained.
transactions with such parties and the
appropriateness of the accounting treatment
and disclosures in the financial statements has
been obtained.
19 Consider whether there are any points which Y Y A6-10 AW
appropriate.
R8.1 Page 444 of 565 APM 2022

Y/N Y/N date
20 Review the planned extent of reliance on N No planned AW

internal controls in this area and consider reliance
21 Assess whether the initial risk assessment Y Y Initial risk AW

should be revised in view of the audit assessment for
evidence obtained. Record details of any related party
necessary adjustments on B6 or B9. Consider transactions raised
the impact on the remainder of the audit work to high. But no
and on any work undertaken to date. impact on overall
risk assessment.
R8.1 Page 445 of 565 APM 2022

M0001
SUPPLEMENTARY PROCEDURES - RELATED PARTY TRANSACTIONS

Y/N Y/N date
Related Party Transactions
1 Obtain a confirmation of amount and terms of Y Y J5.3 AW
repayment from each director / connected
person.
2 Perform collectability review (impairment test) Y Y J5.2 AW

for the amounts receivable where applicable.
3 Enquire if there are any material interests of Y Y Enquired A Leung on AW

directors in transactions, arrangements or 28 March, no such
contracts of significance entered into by a circumstances took
specified undertaking of the company and place during the year
consider whether the fact should be disclosed and up to the date of
in directors' report. enquiry requiring
disclosure.
4 For related party transactions, consider Y Y None required AW

obtaining third party confirmation of
transactions and balances.
R8.2 Page 446 of 565 APM 2022

Client: Manufacturing Company Ltd Prep by: AW Date: 21/3 Ref:
Subject: Related party test
At the planning stage it had already been noted, based on the position in the previous year, that Mrs. Chan owns a retail
computer company, Chan Computers Ltd, which does not trade with MCL and therefore there would not be any related
party transactions with Chan Computers Limited (see PAF 1.1.1). The trade receivable tests on J3.1 and J3.2 included
confirming the receivable from Reca by a review of subsequent cash. When looking at the remittance advices from Reca it
was noticed that its registered office was the same as that of Chan Computers Ltd.
It was also noted that the sales invoice 70272 tested in the sales test on R6.1 was addressed to this registered office.
A check of Chan Computers website confirmed that Reca Limited was purchased in January 2021 and is now its wholly
owned subsidiary.
Per discussion with Mrs. Chan: following supply difficulties and in order to alleviate the problem, Chan Computers bought
Reca in January 2021. Apparently Reca Limited trades under the name of Byte Size so the connection with a customer of
MCL was not immediately obvious.
We pointed out to her that this meant that Reca was, from the date of purchase by Chan Computers Ltd, a related party of
MCL and, because there are transactions between MCL and Reca, a summary of these transactions would need to be
included in the notes to MCL's accounts.
Mrs. Chan has confirmed that Chan Computers Ltd still does not have any transactions with MCL.
The sales records have been extracted from the sales ledger by management and we have tested it accuracy and
completeness with no issues noted [Detail work not included in this example file] . The sales report includes all sales to
Reca since 1 February 2021 and the date of purchase. For all sales to Reca listed on the report, each sales invoice was
checked against the approved price list and sales order to confirm that the sales were approved and conducted at agreed
price.
Sales
Checked to Agreed to
invoice Date HK$
price list sales order
Number
70272 12/3/21 162,000 Y Y
70395 5/4/21 136,800 Y Y
70456 18/5/21 98,345 Y Y
70555 3/6/21 111,675 Y Y
70598 10/7/21 198,450 Y Y
70678 20/8/21 178,500 Y Y
70783 25/9/21 1,470 Dr Y Y
70936 21/11/21 20,090 Dr Y Y
71025 2/12/21 116,552 Dr Y Y
71097 11/12/21 112,103 Dr Y Y
71101 23/12/21 15,470 Dr Y Y
1,151,455
Dr = Unpaid at 31/12/21 265,685 see J3
R8.3 Page 447 of 565 APM 2022

31-Dec-21 R10
M0001
APP 5: REVENUE UNDER HKFRS 15
1 Lead schedule R1.4
2 Summary sheet R10.1
3 Audit programme R10.2
4 Assessment of MCL's revenue recognition policy [Not included in this example file] R6.7
R10 Page 448 of 565 APM 2022

31-Dec-21 R10.1
M0001
SUMMARY SHEET - REVENUE UNDER HKFRS 15

Planning Final
which mentary been
satisfy procedures met?
objective*
Audit objectives
1 To ensure that all contracts meet the 4, 5, 6, 7 Yes/No AW
minimum recognition requirements.
2 To ensure that all separate performance 8, 9, 10, 11, Yes/No AW
obligations have been identified. 12
3 To ensure that the transaction price has 13, 14, 15, Yes/No AW
been determined appropriately. 16, 17, 18,
19, 20, 21
4 To ensure the reasonableness of the 22, 23, 24 Yes/No AW
allocation of transaction price to
performance obligations.
5 To ensure that revenue is recognized 25, 26, 27, Yes/No AW
under a contract only when appropriate. 28, 29
6 To ensure that the treatment of contract 30, 31, 32 Yes/No No contract costs AW
costs is appropriate.
concerning revenue from customers have
Planning conclusion
Conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* construction contracts are fairly stated/ * not fairly stated
as described below.

R10.1 Page 449 of 565 APM 2022

M0001
AUDIT PROGRAMME - REVENUE UNDER HKFRS 15
Test Results
Initials
and date
Y/N Y/N
General
1 Confirm that any income identified as being
outside the scope of HKFRS 15 is treated Y Y R1.1 AW
appropriately.
2 Where a contract includes multiple
deliverables some of which are within the
scope of other standards have the N N/A
requirements of these other standards been
applied before those of HKFRS 15?
3 Where an accounting estimate is involved in
determining the revenue recognized; for N/A no estimates
example in determining the transaction price, related to transaction
or measuring progress where a performance N
price or measuring
obligation is satisfied over time: progress.
(a) Confirm that each individual accounting

estimate has been separately identified
on C4 Section 4.8 and work planned
accordingly. Or
(b) Explain how the approach taken

540 (Revised).
Identifying the contract

4 An entity shall account for a contract with a
customer under HKFRS 15 only when all of Review MCL revenue
the following criteria are met: recognition policy
against HKFRS 15,
and select sales
samples to test that
R6.7 revenue is AW
recognized according
to its policy and
HKFRS 15. Work on
R6.7 [Not included in
this example file]
a) the parties to the contract have approved

the contract (in writing, orally or in
accordance with other customary
business practices) and are committed to Y Y AW
perform their respective obligations; and
b) the entity can identify each party’s rights

regarding the goods or services to be Y Y AW
transferred; and
c) the entity can identify the payment terms
for the goods or services to be Y Y AW
transferred; and
R10.2 Page 450 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
d) the contract has commercial substance;
Y Y AW
and
e) it is probable that the entity will collect the
consideration to which it will be entitled in
exchange for the goods or services that Y Y AW
will be transferred to the customer.
5 Consider whether two or more contracts

should be combined and accounted for as a No such contracts
single contract rather than being accounted for N AW
identified.
separately.
6 An entity shall combine two or more contracts
entered into at or near the same time with the
same customer (or related parties of the
customer) and account for the contracts as a N N/A AW
single contract if one or more of the following
criteria are met:
a) the contracts are negotiated as a
package with a single commercial
objective; OR
b) the amount of consideration to be paid in
one contract depends on the price or
performance of the other contract; OR
c) the goods or services promised in the

contracts (or some goods or services
promised in each of the contracts) are a
single performance obligation in
accordance with HKFRS 15 paragraphs
22–30.
7 Consider whether any contract modifications
should be accounted for as a separate
contract or as an adjustment to the original N/A - no
contract in accordance with HKFRS 15 N AW
modifications.
paragraphs 20 and 21 respectively.
Identifying performance obligations

8 Identify all explicit and implicit promised goods
and services in a contract. Sale of goods. See
R6.7 on assessment
on MCL's revenue
Y Y R6.7 AW
recognition policy and
testing [Not produced
R10.2 Page 451 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
9 Has the entity assessed the goods or services
promised in a contract with a customer at See R6.7 on
contract inception and identified as a assessment on
performance obligation each promise to MCL's revenue
R6.7
transfer to the customer either: recognition policy and
testing [Not produced
a) a good or service (or a bundle of goods

or services) that is distinct; or Y Y AW
b) a series of distinct goods or services that

are substantially the same and that have
the same pattern of transfer to the Y Y AW
customer.
10 Consider whether the promised goods and
services are distinct i.e. both of the following Only promises in the
criteria are met: contracts are sale of
goods. No sale of
Y Y AW
services identified
given the nature of
MCL business.
a) the customer can benefit from the good

or service either on its own or together
with other resources that are readily
available to the customer; and
b) the entity’s promise to transfer the good

or service to the customer is separately
identifiable from other promises in the
contract.
11 Assess whether an entity's promises to
transfer goods or services to the customer are Goods are distinct
separately identifiable per 10(b) above. and separately
Consider the following factors, but not limited identifiable. See
R6.7
to, that indicate two or more promises to assessment on R6.7.
transfer goods or services to a customer are [Not included in this
not separately identifiable: example file]
(a) The entity provides a significant service

of integrating the goods or services with
other goods or services promised in the
contract into a bundle of goods or Y Y AW
services that represent the combined
output or outputs for which the customer
has contracted.
(b) One or more of the goods or services
significantly modifies or customises, or
are significantly modified or customised Y Y AW
by, one or more of the other goods or
services promised in the contract.
(c) The goods or services are highly
interdependent or highly interrelated. Y Y AW
R10.2 Page 452 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
12 If a promised good or service is not distinct,
has the entity combined that good or service
with other promised goods or services until it N N/A AW
identifies a bundle of goods or services that is
distinct?
Determining the transaction price

13 Determine the amount of consideration to
which the entity is expected to be entitled in As specified on the
exchange for the promised goods or services Y Y AW
sales invoice.
in the contract.
14 Does the transaction price amount exclude
amounts collected on behalf of third parties NA to the
(for example, some sales taxes)? circumstances of
N MCL. The transaction AW
price is specified on
the sales invoice.
15 Consider whether a contract includes a

significant financing component that should be Credit terms are
taken into account in determining the offered for 30 days.
transaction price. N AW
No significant
financing component.
16 Where the consideration may vary because of

discounts, incentives, performance bonuses Transaction price
etc. it should be estimated using whatever specified in sales
N AW
method that better predicts the amount invoice and is not
expected. For example using: variable.
a) A probability weighted approach (the

expected value).
b) An approach based on the single most
likely amount.
17 Consider the extent to which a significant
revenue reversal is highly probable and Extremely unlikely.
whether it is appropriate to include all or only See assessment on
Y Y AW
part of any variable consideration in the R6.7. [Not included in
transaction price. this example file]
18 Has a refund liability been recognized where A recall provision

some or all of the consideration is expected to Y Y identified. See AW
be refunded to the customer? Section N
R10.2 Page 453 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
19 Where the fair value of the non-cash
consideration cannot be reasonably estimated,
has the consideration been measured
indirectly by reference to the stand-alone N/A - all cash
selling price of the goods or services promised N AW
consideration.
to the customer (or class of customer) in
exchange for the consideration?
20 Has consideration payable to a customer (e.g.

cash amounts, a coupon or voucher) reduced N/A. No such
the transaction price and, therefore, revenue transactions. See
except where the payment to the customer is assessment on R6.7
N AW
in exchange for a distinct good or service that [Not included in this
has been treated as a purchase from a example file]
supplier?
21 Has the estimated transaction price been

updated at the end of each reporting period
(including updating its assessment of whether
an estimate of variable consideration is Not applicable to
constrained) to represent faithfully the MCL's circumstances.
circumstances present at the end of the N Transaction price is AW
reporting period and the changes in stated on the invoice.
circumstances during the reporting period? No relevant changes.
Allocating the transaction price to performance

obligations
22 Where a contract contains more than one
distinct performance obligation consider Only one distinct
whether transaction price has been allocated N performance AW
on the basis of relative stand-alone selling obligation.
price.
23 Where a stand-alone selling price is not
available consider whether the estimate of
stand-alone selling price is at an amount that Stand-alone selling
would result in the allocation of the transaction N AW
price available.
price that meet the allocation objective in
HKFRS 15 paragraph 73.
24 Where there is variable consideration consider
whether that variable amount relates to some
or all obligations in the contract and whether No variable
N AW
the allocation of that variable consideration is consideration.
appropriate.
Satisfying a performance obligation

25 For each performance obligation identified, Sale of goods - at a
determine at contract inception whether it point in time. See
satisfies the performance obligation over time Y Y R6.7 assessment on R6.7. AW
or at a point in time. [Not included in this
example file]
R10.2 Page 454 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
26 Consider whether revenue should be Sale of goods - at a
recognized over time. AW
point in time.
a) Does the customer receive and consume
the benefit of the performance as it is N
provided?
b) Does the performance create an asset
that the customer controls as it is created N
or enhanced?
c) Does the performance create an asset
with no alternative use where there is an
enforceable right to payment for N
performance completed to date?
27 For each performance obligation satisfied over

time, has a single method of measuring
progress been applied consistently to similar N N/A AW
performance obligations and in similar
circumstances?
28 Where a contract does not satisfy the

performance obligations to be recognized over
time has it been recognized at a point in time? Y Y AW
29 Consider whether control of the underlying Control passes upon

good or service is transferred to the customer despatch. See
and that revenue should be recognized. R6.7 assessment on R6.7. AW
[Not included in this
example file]
a) The customer has physical possession of
Y Y
the asset.
b) There is a present right to demand
Y Y
payment.
c) The customer has accepted the asset. Y Y
d) The customer has the significant risks
and rewards of ownership of the asset. Y Y
e) The customer has legal title to the asset.

Y Y
Contract costs
30 Have costs of obtaining a contract been
capitalized only when such costs are
incremental to obtaining the contract and are N N/A AW
expected to be recovered?
31 Have costs to fulfil a contract that are not
within the scope of another HKFRS been
capitalized only when they relate directly to a
contract or to an anticipated contract that can
be specifically identified, generate or enhance N N/A AW
resources that will be used to satisfy
performance obligations, and are expected to
be recovered?
R10.2 Page 455 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
32 Have any costs to fulfil a contract within the
scope of another HKFRS been treated in N N/A AW
accordance with that HKFRS?
First time adoption of the standard
33 Consider whether the transition to the new
standard has been accounted for and Not first time
N AW
disclosed appropriately. adoption.

34 Check that we have sufficient evidence Disclosures reviewed
regarding the disclosure of information related against MCL's policy.
to contracts with customers. Y Y See R.6.7. [Not AW
included in this
example file]
35 Confirm that the presentation and disclosure of
the information related to contracts with Disclosure checklist
customers, including judgments and related completed. [Not
cash flows is in accordance with the Y Y AW
included in this
requirements of HKFRS 15.105-129. example file.]
Bespoke tests
36 Draft and perform any necessary additional
tests such as those required by C8.3 and Not considered
N necessary.
AW
summary sheet.
Conclusion
37 Consider whether there are any points which
representation or letter of comment and record Y Y None identified. AW
38 Review the planned extent of reliance on
internal controls in this area and consider No control reliance.
whether this remains appropriate. Instead, substantive
test performed on
selected samples as
to whether the
N AW
recognition followed
HKFRS 15
requirements. See
R6.7 [Not included in
this example file]
39 Assess whether the initial materiality and/or

any necessary adjustments on B6 or B9. No changes required.
Y Y AW
date.
R10.2 Page 456 of 565 APM 2022

31-Dec-21 S
M0001
S OPERATING EFFECTIVENESS OF CONTROLS
1 Summary sheet - operating effectiveness of controls S
2 Audit programme - operating effectiveness of controls S2
3 Internal control evaluation S3
4 Test of control - Accounting system [Not included in this example file] S3.1
Si Page 457 of 565 APM 2022

31-Dec-21 S
M0001
SUMMARY SHEET - OPERATING EFFECTIVENESS OF CONTROLS

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To test the effective operation of key 1, 2, 3 Yes/No AW
controls where the risk assessment
includes an expectation that they are
operating effectively.
2 To test the effective operation of key 1, 2, 3 Yes/No AW

controls where substantive tests alone do
not provide sufficient evidence of
operation.
3 To seek to reduce the nature or extent of 1, 2, 3 Yes/No AW

substantive testing where reliance on
controls is more effective.
4 To ensure that reliance on the testing of 4, 5, 6, 7, 8, Yes/No All testing in AW

controls at the interim stage or in earlier 9 current year
years is only relied upon where it is
appropriate to do so.
5 To identify weaknesses in internal 10, 11 Yes/No See A6 AW

controls that should be brought to the
attention of management.
Planning conclusion
Final conclusion
From tests of controls carried out I confirm that *(subject to the matters described below and highlighted on B6 or
B9) in my opinion such procedures provide additional appropriate audit evidence as to the completeness, accuracy
and validity of information in the accounts.

Ss Page 458 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 11/3 S2
M0001
AUDIT PROGRAMME - OPERATING EFFECTIVENESS OF CONTROLS

Y/N Y/N date
General
1 Testing the operating effectiveness of internal
controls should be undertaken where:
(a) the risk assessment includes an Y Y AW

expectation that controls are operating
effectively;
(b) substantive tests alone do not provide N AW

sufficient evidence of operation;
(c) this is more effective than relying solely Y Y AW
on substantive procedures.
2 Where it is planned to rely on controls over a N AW
high risk area confirm that the testing of those
controls takes place in the current period.
3 Document each control to be tested on the S3 AW

ICE (S3) and reference each to the working
papers evidencing the testing of operating
effectiveness of the controls. Consider:
(a) How the controls were applied at relevant Y Y

times during the period under audit.
(b) The consistency with which they were Y Y

applied.
(c) By whom or by what means they were Y Y
applied.
Note. Inquiry alone is not sufficient to test the
operating effectiveness of controls.
Interim testing
4 Where the operating effectiveness of controls N AW
was tested during an interim period:
(a) Obtain audit evidence about significant

changes to those controls subsequent to
the interim period;
(b) Determine the additional audit evidence

to be obtained for the remaining period.
S2 Page 459 of 565 APM 2022

Y/N Y/N date
Reliance on testing in prior years

5 Determine whether it is appropriate to use N AW
audit evidence about the operating
effectiveness of controls obtained in previous
audits. Consider:
(a) The effectiveness of other elements of

internal control, including the control
environment, the entity's monitoring of
controls, and the entity's risk assessment
process;
(b) The risks arising from the characteristics

of the control, including whether it is
manual or automated;
(c) The effectiveness of general IT-controls;
(d) The effectiveness of the control and its

application by the entity, including the
nature and extent of deviations in the
application of the control noted in
previous audits, and whether there have
been personnel changes that significantly
affect the application of the control;
(e) Whether the lack of a change in a

particular control poses a risk due to
changing circumstances; and
(f) The risks of material misstatement and

the extent of reliance on the control.
6 Where it is planned to rely on evidence about N AW

the operating effectiveness of controls
obtained in prior audits, has evidence about
whether those specific controls have
subsequently changed been obtained?
7 Where it is planned to place reliance on N AW
controls that have changed since they were
last tested has the operating effectiveness of
those controls been tested this year?
8 Where it is planned to place reliance on N AW
controls that have not changed since they
were last tested, confirm that those controls
were last tested no more than two years ago.
9 Where it is planned to place reliance on a N AW

number of controls that have not changed
since they were last tested, confirm that some
of those controls were tested this year.
S2 Page 460 of 565 APM 2022

Y/N Y/N date
Failure of controls
10 Consider whether the results of substantive Y Y Controls are AW
testing indicate that controls may not be operating properly
operating properly.
11 Where deviations from controls are identified Y Y No deviations AW

make specific inquiries to understand the identified
extent and potential consequences of each.
Conclusion
12 Consider whether:
(a) It is appropriate to place the planned Y Y Relevant reliance on AW
reliance on the operating effectiveness of controls justified by
internal controls tested in the current work undertaken
period.
(b) It is appropriate to place the planned N AW
reliance on the operating effectiveness of
internal controls tested in previous
periods.
(c) There are any points which need to be Y Y AW
included in a letter of representation or
letter of comment and record on A5 or A6
as appropriate.
(d) Any weaknesses in control identified Y Y No significant AW

constitute significant deficiencies. deficiencies
(e) Additional audit procedures are required. Y Y Not required AW
S2 Page 461 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 11/3 S3
M0001
INTERNAL CONTROL EVALUATION
Place
Test of Operating Effectiveness Ref. to Results
reliance on
Ref Business area Key Control (inquiry alone is not sufficient to test the operating detailed satisfactory
control?
effectiveness of controls) work Y/N
Y/N
1 Purchases Goods received are verified and checked against the Check a sample of GRNs and confirm signed by the R7 Y Y
GRN and this is noted on the GRN and signed by the stores manager and updated to the stock records.
stores manager. Stock records are updated from the
GRN. (PAF 3.4-B2-B5)
2 Purchases All purchase invoices are authorized by Adrian Walker Check a sample of invoices and confirm their approval R7 Y Y
where they are supported by a properly authorized by Adrian Walker.
purchase order. (PAF 3.4-C3)
Check a sample of proposed payments and the
A list of proposed payments is produced and presented accompanying supporting documents and their approval
to Adeline Leung with supporting invoices, orders & by Adeline Leung.
GRNs for approval. (PAF 3.4-D3)
3 Inventories Any discrepancies as reconciled in the weekly Inspect a sample of weekly counts and confirm Decided during audit not to N
inventory counts are investigated by the stores discrepancies are followed-up. place reliance on this
manager. (PAF 3.4-G7) control as it is only partially
operating (see A6 point 3).
This was agreed with B Lee.
S3 Page 462 of 565 APM 2022

Place
reliance on
control?
Y/N
4 Trade payables The purchase ledger is posted weekly from the Inspect a sample of weekly posting from purchase day L3.1 Y Y
purchase day book and cash book. The posting is book and cash book to the purchase ledger.
reviewed and approved by AW.
Inspect a sample of supplier statement reconciliations
Supplier reconciliations are prepared by Adrian Walker and check that each reconciliation is approved by
and reviewed by Adeline Leung. Any adjustments to a Adeline Leung.
purchase ledger account as a result of a reconciliation
must be approved by Adeline Leung. (PAF 3.4-E1 to
E5)
5 Income All customer orders are approved by Adeline Leung in Inspect and trace a sample of sales invoices back to the R6 Y Y
terms of their background, credit worthiness, ability to customer order and confirm that the order was
satisfy order etc. (PAF 3.4-I1) authorized by Adeline Leung and check the customer
name against the approved customer’s profile.
The picking list, despatch note and sales invoice are
part of the same 5 part document for verification and The sales invoices samples are traced to the picking list
reconciliation against each other. Therefore goods and despatch note to confirm the control that goods
cannot be despatched without an invoice being raised. cannot be despatched without an invoice being raised.
(PAF 3.4-I5)
The samples are further traced to the sales book and
Sales are recorded on a daily basis in the sales day sales ledger to confirm that it was properly posted and
book and sales ledger in the proper period according to recorded in the proper accounting period.
the terms. The posting is reviewed and approved by
Adrian Walker. (PAF 3.4-I11)
6 Purchases Purchase orders are authorized by TI. Those above Inspect and trace a sample of purchase invoices back to R7 Y Y
HK$ 15,000 are authorized by RC. (PAF 3.4-A2) the purchase order and confirm the order was
authorized where appropriate.
S3 Page 463 of 565 APM 2022

Place
reliance on
control?
Y/N
7 Payments All expenditure outside the normal production process Implementation tests on C5.1-20 indicate that this R7 NA N
must be approved by one of the directors. (PAF 3.4- control is not operating. This would be an effective
M1) control if such invoices could be separately identified.
However, it is difficult to identify invoices outside the
normal production process and none were found.
This has been included in the letter of comment on A6-

7.
8 Payroll Payrolls for weekly staff at the factory, weekly staff at Inspect a sample of payrolls for authorization R5 Y Y
the warehouse and for all monthly staff are authorized
by the factory manager, warehouse manager and
finance director respectively.
(PAF 3.4-L2 and L6)
9 Accounting system Monthly management accounts are reviewed and Inspect a sample of management accounts for proper Y Y
approved by AL before being circulated to other review by Adeline Leung and circulation to other
directors. (PAF 3.4-O7) directors.
[Note. S3.1 not produced in this example file] S3.1
10 Accounting system Routine month end journals are prepared by AW and Inspect a sample of non-routine journals for proper [Not Y Y
approved by AL. (PAF 3.4-O8) authorization and posting. produced in
[Note. S3.1 not reproduced in this example file] this
example
11 Accounting system Non-routine journals are initiated and approved by AL. Inspect a sample of non-routine journals for proper file] Y Y
(PAF 3.4-O9) preparation and posting.
[Note. S3.1 not reproduced in this example file]
S3 Page 464 of 565 APM 2022

31-Dec-21 T
M0001
T SUBSEQUENT EVENTS
1 Summary sheet - subsequent events T
2 Audit programme - subsequent events T2
3 Notes of meeting with client T2.1
4 Letter from legal counsel T2.2
5 Search for unrecorded liabilities [Not included in this example file] T2.3
Ti Page 465 of 565 APM 2022

31-Dec-21 T
M0001
SUMMARY SHEET - SUBSEQUENT EVENTS

Planning Final
satisfy procedures
objective*
Audit objectives
1 To ensure that all material adjusting and 1, 2, 3 Yes/No AW
non-adjusting subsequent events are
identified and correctly treated in the
accounts.
2 To ensure that the going concern basis of 4, 5, 6, 7, 8, Yes/No AW

accounting is appropriate. 9

concerning subsequent events have been
Planning conclusion
Materiality or, where applicable, section specific materiality, (C7) has been set at: HK$ 933k
Final conclusion
- all necessary information has been collected for the preparation of the financial statements.
- in my opinion (subject to matters highlighted on B6 or B9)* subsequent events are fairly stated/* are not fairly

Ts Page 466 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 21/4 T2
M0001
AUDIT PROGRAMME – SUBSEQUENT EVENTS

Y/N Y/N date
Subsequent events
1 Obtain an understanding of any procedures Y Y T2.1 There are no formal AW
management has established to ensure that procedures.
subsequent events are identified. Discussed with
management on
15/4.
2 Review the following to ensure that nothing

has occurred since the year end which should
be disclosed or provided for:
(a) management and/or other interim Y Y Reviewed March AW

accounts (specify what was seen and the 2022 management
dates); accounts.
(b) the latest budgets, forecasts or other Y Y Performance in line AW

management reports (specify what was with budgets.
seen and the period covered);
(c) cash book, invoices and bank Y Y T2.3 Searched for AW

statements; unrecorded
[Not liabilities performed
produce for cash book,
d in this invoices and bank
exampl statements from
e file] Jan to Mar 2022.
No irregularities
noted. Work on
T2.3 [Not produced
(d) correspondence; Y Y AW
(e) minutes of meetings (specify the dates of Y Y O4 No additional items AW
the meetings for which seen); and identified for
disclosure other
than those that will
be disclosed.
(f) major contracts; Y Y None AW
T2 Page 467 of 565 APM 2022

Y/N Y/N date
(g) searching news / media / online reports. Y Y N3 Only press releases AW

by the company on
new products. Also
performed search
of MCL on news
and company
information
database with
issues requiring
attention identified.
See N3 on search
performed.
3 Discuss with management and ensure that all T2.1 Discussed with
relevant factors have been identified and management on
recorded. Consider and document the 15/4/22.
following:
(a) The current status of items that were Y Y None AW

accounted for on the basis of preliminary
or inconclusive data.
(b) Whether new commitments, borrowings Y Y None AW

or guarantees have been entered into.
(c) Whether sales or acquisition of assets Y Y None AW

have occurred or are planned.
(d) Whether the issue of new shares or Y Y None AW
debentures or an agreement to merge or
liquidate has been made or is planned.
(e) Whether any assets have been Y Y None AW

appropriated by government or
destroyed, for example, by fire or flood.
(f) Whether there have been any Y Y None AW

developments regarding risk areas and
contingencies.
(g) Whether any unusual accounting Y Y None AW

adjustments have been made or are
contemplated.
(h) Whether events have occurred or are Y Y None AW

likely to occur that bring into question the
appropriateness of accounting policies
used.
(i) Whether events have occurred that are Y Y None AW

relevant to the measurement of estimates
or provisions.
(j) Whether any events have occurred that Y Y None AW

are relevant to the recovery of assets.
T2 Page 468 of 565 APM 2022

Y/N Y/N date
Going concern
4 Evaluate management's assessment of the N The Company has AW
appropriateness of the going concern basis. a history of
profitable
(a) Is the method applied appropriate to operations and
meet the requirements of the financial ready access to
reporting framework and our financial resources.
understanding of the entity? No indicators have
been identified that
(b) Is the method consistent with other areas going concern may
of the entity ’ s business activities, e.g. be a problem.
management's selection and application
of methods for accounting estimates?
(c) Whether any changes to the method
used in prior periods are appropriate?
(d) Whether any calculations are applied in

accordance with the method and are
mathematically accurate?
5 Where available obtain copies of cash flow N AW
forecasts and/or budgets and consider:
(a) The reliability of the underlying data.
(b) The rationale for the assumptions and
consistency with those used in other
areas of the business.
(c) The adequacy of support for the
assumptions underlying the forecast.
(d) The feasibility of plans for future action.
(e) The availability and adequacy of
borrowing facilities.
(f) Where support from related or third
parties is involved: the ability of the third
party to provide that support and its
enforceability.
(g) Whether they provide adequate evidence
of the company’s ability to continue as a
going concern.
(h) Where a period of less than 12 months

has been considered, what other
evidence is available to support the
company’s ability to continue as a going
concern.
6 Where no cash flows forecasts or budgets are N AW

available:
(a) Describe what evidence is available to
support the company’s ability to continue
as a going concern.
(b) Record the evidence obtained to

demonstrate that the directors have
considered a period of at least 12 months
from the date of the financial statements.
T2 Page 469 of 565 APM 2022

Y/N Y/N date
7 Investigate any apparent delay or N AW

unwillingness to approve the financial
statements and consider whether this gives
rise to any doubts about going concern.
8 Where there are any doubts about going N From discussion AW

concern complete the checklist on T3 and with management,
consider what effect, if any, any “yes” answers they do not have
will have on the company’s ability to continue any plan to cut
trading as a going concern. down or terminate
the existing
business. From
evidence obtained,
no doubt on going
concern. See A1.2a
[Not included in this
example file] on
review of
management's
2023 forecast.
9 Seek written representations from N Not considered AW

management regarding: necessary.
(a) its plans for future action;
(b) its assessment that the company is a
going concern;
(c) any relevant disclosures in the financial
statements.
10 Ensure that there is evidence on the file to Y Y AW
support all disclosures made for both adjusting
and non-adjusting events.
11 Review the appropriateness of the disclosures N N N/A AW
in the financial statements, considering:
a) details of events or conditions that may

cast significant doubt on the entities
ability to continue as a going concern;
b) if these events or conditions give rise to a
material uncertainty, and whether this is
clearly disclosed along with the fact that
the entity may not be able to realize its
assets and discharge its liabilities in the
normal course of business.
12 If the period considered by the client in N N N/A AW

assessing going concern is less than one year
from the date of the financial statements:
(a) Has this been disclosed in the financial

statements?
T2 Page 470 of 565 APM 2022

Y/N Y/N date
(b) Where this has not been disclosed in the

financial statements note on B6 and B9
for inclusion in the auditor's report.
Bespoke tests
13 Draft and perform any necessary additional N N N/A AW
summary sheet.
Conclusion
14 Consider whether:
(a) all events up to the date of the auditor ’s Y Y None AW
report that may require adjustment of, or
disclosure in, the financial statements
have been identified;
(b) there are any indications that the going Y Y None AW

concern basis may not be appropriate;
(c) matters have been properly presented Y Y Yes AW
and disclosed in the financial statements;
(d) there are any implications for the Y Y None AW

auditor's report;
(e) there are any points which need to be Y Y None AW

included in a letter of representation or
letter of comment and record this on A5
or A6 as appropriate.
15 Assess whether the initial materiality, risk Y Y No changes AW
assessment or extent of reliance on controls required
should be revised in view of the audit evidence
obtained. Record details of any necessary
adjustments on B6 or B9. Consider the
impact on the remainder of the audit work and
on any work undertaken to date.
T2 Page 471 of 565 APM 2022

Year end: 31 December 2021 Rev by: JO Date: 21/4 T2.1
Subject: Notes of meeting with client
Meeting on 18 April 2022

MCL N&C
Raymond Chan Bob Lee
Adeline Leung Jeffrey Ong
Anthony Ho An Wang
The following matters were discussed.
1 Adeline confirmed that all the potential adjustments on B7 had been discussed with her during the audit
and she was happy that only the first two be adjusted.
2 The draft management accounts for March were reviewed. It showed that the company was continuing to
trade profitably. The directors were not aware of any issues arising that could affect this.
3 There are no plans for any major purchases of assets or refinancing of existing facilities.
4 The letter received from Shyster Leech & Shyster (T2.2) concerning potential litigation was discussed. The
directors reiterated the view of the solicitors contained in that letter. There have been no new
developments since the date of the letter. On this basis it was agreed that no disclosure of either matter
was required in the accounts.
Note: On 25 April (before the sign-off of auditor's report), we have performed [list the tailored procedures
performed up to auditor's report date] and do not note any update to the matter.
Costs of HK$1,200K have been provided in the accounts in respect of the costs of the recall of the batch of
Ethernet cards. (See N1). According to the recall notice issued by MCL to affected customers on 20
December, a replacement would be sent to them in June 2022. Adeline confirmed that the preparation
work to the replacement is on schedule and will be dispatched in June 2022; based on the preparation
work, management considers the provision of HK$1,200K is adequate to fulfill the replacement.
5 Future development of the business

The directors are happy that they are in touch with technological developments and trends in the market
and that they will continue to spot opportunities in the market for the company to exploit.
Based on the company's past performance there is no reason to doubt this. Anthony Ho talked about a
number of possible developments including PCI /USB cards for DAB digital radio and linking up with one or
more mobile phone companies to produce portable Wi-Fi and PCI and on-board data cards for accessing
the internet remotely.
Data cards are not a new technology, however, a number of the company's customers have expressed an
interest in a generic card that can be assigned to any network rather than buying a network specific card.
The company has started to expand quite significantly; however, the directors feel that this is largely under
control. The problems in the warehouse will be sorted out as a matter of priority. In other areas the
directors feel that the growth has been well managed.
Receivables have been controlled quite closely and as a result the growth has not placed too much
pressure on the company's liquidity.
Other than the refinancing with Wan Chai Bank and the new finance leases, no new loans or other lines of
credit have been utilized.
6 The directors confirmed that they have key man insurance in place for all three directors.
T2.1 Page 472 of 565 APM 2022

T2.2
Shyster Leech & Shyster
Shady Towers
Queens Road
Hong Kong
B Lee
Counting House
Kings Road
Hong Kong Island
Dear Mr. Lee
Thank you for your letter of 13 March concerning our mutual client. The position regarding the two matters
referred to in your letter is set out below. We have not been instructed in relation to any other matters.
Faulty WiFi Express Extender

This matter is at an early stage, however, on the basis of the evidence available we think it highly unlikely that
any claim will succeed. The cause of the fire has not yet been precisely determined and whilst it appears that a
computer was involved there is nothing to suggest it was the WiFi Express Extender.
The matter received some publicity at the time, but the directors inform us that nobody else has come forward
reporting problems with the WiFi Express Extender.
Ethernet Cards
The directors instructed us concerning the product recall; however, they have not advised us of any claims
arising in respect of the faulty Ethernet cards.
Yours sincerely
A Leech
A Leech
Partner
Regulated by the Law Society of Hong Kong for the provision of legal services
A full list of partners is available for inspection at the above address.
T2.2 Page 473 of 565 APM 2022

31-Dec-21 V
M0001
V GENERAL LEDGER
1 Summary sheet - general ledger V
2 Audit programme - general ledger V2
3 Review of accounting estimates for bias V3
4 Testing journal entries - working paper V4
5 Testing journal entries - detail work [Not included in this example file] V4.1
Vi Page 474 of 565 APM 2022

31-Dec-21 V
M0001
SUMMARY SHEET- GENERAL LEDGER

Planning Final
satisfy proce-
objective* dures
Audit objectives
1 To ensure that opening balances have 1, 2, 3, 4, 5 Yes/No AW
been brought forward correctly and are
free from material error or misstatement.
2 To ensure that accounting policies have 4 Yes/No AW

been consistently applied.
3 To ensure that all journal adjustments are 6 Yes/No AW

appropriate and have been processed
correctly.
4 To ensure that all accounting estimates 7, 8, 9 Yes/No AW
recognized or disclosed in the financial
statements are reasonable in the context
of the applicable accounting framework.
Planning conclusion
Materiality or, where applicable, section specific materiality, (C7) has been set at: HK$ 933k
AW 10/3
Prepared by: Date:
Final conclusion
- all necessary information has been collected for the preparation of the financial statements.
- in my opinion (subject to matters highlighted on B6 or B9)* the general ledger is fairly stated*/ is not fairly stated as
described below.

Vs Page 475 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 11/3 V2
M0001
AUDIT PROGRAMME - GENERAL LEDGER

Y/N Y/N date
General
1 Agree the opening balances to last year ’ s Y Y AW
2 Agree or reconcile the financial statements Y Y Z1.1 AW
with the underlying accounting records.
3 Review for items above performance Y Y AW
verify.
Opening Balances
4 Consider whether:
(a) The comparative information agrees with Y Y AW
the amounts and other disclosures Agreed on lead
presented in the prior period or, when schedules and last
appropriate, have been restated. year's audited
accounts.
Comparative
information is
restated to present
the continuing/
discontinuing
operations took
place in the current
year. The
restatement is only
a change in
presentation.
(b) The accounting policies reflected in the Y Y No changes AW

comparative information are consistent
with those applied in the current period
(c) Changes in accounting policies have Y Y No changes AW

been properly accounted for and
adequately presented and disclosed.
5 Investigate any apparent misstatements in the Y Prior year's audit did AW

comparative figures to determine whether not any identify
there is a material impact on the current period material
accounting or disclosure. misstatements that
would have an
implication to the
current period.
V2 Page 476 of 565 APM 2022

Y/N Y/N date
Journals
6 Test the appropriateness of journal entries
recorded in the general ledger and other
adjustments made in the preparation of the
financial statements including:
(a) Making inquiries of individuals involved in Y Y V4 None identified AW

the financial reporting process about
inappropriate or unusual activity relating
to the processing of journal entries and
other adjustments;
(b) Selecting journal entries and other Y Y V4 AW

adjustments made at the end of a
reporting period; and
(c) Considering the need to test journal Y N/A V4 Not considered AW
entries and other adjustments throughout necessary. See
the period. justification on V4.
(d) Documenting the basis of sample Y Y V4.1 [Note. V4.1 is not AW

selection and the details of the journals included in this file.]
tested.
Review of accounting estimates for bias

7 Review accounting estimates for bias and Y Y V3 No indications of AW
evaluate whether the circumstances producing bias
the bias, if any, represent a risk of material
misstatement due to fraud.
8 As part of the above review:
(a) Evaluate whether the judgments and Y Y No indications of AW
decisions made by management in bias
making the accounting estimates
included in the financial statements, even
if they are individually reasonable,
indicate a possible bias on the part of the
entity's management that may represent
a risk of material misstatement due to
fraud.
(b) Where there are indications of bias, re- Y Y N/A no indications AW

evaluate the assessment of all
accounting estimates.
(c) Perform a retrospective review of Y Y V3 AW

management judgments and
assumptions related to significant
accounting estimates reflected in the
financial statements of the prior year.
V2 Page 477 of 565 APM 2022

Y/N Y/N date
9 Consider whether differences between actual Y Y V3 AW
results and previous estimates have been
quantified and that, where necessary,
appropriate adjustments or disclosures made if
it represents a misstatement of the previous
period ’ s financial statements under the
applicable financial reporting framework. (See
paragraph A60 of HKSA 540 (Revised).)
Bespoke tests

summary sheet.
Conclusion
11 Review the planned extent of reliance on N No planned reliance. AW
13 Assess whether the initial materiality and/or Y Y No revision required AW

date.
V2 Page 478 of 565 APM 2022

M0001
REVIEW OF ACCOUNTING ESTIMATES FOR BIAS
Last year Actual cost This year Our estimate

Variance
Accounting estimate HK$'000 HK$'000 HK$'000 of this year Comments
HK$'000
HK$'000
Depreciation N/A (2,730) N/A (2,510) (220) Average profit on disposal in last 2 years suggests over depreciation.
Our estimate is based on slightly longer useful economic lives for some plant. (See Sch
v4.1 [Not reproduced as part of this file]).
The difference is not material. Further review of management's UEL assessment does not
indicate that rates currently used are unreasonable. See F4.4 (Not produced in this example
file) .
Amortization N/A (147) N/A (147) - Client estimate appears reasonable. Work on E4.
Valuation of property 7,203 1,099 8,302 1,099 - Work has been performed on the work of management's expert (See F3.1) and the results
show that there are no indicators of bias.
Trade receivables: 595 (56) 539 (56) - Management's ECL assessment for trade receivables is based on the simplified approach
allowance for collectability required by HKFRS 9 to measure the loss allowance at an amount equal to lifetime ECL.
This is based on 0.1% allowance for current debts, 0.6% for those 20-60 days, 1.2% of
those 61-91 days and 50% of those 91+ days. Work on J4.
Recall provision New this year (1,200) (1,200) (1,200) - Basis of client provision seems reasonable. Work on N3.1.
Claim re faulty component New this year - - - - Basis of client provision is considered reasonable. Work on N3 and N3.1. Also refer to N2.2
on assessment of management expert's used [N2.2 not reproduced in this example file]
Conclusion
Management’s policies on accounting estimates are in line with relevant HKFRS requirements. Based on our evaluation, we considered the individual accounting estimates
documented above are reasonable and did not note that the selection of significant assumptions or the data yields a point estimate favorable for the company results or indicates
a pattern of optimism and hence, we did not note any indication of management bias with respect to accounting estimates.
V3 Page 479 of 565 APM 2022

M0001
TESTING JOURNAL ENTRIES: WORKING PAPER
HKSA 240.33(a) requires the testing of journal entries and other adjustments made in the preparation of the financial
statements as part of the response to management override of controls. This includes:
(i) Making inquiries of individuals involved in the financial reporting process about inappropriate or unusual activity
relating to the processing of journal entries and other adjustments;
(i) Testing the appropriateness of selected journal entries and other adjustments made at the end of a reporting period.
(ii) Considering the need to test journal entries and other adjustments throughout the period.
Proper completion of this working paper will help satisfy those requirements.
What is the objective of test?

To identify fraud or management override of controls through testing of selected journal entities and other adjustments.
How has completeness of the population for testing been ensured?

In the A+ accounts system all non-standard journals can only be entered using the journal mode so it is straightforward
to obtain a list of all journals processed. Our past experience with this package at other clients is that it is not possible
for journals to be entered other than in journal mode. During the site visit, we also requested AW to enter a non-
standard journal using the non-journal mode, which the system disallowed him to do so.
Standard journals are those processed automatically from sales or purchase ledger modules, payroll etc.
To check the completeness of the population, [to tailor-made and specify the work performed to ensure completeness of
the population].
What criteria have been used for review and testing?

Based on the risk assessment and information gathered about the client, the following criteria were applied in selecting
journals for testing.
1. All non-standard journals
2. Journals processed outside normal working hours
3. Journals posted by staff outside the accounting department and do not have the authorities to make journal entries
4. Journals posted to inactive accounts which are [specify the criteria of inactive accounts with reference to the entity's
circumstances]
5. Journals posted to ledger accounts with zero balance as at the year-end date
5. Journals that have little or no explanation or description
6. Journals having exact multiples of $1000 or end with $999
Based on our understanding in MCL and its accounting system, we consider journals with the above criteria would be
indicator of fraud or management override of controls.
What are the results of inquiries with individuals involved in the financial reporting process about
unusual or inappropriate journals?
- To AL's knowledge, there were no journals processed outside normal working hours or by staff outside those in the
accounting department. During the site visit, we requested a warehouse staff to access the accounting system and
noted he was not able to do so.
- There were several non-standard journals initiated by AL in December (valuation of the property and financial
instrument; recall provision; tax provision etc.)
V4 Page 480 of 565 APM 2022

Consider the need to test journal entries and other adjustments throughout the period and document
your considerations.
The population of the test covered all journals from January to December 2021.
A verbal explanation of each journal selected for testing was obtained from AL, and was checked to supporting
evidence. See V4.1 for work performed. [Note. V4.1 is not produced in this example file]
Given no irregularities noted, we consider not necessary to alter the selection criteria and/or test additional journals.
What review and testing procedures have been performed?

Where audit data analytics (ADA) is used in review and testing journals:
- What applications(s) is/are being used?
- Is/are this/these application(s) internally developed or externally developed?
- Evaluate the internal developer / external application provider for
- independence; and
- expertise including skills, knowledge and experience.
- For any algorithms planned to be used within the application, confirm:
- the algorithm has been appropriately tested and approved for use; and
- why the algorithm is appropriate for use on this client.
- Confirm the engagement team has sufficient knowledge and understanding of the application(s) being
used and, where necessary, that specialists have been added to the engagement team as required.
- Confirm that the use of the application(s) has/have been discussed with the client and that data transfer
arrangements and responsibilities have been agreed.
Relevant supporting documents were checked and a verbal explanation of each journal was obtained from Adeline
Leung and was considered for reasonableness and traced to further supporting documents as appropriate. ADA not
used.
Document details of the journals tested and the results on V4.1.

See V4.1 [Note. V4.1 is not produced in this model file.]
Conclusion
No irregularities noted on journals selected for testing. From journals tested, no indication of fraud or management
override noted.
V4 Page 481 of 565 APM 2022

31-Dec-21 X
M0001
APP 3: OTHER FINANCIAL INSTRUMENTS AND DERIVATIVES
1 Summary sheet X
2 Audit programme - other financial instruments and derivatives under HKFRS 9 X2
Xi. Page 482 of 565 APM 2022

31-Dec-21 X
M0001
SUMMARY SHEET – OTHER FINANCIAL INSTRUMENTS AND DERIVATIVES

Planning Final
Number of Number of Have the Comments Initials
key tests key tests objectives
which which been met?
satisfy satisfy
objective objective
(HKAS 39 (HKFRS 9
Prog - App Prog - App
3.3) 3.4)
Audit objectives
1 To ensure that the company has good title AW
to all financial instruments. 5, 6 5, 6 Yes/No
2 To ensure that all financial instruments 7, 8, 9, 10, AW

are recognized and derecognized in 7, 8, 9, 10, 11, 12, 13,
accordance with applicable accounting Yes/No
11, 12, 13 14, 15, 16,
standards. 17
3 To ensure that all financial instruments 14, 15, 16, AW
are valued correctly and that the valuation 18, 19, 20,
17, 18, 19,
methods applied are appropriate. 21, 22, 23, Yes/No
20, 21, 22,
24, 25, 26
23
4 To ensure that any impairment in 27, 28, 29, AW
valuation / losses are identified and 25, 26 30, 31, 32, Yes/No
accounted for properly. 33, 34, 35
5 To ensure that any hedges are properly 36, 37, 38, None. AW
accounted for. 27, 28, 29 Yes/No
39
6 To confirm that all necessary disclosures AW
concerning investments have been made
and that the information is appropriately 24, 30 26, 40 Yes/No
Planning conclusion
Final conclusion
- in my opinion (subject to matters highlighted on B6 or B9)* other financial instruments and derivatives are fairly
stated/ * not fairly stated as described below.

Xs Page 483 of 565 APM 2022

31-Dec-21 Reviewed by: JO Date: 1/4 X2
M0001
AUDIT PROGRAMME - OTHER FINANCIAL INSTRUMENTS AND DERIVATIVES UNDER

HKFRS 9
If the entity applies HKFRS 9 and has any financial instruments similar in nature or with the characteristics of those set out
below then this programme should be completed.
■ Interest rate swaps ■ Cash or net share settleable derivatives on own shares
■ Currency forwards/swaps ■ Derivatives on subsidiaries, associates and joint ventures
■ Purchased/written options ■ Embedded derivatives
■ Commodity contracts ■ Loan commitments held for trading
■ Collars/caps ■ Financial guarantees
■ Credit derivatives
The programme assumes a knowledge of the relevant accounting standards for financial instruments, it is not a step by
step guide and it should not be used as a substitute for reading the standards.
Test Results
Initials
and date
Y/N Y/N
General
1 Obtain and check, or prepare, a lead schedule
for the current year’s figures and reconcile this Y Y L10 AW
(a) comparison of the current figures with
those of prior periods; Y Y L10 AW
(b) review and comparison of key ratios or

other performance indicators. N
3 Review for items above performance

materiality or that are otherwise unusual and Y Y L10 AW
verify.
4 Where a financial instrument is measured at

fair value and this involves an accounting
estimate or there may be a provision for
impairment:
(a) Confirm that each separate valuation or
provision has been identified as an
accounting estimate on C4 Section 4.5 Y Y C4.1-7 AW
and work planned on C4.1; or
X2 Page 484 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(b) Explain how the approach taken complies L10 Foreign exchange
with the requirements of HKSA 540 L10.1 contract:
(Revised). PAF1.7 Management's
approach and
accounting policy
documented on PAF
1.7
Management's
approach and
Y Y calculation assessed AW
and reviewed on L10
and L10.1 and
considered it to be
consistent with
HKFRSs. Our
evaluation did not
note any indicators of
management bias.
Ownership
5 Inspect documents of title such as share
certificates, contracts etc. Ensure that:
(a) details are correctly recorded including
name, number of shares, type of shares Foreign exchange
(or equivalent information if not share contract - agreed to
Y Y L10.1 AW
based); the underlying
contract with the bank
(b) the instrument is in the company name;

Y Y L10.1 AW
(c) where the company is not the registered

owner such as where employees of the
company hold a nominee interest
confirm:
- the company has a signed declaration

from the said person stating that he/she
N AW
does not beneficially own the interest;
- appropriate document that enables

transfer of shares N AW
(d) examine stamped bought and sold notes,

stamped instruments of transfer or other The executed
data supporting transactions such as contract examined
brokers advices, bank advices etc; with no misalignment
Y Y AW
noted [Details not
included in this
example file]
6 Consider obtaining written confirmation where

documents of title (e.g. share certificates) were
N/A No such instances. AW
kept by another party (e.g. custodian).
X2 Page 485 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Recognition
7 Review the accounting treatment of all
financial instruments and note whether they All classifications are
are classified and recognized in accordance appropriate. See
with applicable accounting standards. Note 25 of the
Y Y disclosure on the AW
classification and
relevant working
papers on the
assessment.
Note: A working paper is included at App3.5 to

assist in reviewing the appropriateness of
classification of financial assets under HKFRS
9 determined by the entity. For classification of
financial liability, please see test 12 of this
working paper.
Classification and measurement

- Financial assets
8 Has the business model applied been
determined appropriately by the entity? Y Y AW
Consider: The company has
(a) The manner in which groups of financial applied the hold to
assets are managed together to achieve collect business
a particular business objective. model. This is
(b) The significance and frequency of sales appropriate and
activity. consistent with what it
actually does when
Note: An entity's business model does not
considering sales
depend on management's intention for an
activity and how
individual instrument, which focuses on the
assets are managed
matter of fact instead of management's
by the company.
intention or free choice (HKFRS 9.B4.1.2 &
BCE.17)
9 Where classification depends on an

assessment of whether contractual cash flows
are solely payments of principal and interest Considered
Y Y AW
consider the reasonableness of this reasonable
assessment.
10 Have financial assets been derecognized in
the following circumstances:
(a) where the contractual rights to the future
cash flows in relation to the instruments N N/A AW
expire;
(b) where the financial asset has been
transferred and the transfer meets the
criteria for derecognition in accordance N N/A AW
with applicable accounting standards;
(c) the instrument has otherwise been sold

or disposed of. N N/A AW
X2 Page 486 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
11 Where financial assets have been re-classified
consider whether the accounting treatment is
consistent with a change in the underlying N N/A AW
business model.
Note: re-classification of financial liabilities is

not permitted.
- Financial liabilities
12 Confirm that all financial liabilities have been
measured at amortised cost using the effective
interest method except the following which Y Y AW
should be accounted for under applicable
accounting standards:
(a) Financial liabilities at FVTPL. N N/A None. AW
(b) Financial liabilities that arise when a
transfer of a financial asset does not
qualify for derecognition or when the N N/A None. AW
continuing involvement approach applies.
(c) Financial guarantee contracts. N N/A None. AW

(d) Commitments to provide a loan at a
below-market interest rate. N N/A None. AW
(e) Contingent consideration recognized by

an acquirer in a business combination to
N N/A None. AW
which HKFRS 3 applies.
(f) Financial liabilities that are designated as

hedged items N N/A None. AW
13 Have financial liabilities been derecognized

only when extinguished, that is when the
obligation specified in the contract is Y Y AW
discharged or cancelled or expires?
- Embedded Derivatives
14 Review relevant contracts entered into by the
company to ensure that all contracts with No embedded
financial instruments embedded in them are N N/A AW
derivatives.
identified.
15 Confirm that where a derivative is embedded
in a financial asset host contract the two
elements of the instrument are not separated No embedded
and instead the classification rules were N N/A AW
derivatives.
applied to the instrument as a whole.
16 In respect of a hybrid contract that contains a

host that is not an asset within the scope of
HKFRS 9, confirm that the accounting No embedded
treatment of the hybrid contract has been N N/A AW
derivatives.
applied in accordance with HKFRS 9.4.3.3. to
4.3.5.
17 Where the value of an embedded derivative

that meets the criteria to be separated from the
host contract cannot be separately measured No embedded
confirm this has been treated correctly in N N/A AW
derivatives.
standards.
X2 Page 487 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
- Financial instruments within the scope of HKFRS 9
18 Evaluate whether the fair value measurements
and disclosures in the financial statements are Only the forward
in accordance with the entity ’ s applicable exchange contract is
financial reporting framework. accounted for at
FVTPL. The other
L10 financial instruments
Y Y
are accounted for at
AW
L10.1
amortized cost. See
Note 25 of MCL's
on A2.1.
19 In respect of the fair value measurement of FV assessment of

financial instruments, consider whether: L10.1 forward exchange
contract: See L10.1
(a) Management has sufficiently evaluated
and appropriately applied the criteria, if
any, provided in the applicable financial Y Y AW
reporting framework to support the
selected method.
(b) The valuation method is appropriate in

the circumstances given the nature of the
asset or liability being valued and the Y Y AW
entity ’ s applicable financial reporting
framework.
(c) The valuation method is appropriate in

relation to the business, industry and Y Y AW
environment in which the entity operates.
20 Evaluate whether the entity’s method for its fair

value measurements is applied consistently.
Y Y L10.1 See L10.1 AW
21 Determine whether there is a need to use the Not considered

work of an expert. Y Y AW
necessary.
22 Make enquiries of management concerning the
process for identifying fair value accounting
estimates and how such estimates are Y Y PAF1.7 PAF1.7 AW
prepared as stated in PAF04.
23 Evaluate the degree of estimation uncertainty

associated with such fair value accounting Forward exchange
estimates; consider whether this gives rise to a contract: See L10.1.
high or medium risk and document on C8.3 The estimate is fairly
where appropriate. straight forward
Y Y L10.1 AW
supportable by
market data
available. Hence it is
not added to C8.3
24 Consider whether sufficient appropriate audit

evidence has been obtained and documented Sufficient appropriate
in relation to the fair value accounting evidence obtained
estimates of financial instruments as specified L10
Y Y per the review and AW
on C4. L10.1
assessment on L10
and L10.1
X2 Page 488 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
25 Consider whether there are any indications of No indications of
management bias in making accounting L10
Y Y management bias AW
estimates. L10.1
noted.
26 Consider whether proper disclosures are made
in accordance with applicable accounting See Disclosure
standards and that for high risk estimates there Checklist [Not
Y Y AW
is adequate disclosure of estimation produced in this
uncertainty. example file] .
Impairment assessment of financial assets

under the three stage expected loss model
27 Evaluate if the approach for impairment

assessment, i.e. general or simplified Trade receivables:
approach, is appropriately applied by the Management's
entity? assessment on
expected credit
losses (ECL)
reviewed and
Y Y J4 assessed on J4.1 AW
[J4.1 not included in
this example file] . No
significant issues
noted on
management's ECL
approach.
28 Evaluate if the stage classification is

appropriately determined by the entity:
(A) Assess whether there are any changes in

credit risk. For example consider:
(a) Significant changes in internal price
indicators of credit risk as a result of a
change in credit risk since inception,
including, but not limited to, the credit
spread that would result if a particular No such issues
financial instrument or similar financial Y Y AW
noted.
instrument with the same terms and the
same counterparty were newly originated
or issued at the reporting date.
(b) Other changes in the rates or terms of an

existing financial instrument that would be
significantly different if the instrument
was newly originated or issued at the No such issues
reporting date because of changes in the Y Y AW
noted.
credit risk of the financial instrument
since initial recognition.
(c) Significant changes in external market

indicators of credit risk for a particular
No such issues
financial instrument or similar financial Y Y AW
noted.
instruments with the same expected life.
X2 Page 489 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(d) An actual or expected significant change
No such issues
in the financial instrument ’ s external Y Y AW
noted.
credit rating.
(e) An actual or expected internal credit
rating downgrade for the borrower or No such issues
Y Y AW
decrease in behavioural scoring used to noted.
assess credit risk internally.
(f) Existing or forecast adverse changes in
business, financial or economic
No such issues
conditions that are expected to cause a Y Y AW
noted.
significant change in the borrower’s ability
to meet its debt obligations.
(g) An actual or expected significant change
No such issues
in the operating results of the borrower. Y Y AW
noted.
(h) Significant increases in credit risk on

No such issues
other financial instruments of the same Y Y AW
noted.
borrower.
(i) An actual or expected significant adverse
change in the regulatory, economic, or
technological environment of the
borrower that results in a significant No such issues
Y Y AW
noted.
change in the borrower ’ s ability to meet
its debt obligations.
(j) Significant changes in the value of the

collateral supporting the obligation or in
the quality of third-party guarantees or
credit enhancements, which are expected
to reduce the borrower ’ s economic No such issues
Y Y AW
incentive to make scheduled contractual noted.
payments or to otherwise have an effect
on the probability of a default occurring.
(k) A significant change in the quality of the

guarantee provided by a shareholder (or
an individual’s parents) if the shareholder
No such issues
(or parents) have an incentive and Y Y AW
noted.
financial ability to prevent default by
capital or cash infusion.
(l) Significant changes, such as reductions

in financial support from a parent entity or
other affiliate or an actual or expected
significant change in the quality of credit
No such issues
enhancement, that are expected to Y Y AW
reduce the borrower’s economic incentive noted.
to make scheduled contractual payments.
(m) Expected changes in the loan

documentation including an expected
breach of contract that may lead to
covenant waivers or amendments,
No such issues
interest payment holidays, interest Y Y AW
noted.
rate step-ups, requiring additional
collateral or guarantees, or other changes
to the contractual framework of the
instrument.
X2 Page 490 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(n) Significant changes in the expected
performance and behavior of the
No such issues
borrower, including changes in the Y Y AW
noted.
payment status of borrowers in the group.
(o) Changes in the entity ’ s credit

management approach in relation to the No such issues
Y Y AW
financial instrument. noted.
(p) Past due information, including the

rebuttable presumption that credit risk
has increased significantly when
contractual payments are more than 30
days past due.
If the entity rebuts the rebuttable

presumption, evaluate if the entity has No such issues
reasonable and supportable information Y Y AW
noted.
to demonstrate that even if contractual
payments are more than 30 days past
due, this does not represent that there
have been a significant increase in the
credit risk of a financial instrument since
initial recognition.
(B) Consider whether there is any evidence

that a financial instrument or group of financial
instruments become credit-impaired. J4 See J4.
Consider:
(a) significant financial difficulty of the issuer
or obligor; Y Y AW
(b) a breach of contract, such as a default or

delinquency in interest or principal N N AW
payments;
(c) the lender, for economic or legal reasons

relating to the borrower's financial
difficulty, granting to the borrower a
N N AW
concession that the lender would not
otherwise consider;
(d) it is becoming probable that the borrower

will enter bankruptcy or other financial
Y Y AW
reorganization;
(e) the disappearance of an active market for

that financial asset because of financial
N N AW
difficulties;
X2 Page 491 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
(f) other observable data indicating that one
or more events that have a detrimental
impact on the estimated future cash flows N N AW
have occurred.
(g) there has been a significant increase in

credit risk. Y Y AW
(C) Where the entity rebuts the rebuttable

presumption that default would occur when a
financial asset is 90 days past due, evaluate if
it has reasonable and supportable information N N/A J4 AW
to demonstrate that a more lagging default
criterion is more appropriate.
Recognition and measurement of loss

allowance and interest income
29 For financial assets that have not increased Trade receivables:
significantly in credit risk since initial Management's
recognition: assessment on
expected credit
(a) Is that assessment reasonable based on losses (ECL)
the results of test 28 above? Y Y reviewed and AW
assessed on J4.1
(b) Has a loss allowance equal to 12 months [J4.1 not included in
expected credit losses been recognized? Y Y this example file] . No AW
significant issues
noted on
(c) Is the calculation of the loss allowance
Y Y management's ECL AW
reasonable and supportable?
approach.
(d) Is effective interest income calculated on
the gross carrying amount of the financial Y Y AW
asset?
30 For financial assets that have increased
significantly in credit risk since initial
recognition but that do not have objective
evidence of a credit loss event:
(a) Is that assessment reasonable based on
the results of test 28 above? N N/A None. AW
(b) Has a loss allowance equal to lifetime

expected credit losses been recognized? N N/A None. AW

reasonable and supportable? N N/A None. AW
(d) Is effective interest income calculated on

the gross carrying amount of the financial N N/A None. AW
asset?
X2 Page 492 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
31 For financial assets which are credit-impaired
at the reporting date:
(a) Is that assessment reasonable based on
the results of test 28 above? N N/A None. AW
(b) Has a loss allowance equal to lifetime

expected credit losses been recognized? N N/A None. AW

reasonable and supportable? N N/A None. AW
(d) Is effective interest income calculated in

accordance with HKFRS 9.5.4.1?
Note: For financial assets that are not

purchased or originated credit-impaired
but subsequently have become credit- N N/A None. AW
impaired, the entity shall apply effective
interest rate to the amortised cost of the
financial asset in subsequent reporting
periods.
32 For trade receivables, contract assets and lease Management's

receivables where the simplified approach has assessment on
been applied has a loss allowance equal to expected credit
lifetime expected credit losses been made? losses (ECL)
reviewed and
assessed on J4.1
Y Y AW
[J4.1 not included in
significant issues
noted on
management's ECL
approach.
33 Evaluate whether sufficient appropriate audit Sufficient appropriate
evidence has been obtained and documented audit evidence has
on B5, C4 and PAF04 in relation to accounting been obtained.
estimates for expected credit losses, including
the assessment of expected credit loss (ECL) Management's
rates, values of collaterals (if any) and assessment on
groupings of customers (e.g. based on expected credit
geographical region, customer credit rating, losses (ECL)
customer type, etc. See HKFRS 9.B5.5.35) reviewed and
where the receivables are assessed assessed on J4.1
collectively by the entity. [J4.1 not included in
Y Y AW
In addition, obtain an understanding of the significant issues
management's selection of macroeconomic noted on
factors in determining the forward-looking management's ECL
adjustment to ECL rates, and evaluate the approach.
correlation of these factors with the entity's
historical levels of default.
Examine the supporting evidence to evaluate

the reliability and relevance of information
underlying the estimates for expected credit
losses.
X2 Page 493 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Modification of financial instruments
34 Where there is a change in the contractual
cash flows or contractual terms after initial
recognition of a financial instrument, evaluate
whether it is accounted for appropriately in N N/A None. AW
requirements (see HKFRS 9.5.4.3, HKFRS
9.5.5.12 and HKFRS 9.3.3.2).
35 Evaluate whether there is a change in the
basis for determining the contractual cash
flows of a financial instrument as a result of
interest rate benchmark reform, and if so,
whether the financial instrument is accounted N N/A None. AW
for appropriately in accordance with applicable
accounting requirements (see HKFRS 9.5.4.5
to 5.4.9 and HKFRS 9.7.2.43 to 7.2.46).
Hedge Accounting
HKFRS 9.7.7.21 states that "When an entity first No hedge accounting
applies this Standard, it may choose as its applied.
accounting policy to continue to apply the hedge
accounting requirements of HKAS 39 instead of the
requirements in Chapter 6 of this Standard. An
entity shall apply that policy to all of its hedging
relationships".
36 Review the accounting treatment of all

financial instruments that have been
designated as hedging instruments and
confirm they are correctly treated in N N/A AW
standards.
37 A hedging relationship qualifies for hedge
accounting only if all of the following criteria
are met:
(a) the hedging relationship consists only of

eligible hedging instruments and eligible N N/A AW
hedged items.
(b) at the inception of the hedging

relationship there is formal designation
and documentation of the hedging
relationship and the entity ’ s risk N N/A AW
management objective and strategy for
undertaking the hedge.
(c) the hedging relationship meets all of the

following hedge effectiveness N N/A AW
requirements in test 36.
X2 Page 494 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
38 Confirm that each hedging relationship
satisfies all of the following requirements:
(a) there is an economic relationship
between the hedged item and the N N/A AW
hedging instrument;
(b) the effect of credit risk does not dominate
the value changes that result from that N N/A AW
economic relationship;
(c) the hedge ratio of the hedging
relationship is the same as that resulting
from the quantity of the hedged item that
the entity actually hedges and the
quantity of the hedging instrument that N N/A AW
the entity actually uses to hedge that
quantity of hedged item.
39 Was hedge accounting discontinued

prospectively where any of the following No hedge accounting
occurred? applied.
(a) The hedge fails to meet the qualifying

criteria, after taking into account N N/A AW
rebalancing if applicable.
(b) The hedging instrument expires or is
sold, terminated or exercised. N N/A AW
(c) The hedged item is settled.

N N/A AW
(d) The risk management objective for

hedging no longer applies. N N/A AW
(e) A forecast transaction that is hedged is
no longer expected to occur. N N/A AW

40 Check that we have sufficient evidence Accounts reviewed
regarding the disclosure of financial and tied back to
instruments. Y Y AW
supporting
documentation.
Bespoke tests
41 Draft and perform any necessary additional
tests such as those required by C8.3 and cross Not considered
reference with the objectives on the summary N N necessary.
AW
sheet.
X2 Page 495 of 565 APM 2022

Test Results
Initials
and date
Y/N Y/N
Conclusion
42 Consider whether there are any points which
representation or letter of comment and record Y Y No such points noted. AW
43 Review the planned extent of reliance on
internal controls in this area and consider No reliance on
Y Y AW
whether this remains appropriate. controls planned.
44 Assess whether the initial materiality and/or

any necessary adjustments on B6 or B9. Materiality
Y Y AW
Consider the impact on the remainder of the appropriate.
date.
X2 Page 496 of 565 APM 2022

31-Dec-21 Y/Z
M0001
Y OTHER PRIMARY FINANCIAL STATEMENTS
1 Cash flow statements [not included in this example file] Y1
Z COMPUTER REPORTS AND RECORDS RECEIVED
1 Year end trial balance Z1.1 - 1.2
2 Journals
3 General ledger printouts
4 Posting summary/data entry
5 Opening trial balance
6 Summary of records received
YZi Page 497 of 565 APM 2022

Manufacturing Company Limited AW 17/3 Z1.1
2021⸜12㚰31㖍 JO 1/4
Trial Balance
Code Name Client's Trial Balance Audit Journals Final Trial Balance
Dr Cr Dr Cr Dr Cr
$'000 $'000 $'000 $'000 $'000 $'000
0010 Factory : cost 9,800 ü - 9,800 a -

0011 Factory : acc. Dep'n - 1,960 ü - 1,960 a
0020 Warehouse : cost 8,302 ü - 8,302 a -
0021 Warehouse : acc. Dep'n - - ü - - a
0030 Plant : cost 7,399 ü - 7,399 a -
0031 Plant : acc. Dep'n - 1,953 ü - 1,953 a
0040 Memory Stick Division plant : cost - - - -
0041 Memory Stick Division plant : acc. Dep'n - - - -
0500 Goodwill : cost - - - -
0510 Goodwill : amortization - - - -
0600 Research & development : cost 2,443 ü - 2,443 a -
0610 Research & development : acc. Dep'n - 1,421 ü - 1,421 a
1000 Inventory : raw materials 3,374 ü - 3,374 a -
1010 Inventory : work in progress 1,568 ü - 1,568 a -
1020 Inventory : finished goods 3,059 ü - 3, 4
2,794 5,853 a -
1100 Receivables ledger control 15,561 ü - 1, 2
1,144 14,417 a -
1110 Allowance for uncollectibility - 875 ü5 336 - 539 a
1120 Director's loan : R.Chan 126 ü - 126 a -
1130 Owed by factory 1,750 ü - 4
1,750 - a -
1140 Staff loans 35 ü - 35 a -
1150 Prepayments 952 ü - 952 a -
1200 Bank current account 5,648 - ü 5,648 - a
1210 Bank deposits 14 ü - 14 a -
1220 Petty cash 7 ü - 7 a -
2100 Payables ledger control - 8,673 ü - 8,673 a
2120 Payroll taxes - - - -
2130 Accruals - 1,006 ü 14
37 - 1,043 a
2200 Lease liabilities - 10,106 ü - 10,106 a
2230 Forex financial instruments - 79 ü 15 3 - 76 a
10,11
2250 Taxation - 1,092 ü 285 - 1,377 a
12,13,
2251 Deferred taxation 1,552 ü 16

385 1,937 a
2300 Bank loan - 2,670 ü - 2,670 a
2310 Parent company loan - 5,000 ü 17 890 18
164 - 4,274 a
2320 Provisions - 1,200 ü - 1,200 a
3000 Share capital - 9,100 ü - 9,100 a
3010 Share premium account - 875 ü - 875 a
17
3100 Capital contribution - - ü 890 - 890 a
3200 Profit and loss reserve - 4,433 ü 16 37 - 4,396 a
3300 Property revaluation reserve - 1,442 ü 13 238 - 1,204 a
4000 REVENUE
4001 Sound & graphics - 55,860 ü 1, 2 978 - 54,882 a
4002 Network - 24,066 ü 1, 2 130 - 23,936 a
4003 WiFi & Bluetooth - 13,314 ü1 36 - 13,278 a
4004 USB Memory sticks - 18,774 ü6 18,774 - - a
4400 Forex gains - 200 ü 15
3 - 203 a
4500 Other gains and losses - 266 ü - 266 a
5000 COST OF SALES
5001 Purchases 45,049 ü - 4
1,750 7
16,028 30,771 a -
5010 Opening inventory 8,547 ü - 8,547 a -
3, 4
5020 Closing inventory - 8,001 ü 2,794 - 10,795 a
5031 Factory rates 120 ü - 120 a -
5040 Machine maintenance 1,873 ü - 7
533 1,340 a
5050 Depreciation 2,730 ü - 2,730 a
5060 Direct wages 8,600 ü - 7
2,627 5,973 a
5
5065 Bad debts 280 - 336 - 56 a
5070 Other direct costs 709 ü - 709 a
6000 DISTRIBUTION COSTS
6100 Labor 1,802 ü - 1,802 a -
6200 Packing materials 3,082 ü - 8
458 2,624 a -
6300 Freight and shipping 3,852 ü - 8
921 2,931 a -
6400 Other distribution costs 427 ü - 427 a -
Z1.1 Page 498 of 565 APM 2022

Code Name Client's Trial Balance Audit Journals Final Trial Balance
Dr Cr Dr Cr Dr Cr
$'000 $'000 $'000 $'000 $'000 $'000
7000 ADMINISTRATIVE EXPENSES - - - -

7001 Wages 6,845 ü - 14
37 6,882 a -
7002 Directors pay 2,250 ü - 2,250 a -
7003 Pension contributions 934 ü - 934 a -
7004 Staff welfare 715 ü - 715 a -
7100 Power 2,054 ü - 2,054 a -
7120 Insurance 595 ü - 595 a -
7130 Cleaning 366 ü - 366 a -
7140 Repairs and maintenance 472 ü - 472 a -
7150 Motor expenses 1,705 ü - 9
432 1,273 a -
7160 Advertising 3,592 ü - 9
323 3,269 a -
7200 Travelling 1,166 ü - 9
408 758 a -
7300 Entertaining 34 ü - 34 a -
7310 Telephone & internet 415 ü - 415 a -
7320 Computer costs 912 ü - 912 a -
7400 General office costs 1,220 ü - 1,220 a -
7410 Postage 984 ü - 984 a -
7420 Laundry and cleaning 12 ü - 12 a -
7500 Telephone system and photopiers 1,650 ü - 1,650 a -
7510 Audit and accountancy 473 ü - 473 a -
7600 Legal and professional 1,858 ü - 1,858 a -
7610 Bank charges 358 ü - 358 a
7700 Miscellaneous 2,239 ü - 2,239 a
7710 Charitable donations 79 ü - 79 a -
7800 Research & development amort. 147 ü - 147 a -
7900 Faulty card provision 1,200 ü - 1,200 a
8000 FINANCE COSTS
8100 Lease interest 1,140 ü - 1,140 a -
8110 Loan interest 123 ü - 123 a -
8115 Group loan interest - ü - 18
164 164 a -
8120 Overdraft interest 109 ü - 109 a -
8130 Losses on Forex FIs 228 ü - 228 a -
10,11,12
8500 Taxation 1,127 ü - 395 1,522 a -
9000 Loss on Memory Stick division 1,806 ü - 7, 8, 9
21,730 6
18,774 4,762 a -
173,918 173,918 48,292 48,292 157,110 157,110
ü Agreed to client's trial balance on Z1.2

a Agreed to final accounts
[For the purposes of this case study, the trial balance figures have been rounded to the nearest HK$'000]
Z1.1 Page 499 of 565 APM 2022

MCL AW 17/3 Z1.2
Trial Balance JO 1/4
01 January 2021 - 31 December 2021
N/C Name Debit Credit
HK$'000 HK$'000
0010 Factory : cost 9,800 -

0011 Factory : acc. Dep'n - 1,960
0020 Warehouse : cost 8,302 -
0021 Warehouse : acc. Dep'n - -
0030 Plant : cost 7,399 -
0031 Plant : acc. Dep'n - 1,953
0040 Memory Stick Division plant : cost - -
0041 Memory Stick Division plant : acc. Dep'n - -
0500 Goodwill : cost - -
0510 Goodwill : amortization - -
0600 Research & development : cost 2,443 -
0610 Research & development : acc. Dep'n - 1,421
1000 Inventory : raw materials 3,374 -
1010 Inventory : work in progress 1,568 -
1020 Inventory : finished goods 3,059 -
1100 Receivables ledger control 15,561 -
1110 Allowance for uncollectibility - 875
1120 Director's loan : R.Chan 126 -
1130 Owed by factory 1,750 -
1140 Staff loans 35 -
1150 Prepayments 952 -
1200 Bank current account 5,648 -
1210 Bank deposits 14 -
1220 Petty cash 7 -
2100 Payables ledger control - 8,673
2120 Payroll taxes - -
2130 Accruals - 1,006
2200 Lease liabilities - 10,106
2230 Forex financial instruments - 79
2250 Taxation - 1,092
2251 Deferred taxation - 1,552
2300 Bank loan - 2,670
2310 Parent company loan - 5,000
2320 Provisions - 1,200
3000 Share capital - 9,100
3010 Share premium account - 875
3100 Capital contribution - -
3200 Profit and loss reserve - 4,433
3300 Property revaluation reserve - 1,442
4000 REVENUE - -
4001 Sound & graphics - 55,860
4002 Network - 24,066
4003 HiFi & Bluetooth - 13,314
4004 USB memory sticks - 18,774
4400 Forex gains - 200
4500 Other gains and losses - 266
Z1.2 Page 500 of 565 APM 2022

5000 COST OF SALES - -
5001 Purchases 45,049 -
5010 Opening inventory 8,547 -
5020 Closing inventory - 8,001
5031 Factory rates 120 -
5040 Machine maintenance 1,873 -
5050 Depreciation 2,730 -
5060 Direct wages 8,600 -
5065 Bad debts 280
5070 Other direct costs 709 -
6000 DISTRIBUTION COSTS - -
6100 Labor 1,802 -
6200 Packing materials 3,082 -
6300 Freight and shipping 3,852 -
6400 Other distribution costs 427 -
7000 ADMINISTRATIVE EXPENSES - -
7001 Wages 6,845 -
7002 Directors pay 2,250 -
7003 Pension contributions 934 -
7004 Staff welfare 715 -
7100 Power 2,054 -
7120 Insurance 595 -
7130 Cleaning 366 -
7140 Repairs and maintenance 472 -
7150 Motor expenses 1,705 -
7160 Advertising 3,592 -
7200 Travelling 1,166 -
7300 Entertaining 34 -
7310 Telephone & internet 415 -
7320 Computer costs 912 -
7400 General office costs 1,220 -
7410 Postage 984 -
7420 Laundry and cleaning 12 -
7500 Telephone system and photopiers 1,650 -
7510 Audit and accountancy 473 -
7600 Legal and professional 1,858 -
7610 Bank charges 358 -
7700 Miscellaneous 2,239 -
7710 Charitable donations 79 -
7800 Research & development amort. 147 -
7900 Faulty card provision 1,200 -
8000 FINANCE COSTS - -
8100 Lease interest 1,140 -
8110 Loan interest 123 -
8115 Group loan interest - -
8120 Overdraft interest 109 -
8130 Losses on Forex FIs 228 -
8500 Taxation 1,127 -
9000 Loss on Memory Stick division 1,806 -
Total: 173,918 173,918
Z1.2 Page 501 of 565 APM 2022

Audit notes
The trial balance has been extracted from the client's system, an off-the-shelf package which is widely used and
reputable. We have checked that the TB balances extracted against (1) those in the system; and (2) client's
management accounts for December as reviewed by Adeline Leung and circulated to directors with agreement noted.
We have also considered the integrity of MCL's accounting system and preparation of management
account and tested the effectiveness of several relevant controls with no irregularities. Please refer to C5.1 -
#23 to #26 and S3 - #9 to #11.
[Note. For the purposes of this case study, the trial balance figures have been rounded to the nearest HK$'000]
Z1.2 Page 502 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 03/21 PAF
M0001
PERMANENT AUDIT FILE INDEX
1 General information
1.1 Background information (PAF02) Y
1.2 Details of bankers and professional advisors (PAF03) Y
1.3 Know Your Client Checklist (PAF04) Y
1.4 Register of laws and regulations (PAF05) Y
1.5 Details of related parties (PAF06) Y
1.6 Significant accounting policies (PAF07) Y
1.7 Accounting estimates (PAF13) Y
1.8 Copy of current detailed risk assessment Performed on C8.1 C8.1
1.9 Independence questionnaire Y
2 Engagement details
2.1 Letter of engagement [Not reproduced] Y
2.2 Authorizations [Not reproduced] Y
2.3 Special instructions from client
2.4 Special instructions from group auditors
2.5 Copy of resolution re: appointment
2.6 New client checklist (PAF08) Y
2.7 Register of non audit services (PAF10) Y
2.8 Register of involvement in the audit (PAF11) Y
2.9
3 Accounting systems
3.1 Organization chart Y
3.2 Review of design and implementation of controls Performed on C5.1 C5.1
3.3 Internal Control Questionnaire Performed on C5.2 C5.2

3.4 Systems overview (PAF09) Y
3.5 Letters of comment (copies) [Not reproduced] Y
3.6
4 Statutory information
4.1 List of shareholders [Not reproduced] Y
4.2 Details of mortgages/charges [Not reproduced] Y
4.3 Directors’ interests in shares and debentures [Not reproduced] Y
4.4 Copy annual return [Not reproduced] Y
Copy company and anti-money laundering search
4.4.1 [Not reproduced] Y
2021
4.5 Copy elective resolutions
4.6 Memorandum and Articles of Association [Not reproduced] Y
4.7
PAFi Page 503 of 565 APM 2022

5 Taxation (if no separate tax permanent file)

5.1
5.2
5.3
5.4
5.5
5.6
5.7
6 Assets
6.1 Details of freehold/leasehold properties [Not reproduced] Y
6.2 Details of location of title deeds [Not reproduced] Y
6.3 Details of plant etc. (where no fixed asset register exists)
6.4 Details of intangible assets [Not reproduced] Y
6.5 Investments in subsidiaries and associated undertakings
6.6 Details of professional valuations [Not reproduced] Y
6.7 Details of insurance values and cover [Not reproduced] Y
6.8
7 Contracts and agreements

7.1 Details of contracts and agreements with index
7.2 Details of share options
7.3 Bank overdraft or loan facilities, security and covenants [Not reproduced] Y
7.4 Details of other loans [Not reproduced] Y
7.5 Forward exchange contract [Not reproduced] Y
7.6 Sale of memory stick division - sales agreement [Not reproduced] Y
8 Correspondence and information of continuing interest

8.1 Index
8.2 Correspondence with the predecessor auditor [Not reproduced] Y
8.3 Fixed asset register [Not reproduced] Y
8.4 Last tax return [Not reproduced] Y
9 Accounts
9.1 Signed copies of full accounts [Not reproduced] Y
9.2 Company accounts disclosure checklist [Not reproduced] Y

10 Review
Year File updated by Reviewed by
2020 AW JO
2021 AW JO
11 Retention of Engagement Documentation
Year Location Updated by

2018 (First year of audit) Office JO
2019 Office JO
2020 Office AW
2021 Office AW

31-Dec-21 Reviewed by: JO Date: 3/21 1.1
M0001 Updated by: AW Date: 3/22
BACKGROUND INFORMATION
Exact name of company Manufacturing Company Limited
Trading name (if different)
Registered office Main place of business (if different)
Sea Bird Lane
Tai Shui Hang
Tel No. (852) 1234 5678 Tel No.
Fax No. (852) 9876 5432 Fax No.
Number of business locations 2
Registered number 66666666
Place of registration Hong Kong
Date of incorporation 25/11/1990
Year end date 31-Dec
Associated companies No Specify
Names of directors/secretary Date of birth Specific responsibilities
Raymond Chan 01 February 1960 CEO

Adeline Leung 03 March 1961 Finance
Anthony Ho 05 June 1962 Development
Other key personnel

Name Position
Terence Ip Production manager
Tiffany Wai-yin Warehouse manager
Adrian Walker Accountant
Anti-money laundering requirements
Specify the basis and/or documents on which you have determined that this is a bona-fide business operation:
Longstanding client that is properly registered with the appropriate authorities

Copy of the company and AML search on file at 4.4.1 [Not reproduced in example file] . None of the directors are
found in sanctions lists.
1.1 Page 506 of 565 APM 2022

1.1.1
The company assembles components for PCs such as sound and graphics cards from bought in components. These are
sold largely to PC manufacturers that produce ‘own brand’ machines for other suppliers.
The company is a wholly owned subsidiary of Holding Company Limited. The group structure is set out on 1.1.3.
1. History
The company (MCL) was started by Raymond Chan and Adeline Leung in 1990. They had previously worked for HK
Components, a major Hong Kong company specializing in electrical components and circuit boards in particular.
Raymond and Adeline were convinced that there was a good market for a company specializing in computer
components. Their main products in the early days were 5 ¼” and then 3 ½” floppy drives.
Initially, progress was slow and after about 5 years, the company had only expanded to employ about 60 staff and had
a turnover of HK$ 50 million.
1999 was the start of a mixed period for MCL. On top of the uncertainty caused by the transition, a number of major
customers were affected by the financial crisis throughout Asia and the burst of the real estate bubble. Turnover for
MCL dropped a little but most customers were able to weather the storm and underlying demand was strong driven by
the success of Microsoft’s Windows 95 and 98 operating systems.
Raymond and Adeline were convinced that Hong Kong offered opportunities to companies such as MCL. They
reconsidered their strategic objectives and appointed Anthony Ho to the Board to try to identify areas of development.
Over the next five years the company moved away from floppy drives and started to specialize in components that
could be added to a desktop computer’s PCI slots such as sound and graphics cards (PCI – Peripheral Component
Interface). The company also transferred its assembly plant from the Hong Kong Island to Kowloon.
From 2004, a new product line was introduced. The company started to produce network cards, again focusing on PCI
cards but also some USB versions. It soon became clear that network cards were a major growth area with the growth
in home wireless networks driving the demand. Network cards quickly became a major part of the company’s business.
Current growth is still from the home networks but is being driven by peripheral devices such as wireless network
extenders or MiFi units that generate a local wireless network when connected to a mobile phone network.
The rapid growth in cloud storage has meant the demand for physical storage media has declined steadily over recent
years. A decision to sell the Memory Stick Division was taken in 2020 following declining sales and adverse publicity
concerning security issues (lack of passwords and ease of transmission of viruses). The sale of the division went
through in December 2021.
2. Future plans for the directors

Between Raymond Chan and Adeline Leung, they still own 67.3% of the business with another 19.23% owned by
Anthony Ho. The balance is owned by two senior employees.
Anthony has been the driving force behind a lot of the recent developments and is keen to continue to extend the
company products and to cover a wider geographical area (most sales are to manufacturers in China and Japan).
Raymond and Adeline enjoy working in the business but are beginning to consider possible exit routes. They have
made some pension provision but are hoping to provide for their old age by realizing the value of their shares.
The company regularly incurs research and development expenditure on the development of new products. Historically
there have been no problems with capitalizing such expenditure and the products that relate to the existing capitalized
costs are currently selling well.
There is a risk that the cards produced become obsolete, however when developing cards, the company ensures that
they are compatible with a range of chips which means when newer chips become available, there is no immediate
need to update the cards. There are staff dedicated to development who monitor the market and continue to work on
enhancing the products the company produces. Over the last year or so there have been considerable advances in the
chips available, however the company has been able to embed these into its existing products without issue. The
development team are highly skilled and dedicated and therefore the directors are confident that there is sufficient
expertise to continue product development.
1.1.1 Page 507 of 565 APM 2022

.
3. Business Sectors
(a) Graphics cards
This is a mature market for MCL and most sales are to existing customers.
The company has managed to avoid a lot of the turmoil in the market for graphics chips that has occurred in recent
years. This is partly because they have always used nVidia chips and it was nVidia that came out on top in the recent
upheavals, and partly because the company has always gone for mid range cards rather than budget price or cutting
edge. The cards they produced therefore had a longer shelf life.
The company currently sells 4 types of graphics card. All are for desktop computers. The difference between the cards
is the specification (speed - MHz and memory - MB) of the chip used. They range in price from $750 to over $1,500.
- MCL Xforce 3D 8500GT 800MHz 256MB Graphics Card - $750

- MCL Xforce 3D 8500GT 800MHz 512MB Graphics Card - $810
- MCL Xforce 3D 8600GT 1400MHz 256MB Graphics Card - $1,020
- MCL Xforce 3D 8600GT 2000MHz 256MB Graphics Card - $1,560
Customers
The company does not sell to the public, only to computer manufacturers. Their main customers are based in Hong
Kong and China. These customers in turn produce computers to be sold as ‘own brand’ by a number of major retailers.
The company occasionally supplies some of the major computer products such as HP or Dell. However, the company
does not have the capacity to become a regular supplier to such companies.
Competitors
Their main competitors in this market are the major producers such as Sapphire and XFX and also smaller local
companies similar to MCL. The market is price sensitive, but other factors such as reliability and capacity are also
important.
Seasonality
There is a slight increase in demand towards Christmas, but nothing that significant.
(b) Sound cards

Sound is a relatively new capability for PCs because no one really considered it when the PC was first designed. The
original IBM-compatible PC was designed as a business tool, not as a multimedia machine! However, like the rest of
the PC industry the sound card also underwent a significant acceleration in development in the late 1990s, fueled by
the introduction of AGP (Accelerated Graphics Port – speeds up the connection) and the establishment of PCI-based
sound cards. Greater competition between sound card manufacturers - together with the trend towards integrated
sound - has led to ever lower prices. However, as the horizons for what can be done on a PC get higher and higher,
there remain many who require top-quality sound.
The result is that, as with graphics cards, there is a solid market for PCs that contain a good quality sound card (as
opposed to sound being integrated with the mother board). This not only improves the sound for games and
multimedia applications, but with the right software, users can record edit and play digital audio from a variety of
sources.
The company currently sells 3 types of sound card that range in price from $450 to $1,750
- MCL OEM X-FI Xtreme Audio card with X-Fi Crystallizer PCI - $450
- MCL OEM X-F2 Xtreme Audio card with X-Fi Crystallizer PCI - $1,150
- MCL OEM X-Fi Xtreme Music - Sound card - 24-bit - 192 kHz - 109 dB SNR - 7.1 channel surround - PCI - $1,750
Customers
The company’s customers for sound cards are essentially the same as those for graphics cards.
Competitors
The position with competitors is again similar to that for graphics cards. Here the main producers are Creative, Philips
and Toshiba.
Seasonality
1.1.1 Page 508 of 565 APM 2022

(c) Networking cards
Anthony Ho is convinced of the need to expand aggressively in this area and is considering moving further away from
the company’s traditional approach of only supplying computer manufacturers. He believes that there is considerable
demand for network cards in the domestic market from owners of PCs who want a home network but who do not want
to upgrade their PC. He sees the demand for USB adapters as being particularly strong as these can be fitted without
taking the back off!
A web based retail operation is being considered; however, this has not yet happened and currently all sales of PCI
cards are to the company’s usual customers. Sales of USB adapters are to retail outlets in Hong Kong, this is a
relatively new area for the company.
The company sells two types of PCI network adapter, a wireless version and an Ethernet (type of cable/connection)
version. The two USB models are the same; however, one has an extension adapter so it can be moved to obtain a
better signal.
- MCL 802.11g Wireless G PCI Network Card - $150

- MCL Ethernet PCI LAN card - $140
- MCL 802.11G Wireless USB Network Adapter - $150
- MCL 802.11G Wireless USB Network Adapter (with extension)- $295
Customers
The PCI cards are sold to the same customers as the graphics and sound cards.
The company started selling directly to retailers in HK in 2007. Sales are currently on the basis of a catalogue and mail
order, although, as noted above, a web based system is being considered.
Competitors
The company is relatively new to this market and, although there is a lot of potential in this market, competition is
fierce. The company faces competition from some of the big names in this area such as Linksys and Belkin as well as
some smaller local companies.
Seasonality
(d) Wi-Fi extenders and MiFi units

A recent innovation is the move into the market for Wi-Fi extenders. Anthony Ho sees this as the next big market and
sees it as, to a certain extent, complementing the company’s core business based on sounds and graphics cards.
The range of Wi-Fi extenders and MiFi units is as follows:
- MCL Wi-Fi Express repeater - $375

- MCL Wi-Fi Express extender - $475
- MCL Portable Wi-Fi hot spot - $450
- MCL Portable Wi-Fi hot spot plus - $550
(e) New products

The company continues to consider the requirements for new products. At the present time, work is largely focused on
improved versions of the above categories, rather than new categories of products all together.
4. Major suppliers
The company is reliant on nVidia for the supply of graphics chips. This is the only component that is dependent on one
supplier. All other components can be sourced from a variety of suppliers. This has been a key element in the
company’s success as it is able to keep costs down.
5. Locations
The company has both a factory and a warehouse in Hong Kong along with office space. The factory is based in
Kowloon and is leased from January 2020 to December 2029. The warehouse is on the Hong Kong Island on leased
land with a remaining lease term of 48 years. Raw materials (c.$3.4m) and work in progress (c.$1.6m) are kept at the
factory with finished goods (c.$3m) being kept at the warehouse.
1.1.1 Page 509 of 565 APM 2022

6. Ownership
The company is a wholly owned subsidiary of Holding Company Limited. Share holdings in Holding Company Limited
are as follows:
Raymond Chan - 33.65%

Adeline Leung - 33.65%
Anthony Ho - 19.23%
Other employees - 13.47%
Initially, Raymond Chan and Adeline Leung owned all of the shares. New shares were issued to Anthony Ho once he
had completed 2 years’ service. There is no formal employee share scheme in place; however, two of the more senior
managers have been allowed to acquire small shareholdings in the parent company.
Raymond Chan, Adeline Leung and Anthony Ho own the shares of MCL. They also involve in the day-to-day
management and operation of MCL. See <10. Staff> below. Since this is a private company and given its size and
nature, it is not unusual that owners oversee the strategic direction of the company and also play a management role.
7. Accounting Policies and Presentation of Accounts

The main accounting policies are described on PAF 1.6. The company's accounting policies are fairly standard for this
type of company.
The company presents its accounts in accordance with HKFRS and there are no particular problem areas.
8. Laws and Regulations

(a) Accounts
The company prepares accounts under the Companies Ordinance and Hong Kong Financial Reporting Standards
(HKFRS) issued by the Hong Kong Institute of Certified Public Accountants. There are no other external reporting
requirements.
The company is domiciled in Hong Kong and is subject to the tax regime in Hong Kong.
Most of the company's customers are in either Hong Kong or China and most sales transactions are settled in HK$.
The company's suppliers all have branches in Hong Kong. Purchases are therefore denominated in HK$.
(b) Estimates
Areas where accounting estimates are set out on PAF 1.7. The company's operations are straight forward and simple,
so most estimates are relatively straightforward and do not involve the use of complex formulae or models. They will
usually be prepared by Adrian Walker in the first instance and then reviewed by Adeline Leung. Adeline Leung
considered that the management team does not have the expertise to assess the fair value of property when needed.
The valuation of property is therefore based on the recommendations of a qualified surveyor, and where appropriate,
legal advice is also taken in determining the amount of any claims made by or against the company.
Adeline Leung would consider whether there is a need for new accounting estimates when she reviews the
management accounts.
(c) Products
The components manufactured by the company conform to the various industry standard specifications. However,
there are no specific laws or regulations that apply to them.
(d) Health & safety

The company is subject to the normal laws and regulations of the countries in which it operates. These have been
discussed with the directors and their view is that, other than health and safety, none of these laws and regulations
gives rise to any significant business risk.
It is possible that an accident in the factory or warehouse could result in the serious injury or death of an employee,
which in turn may lead to a claim against the company. The company takes its responsibilities seriously and has good
systems for training and monitoring employees. Any incidents that do occur are recorded in an accident book.
Accordingly, there are no laws and regulations, other than health and safety, which would be expected to have a
material effect on the accounts other than those which relate specifically to the form and content of the financial
statements specified in the Companies Ordinance.
1.1.1 Page 510 of 565 APM 2022

9. Related parties
There is currently no formal system in place for identifying or recording transactions with related parties.
Adrian Walker keeps a register of related parties and updates this when notified by the directors of any changes
required. The related parties noted on PAF 1.5 are taken from this register.
Mrs. Sherrin Chan, the wife of Raymond Chan, runs a shop in the Wanchai Computer Centre - Chan Computers
Limited. Whilst this business may sometime sell components manufactured by MCL it never buys directly from MCL as
the volumes it purchases are too small. This business is run completely independently of MCL and there are no
transactions or sharing of facilities between the two companies.
Reca Limited, a customer of MCL was purchased (100% subsidiary) by Chan Computers Limited in
January 2021. As Reca Limited is controlled by Mrs. Chan it is a related party of MCL (see PAF 1.5).
10. Staff
Directors
Raymond Chan is the managing director and also oversees the factory operations in Kowloon.
Adeline Leung is the finance director and oversees the sales and warehouse operations in Hong Kong.
Anthony Ho is responsible for marketing and business development.
Other senior personnel

Terence Ip - production manager. He is responsible for the day to day running of the factory in Kowloon.
Tiffany Wai-yin – Warehouse Manager – who is responsible for warehouse in Hong Kong.
Adrian Walker – Accountant – Part qualified, been with the company for three years. He is very competent with the
basic records but is not really involved in the management of the business.
Elizabeth Shen - Raymond’s PA - who has been with the company from the start. With her team, she agrees and
monitors contracts with the major customers.
Other staff
Factory and warehouse staff are paid via weekly payroll and are employed on permanent contracts, with a mixture of
part and full time. These staff members are paid at marginally above market rate for the work they do to help with staff
retention. There is no formal bonus or other compensation scheme in place.
Recruitment and retention of staff

The company attracts and retains staff by paying marginally above market rate for the work required. The company is
well respected and well known in the industry in Hong Kong which helps generate interest in working for the company.
When recruiting staff members consideration is given to qualifications and expertise relevant to their particular role.
While there is no specific list of required qualifications, managers consistently recruit the most qualified and
experienced individual for the role. Interviews are detailed and draw on education, past experience and past
accomplishments, as use competency based questions to assess integrity. New recruits are supported with a
comprehensive training programme, relevant to their role, with the majority of this being on the job training as this is
considered the most relevant. There is an employee handbook which sets out general expectations, responsibilities
and behaviors expected of all staff. Annual performance reviews take place for all staff, in addition to a mid-year
review.
Accountability and responsibility

All employees have a job description which clearly sets out their role and expectations thereof. This information is also
communicated as part of one to ones with line managers and the performance review process. The company prides
itself on quality, and therefore ensures that staff is monitored on output to ensure that products are manufactured to a
high quality. Where necessary, poor performance is discussed in one to ones and via the performance review process.
For more serious incidents, the disciplinary process (which is documented) is invoked and staff may be placed on a
warning or dismissed where considered necessary. Any disciplinary action is commensurate with the level of
misconduct and takes into account any past disciplinary issues.
11. Measurement and review of financial performance

Although Adrian Walker prepares budgets and monthly accounts, these are not used to their full potential. There is no
formal comparison by the board between the budget and actual results. Because the members of the board are not
interested, they feel they are quite hands on with the business, Adrian has ceased to provide detailed variance
analyses and other ratios and statistics. Nonetheless monthly management accounts with P/L, B/S and cash flows are
still prepared by Adrian Walker and reviewed by Adeline Leung and circulated to other directors. Management
occasionally compare performance against key ratios (see below) on an informal basis with competitors.
1.1.1 Page 511 of 565 APM 2022

The annual financial statements are drafted by Adrian Walker from the management accounts, while the firm prepares
the statutory financial statements based on information provided by management. Disclosures are also drafted by the
management. These are reviewed by the directors prior to the accounts being prepared by N&C. Significant
accounting estimates involve management review and application of their judgment and are documented on PAF 1.7.
12. Business objectives and strategies

This subject has been discussed with the directors. They have not prepared a formal business plan but do have
agreed objectives and key performance indicators.
The long term business objectives are:
1. To double the size of the business in Hong Kong by 2026.
2. To increase the profitability of the Hong Kong business by an improved margins on new product lines.
3. To increase the size of the international business so that more than 50% of turnover will be generated outside Hong
Kong.
4. To prepare the company for flotation at some point after 2026 (this is how the directors see their exit route from the
business).
Research and development

The company undertakes research and development, capitalizing development expenditure. It has continued its policy
of writing off development expenditure over 12 years. Whilst this seems a long time in the IT world, much of the
development is the overall design and layout of a particular card, rather than the use of a particular processor, and this
has a more enduring life.
13. Financing
The company has historically been profitable and the directors have maintained the company's position in a constantly
changing industry. The company therefore has a good relationship with its bankers and in the past finance has not
been a problem.
The company leases the factory.
The land and building represents the Company's ownership interest in a warehouse situated in Hong Kong and held
under a medium lease. As the consideration cannot be allocated reliably between non-lease building element and
undivided interest in the underlying leasehold land, the entire property is classified as property, plant and equipment.
The property is depreciated based on an estimated useful life of 48 years.
The company has also received an interest fee loan from the parent company. This is a fixed term loan and has been
discounted at a market rate of interest.
The company does not have any of the more complex forms of financial instrument although it does sometimes enter
into forward exchange contracts for Yuan and US$. There are no formal systems regarding forward exchange
contracts. These are entered into when the directors think is appropriate. As the contracts are short term they do not
include any significant credit risk and so can be valued using published exchange rates.
The economy of Hong Kong is a highly developed free market economy. Taxation rates are low, and there is a well
established financial market. The economy has been steadily growing over recent years, with growth in technology in
particular.
1.1.1 Page 512 of 565 APM 2022

14. Key Performance Indicators
Many of the company's costs are fixed, at least in the short term. Therefore the financial key performance indicators
typically used internally and externally (including the trends in them over time) are:
1. Sales volume.
2. Gross profit margin.
15. Business Risk

Business risk has been discussed with the directors and is set out on schedule 1.1.2. The directors have no formal
procedures for the identification or assessment of risks and do not carry out a formal risk assessment, but they know
the business and are very involved in the day-to-day operations and business, as noted in our communication with
them. They also don't have a formal process for addressing those risks. This is not unusual for a business of this size
and nature.
Business risks relevant to the financial reporting objectives

Several risks identified on 1.1.2 relate to going concern. However, most of the problems are potential risks that may
arise in the long term and so there is no need to consider them further this year. The risks have all be carried to C8.2
and C8.3 to ensure that none are overlooked.
16. Risk of fraud

In the view of the directors, the risk of any serious fraud is low. They are closely involved in all aspects of the
company's operation, in particular they involve in the authorization on sales and purchases. Any fraud would therefore
require collusion between their staff and staff at a supplier or customer in order to go undetected and the directors
simply do not see this as likely.
At a smaller scale theft of individual completed cards is possible as they are relatively small and can easily be sold on.
Physical controls over components and finished cards are good; however, the inventory records for the warehouse in
Hong Kong are unreliable. This means that small discrepancies may go unnoticed or not be investigated. The directors
are looking at ways of resolving the problems with the inventory records in Hong Kong; however, in terms of impact on
the accounts, the theft of a few cards by staff is not material.
Management holds bi-weekly meeting with warehouse and factory managers on operation matters, so any irregularities
would be reported to management during the meeting. Directors' review of monthly management accounts also assist
them to identify irregular matters.
17. Control environment

Raymond and Adeline are involved in all aspects of the business. This is a powerful control and a deterrent to fraud.
They set a good tone in terms of the control environment. They consistently reinforce the need for safety and ethical
standards through daily communication with employees. Both will operate the systems as intended and do not override
controls (however, it is recognized that HKSA 240 presumes that the risk of management override of control exists
irrespective of auditor’s risk assessment ). They are both very competent and have strong ethical values. This
involvement contributes to the ongoing monitoring of the control environment and enables timely identification of
deficiencies.
Raymond is also responsible for hiring/dismissing employees. The remuneration policy and package of the Company's
employees are periodically reviewed and approved by the directors/department heads. Raymond would not tolerate
improper behavior; staff with unethical behavior would be disciplined if found.
Staff in the office respect this attitude and it does not appear to be any problems with the control environment.
Adrian Walker prepares the monthly management accounts and month end journals (including those in relation to
accounting estimates) which are approved by Adeline. This represents periodic monitoring. Communication between
these two individuals is generally informal, aside from the recording of the approval of the journals, which is considered
appropriate for the size and nature of the entity. Responsibilities of more junior staff (e.g. purchase ledger) is again
relatively informal, although staff are well versed in following the processes put in place by management. Management
and TCWG are the same so there is no specific communication between these groups.
Where there is a need to communicate with external parties, such as tax authorities, Adeline reviews all such
communication / correspondence before it is issued.
AW 3/22
JO 3/22
1.1.1 Page 513 of 565 APM 2022
.
1.1.1a
IT Environment
The company operates a very simple IT environment. It uses the A+ Accounts Package (including the A+ Payroll module
for payroll). This is an off the shelf package from a reputable provider which is widely used in practice. The provider is well
accredited with numerous awards for the package.
The package is hosted on the company's server. The package was installed by A+ with the only customization being the
setting up of the chart of accounts. The logs (which are not editable) evidence that the package has not been tampered
with.
The company uses the A+ system for all of its accounting and inventory records, including sales orders and purchase
orders. The system is user friendly and intuitive. Staff receive on the job training on its use as required, relevant to their
role.
The company has not made any changes to the IT environment during the period.
The IT application used and the IT environment is not likely to be subject to significant risks arising from the use of IT. This
is because the applications are standalone and do not interface with other applications, for example, website access for
customers. The functionality of the application is not very complex, and is provided by a well known and reputable
company. Each transaction is also supported by handwritten documentation, or other supporting documentation, as
appropriate. Management also does not rely significantly on automated processing.
The IT applications and other aspects of the IT environment that are subject to the risks arising from the use of IT are the
A+ Accounts Package (including the A+ Payroll Module) and also the company's network itself.
The related risks arising from the use of IT include:

- Unauthorized access to the package which could lead to false journals, false invoices, and false orders being raised.
- Unauthorized access to data that may result in destruction of data or improper changes to data.
- Inappropriate manual intervention.
The risk of data loss is addressed by the entity's back up procedures (see PAF 3.4 - O4 & O5). As this is an off the shelf
package, there is no scope for manipulating the code. Access to the package is limited to those with a specific need to
access the system, with new staff, leaving staff and those changing roles having their access updated as part of the
joining/leaving process. Journals are reviewed on a monthly basis, and inappropriate journals would therefore be identified
as part of this review.
In the A+ accounts system all non-standard journals can only be entered using the journal mode so it is straightforward to
obtain a list of all journals processed. Our past experience with this package at other clients is that it is not possible for non-
standard journals to be entered other than in journal mode. We have also found that reports produced by this package are
complete and reliable. There are no indications that the system has been set up differently at MCL to other clients.
The company has standardized manuals regarding the operation of the A+ accounts package which are used by those
staff who use the system.
The information system is used for posting journals relevant to accounting estimates (for example posting impairment
charges, revaluations etc.). The information system is also used to obtain data relevant to making accounting estimates. It
is, for example, used to assess movements of inventory for obsolescence calculations, and to obtain past data on
customers for considering expected credit losses.
AW 3/22
JO 3/22
1.1.1a Page 514 of 565 APM 2022

ŎŢůŶŧŢŤŵŶųŪůŨġńŰŮűŢůźġōŪŮŪŵŦť ĲįĲįĳ
ŃŶŴŪůŦŴŴġųŪŴŬŴġųŦŭŦŷŢůŵġŵŰġŧŪůŢůŤŪŢŭġųŦűŰųŵŪůŨġŰţūŦŤŵŪŷŦŴ
Directors’ comments or possible Audit

Risk to consider
management actions response
The company is reliant on a relatively small The directors are happy that they are in touch C8.2-1
number of products. Technological advances with technological developments and trends in
could render the companies existing products the market and therefore feel that this risk is
obsolete very quickly. well mitigated. Despite that the company's
range of products is limited, they are still in-
demand in the market and up to the latest
technological development. Any changes in
the technology would be identified by the
directors to consider appropriate changes to
MCL's products and further action. One
example is MCL's decision to sell the Memory
Stick division in 2021 as a result of directors'
business assessment and decision.
In the past the directors have been very good The directors see no reason for this to change C8.2-2
at spotting opportunities in the market and and do not therefore consider this to be a high
have also moved out of older technologies at risk. As noted above the directors are in touch
the right time. There is no guarantee that this with trends in the market and also continue to
will continue in the future. invest in improved and new technologies.
The directors are managing the business The directors do not consider this to be a high C8.2-3
mainly by reference to the key performance risk, although recognize that improvements
indicators and are not using the management could be made in this area. The directors will
accounts to the full. This may result in focus discuss with Adrian how the management
on too narrow a range of indicators. accounts can be made more user friendly.
They will then seek to monitor fixed costs
more closely.
There is no management policy dealing with Adrian will be asked to consider the potential
the problems posed by foreign exchange. risks now that the business is dealing in other
The Yuan may be a particular problem given countries and China in particular. Considered
China's significance to the company's to be low risk at present.
operations.
The expansion plans are ambitious and, The directors have a good relationship with C8.2-4
notwithstanding the company's good the bankers and would not expand too quickly.
relationship with its bankers, could lead to The directors therefore consider this to be low
financing problems. risk at present.
What would happen if directors or key staff Key person insurance is in place but it is true C8.2-5
became ill or resigned? to say that the loss of one of the directors
would have very serious implications for the
company. The directors therefore consider
this to be a medium risk.
AW 3/22
JO 3/22
1.1.2 Page 515 of 565 APM 2022

Holding Company Limited ĲįĲįĴ
Group Structure
Raymond Chan Adeline Leung Anthony Ho Others

33.65% 33.65% 19.23% 13.47%
Holding Company Limited
100% 100% 75%
Manufacturing Repair Company

Service Company Limited
Company Limited Limited
1.1.3 Page 516 of 565 APM 2022

Details of bankers and professional advisors

Bankers
Account signatories
Name Specimen signature
Raymon
Name Wan Chai Bank Raymond Chan d Chan
Address Avenue Road Adeline Leung A Leung
Wan Chai Anthony Ho A Ho
Hong Kong
Telephone (852) 6666 7777
Fax (852) 6666 9999
Name
Address
Telephone
Fax
Lawyers
Name Shyster Leech & Shyster
Address Queens Road East
Wan Chai
Hong Kong
Telephone (852) 6666 2222
Fax (852) 6666 3333
Other (specify)
Name
Address
Telephone
Fax
1.2 Page 517 of 565 APM 2022

M0001
KNOW YOUR CLIENT CHECKLIST
This checklist is intended as an aide memoire for issues that should be addressed on the permanent file. Where a
matter is relevant it should be addressed in sufficient detail on the file as to provide a basis for further review as part of
the risk assessment or evaluation of systems. The checklist should not be regarded as exhaustive.
HKSA 315 (Revised 2019) requires that an understanding of the matters shaded in grey is obtained. The requirement
may be over a broad area (such as organizational structure) or over specific area (such as 9.1 on this schedule).
In completing sections 1 to 8, consider how inherent risk factors affects susceptibility of assertions to misstatement and
the degree to which they do so, in the preparation of the financial statements in accordance with the applicable financial
Y, N, N/A PAF Ref
1. Organizational structure
1.1 The entity's organizational structure. Y 3.1
1.2 Group structure. Y 1.1.3
1.3 The complexity of the entity's structure. Y 3.1
1.4 The structure and complexity of the entity's IT environment. Y 1.1.1a
2. Ownership and governance

2.1 The ownership, and relationships between owners and other people or entities, Y 1.1.1 (6) &
including related parties. (10), 1.1.3,
1.5
2.2 The distinction between owners, those charged with governance and Y 1.1.1 (6) &
management. (10)
2.3 Whether any or all of those charged with governance are involved in managing Y 1.1.1 (6) &
the entity. (10)
2.4 The existence (and separation) of a non-executive Board, if any, from executive N/A
management
2.5 Whether those charged with governance hold positions that are an integral part Y 1.1.1 (6) &
of the entity’s legal structure, for example as directors. (10)
2.6 The existence of sub-groups of those charged with governance, such as an N/A
audit committee, and the responsibilities of such a group.
2.7 The responsibilities of those charged with governance for oversight of financial Y 1.1.1 (10)
reporting, including approval of the financial statements.
1.3 Page 518 of 565 APM 2022

Y, N, N/A PAF Ref
3. The entity's business model, including the extent to which the business model integrates the use of IT
Business model
3.1 Nature of revenue sources (for example, manufacturer, wholesaler, banking, Y 1.1.1 (3)
insurance or other financial services, import/export trading, utility, transportation,
and technology products and services).
3.2 Products or services and markets (for example, major customers and contracts, Y 1.1.1 (3)
terms of payment, profit margins, market share, competitors, exports, pricing
policies, reputation of products, warranties, order book, trends, marketing
strategy and objectives, manufacturing processes).
3.3 Conduct of operations (for example, stages and methods of production, or Y 1.1.1 (3)
activities exposed to environmental risks).
3.4 Alliances, joint ventures, and outsourcing activities. N/A
3.5 Involvement in electronic commerce, including internet sales and marketing N/A
activities.
3.6 Geographic dispersion and industry segmentation. Y 1.1.1 (3)
3.7 Location of production facilities, warehouses, and offices, and location and Y 1.1.1 (5)
quantities of inventories.
3.8 Key customers. Y 1.1.1 (3)
3.9 Important suppliers of goods and services (for example, long-term contracts, Y 1.1.1 (4)
stability of supply, terms of payment, imports, methods of delivery such as “just-
in-time”).
3.10 Employment arrangements (including the existence of union contracts, pension Y

and other post-employment benefits, stock option or incentive bonus 1.1.1 (6),
arrangements, and government regulation related to employment matters). (10)
3.11 Research and development activities and expenditures. Y 1.1.1 (12)
3.12 Transactions with related parties. Y 1.1.1 (9)
Investments and investment activities

3.13 Acquisitions, mergers or disposals of business activities (planned or recently Y 1.1.1 (1)
executed).
3.14 Investments and dispositions of securities and loans. N/A
3.15 Capital investment activities, including investments in plant and equipment and N/A
technology, and any recent or planned changes.
3.16 Investments in non-consolidated entities, including non-controlled partnerships, N/A

joint ventures and non-controlled special-purpose entities.
1.3 Page 519 of 565 APM 2022

Y, N, N/A PAF Ref
Financing and financing activities

3.17 Group structure – major subsidiaries and associated entities, Y 1.1.1 (13)
including consolidated and non-consolidated structures.
3.18 Debt structure, including covenants, restrictions, guarantees, and N/A

off-balance-sheet financing arrangements.
3.19 Leasing of property, plant or equipment for use in the business. Y 1.1.1 (13)
3.20 Beneficial owners (local, foreign, business reputation and experience). 1.1.1 (1),
(2), (6),
Y 1.1.3
3.21 Related parties. Y 1.5
3.22 Use of derivative financial instruments. Y 1.1.1 (13)
The entity's business model, objectives, strategies and related business risks
3.23 Industry developments (a potential related business risk might be, for example, 1.1.1 (1),
that the entity does not have the personnel or expertise to deal with the changes Y (2)
in the industry).
3.24 New products and services (a potential related business risk might be, for 1.1.1 (2),
example, that there is increased product liability). Y (3)
3.25 Expansion of the business (a potential related business risk might be, for Y 1.1.1 (2)
example, that the demand has not been accurately estimated).
3.26 New accounting requirements (a potential related business risk might be, for N/A
example, incomplete or improper implementation, or increased costs).
3.27 Regulatory requirements (a potential related business risk might be, for Y 1.1.1 (8)
example, that there is increased legal exposure).
3.28 Current and prospective financing requirements (a potential related business N/A
risk might be, for example, the loss of financing due to the entity’s inability to
meet requirements).
3.29 Use of IT, such as the implementation of a new IT system that will affect both Y 1.1.1a
operations and financial reporting.
3.30 Effects of implementing a strategy, particularly any effects that will lead to new N/A
accounting requirements (a potential related business risk might be, for
example, incomplete or improper implementation).
1.3 Page 520 of 565 APM 2022

Y, N, N/A PAF Ref
4. Industry factors
4.1 The market and competition, including demand, capacity, and price competition. Y 1.1.1 (3)
4.2 Cyclical or seasonal activity. Y 1.1.1 (3)
4.3 Supplier and customer relationships. Y 1.1.1(3),(4)
4.4 Product technology relating to the entity’s products. Y 1.1.1 (3)
4.5 Energy supply and cost. N/A
5. Regulatory factors
5.1 Accounting principles and industry specific practices. Y 1.1.1 (7)
5.2 Regulatory framework for a regulated industry, for example, prudential N/A
requirements, including related disclosures.
5.3 Legislation and regulation that significantly affect the entity’s operations, for Y 1.1.1 (8),
example, labour laws and regulations. 1.4
5.4 Taxation legislation and regulations. Y 1.1.1 (8a)
5.5 Government policies currently affecting the conduct of the entity's business:
* Monetary, including foreign exchange controls. N/A
* Fiscal. N/A
* Financial incentives (for example, government aid programs). N/A
* Tariffs, trade restrictions. N/A
5.6 Environmental requirements affecting the industry and the entity's business. N/A
6. Other external factors
6.1 General economic conditions. Y 1.1.1 (13)
6.2 Interest rates and availability of financing. Y 1.1.1 (13)
6.3 Inflation or currency revaluation. N/A
1.3 Page 521 of 565 APM 2022

Y, N, N/A PAF Ref
7. Measures used, internally and externally, to assess the entity's financial performance
Internal
7.1 Key performance indicators (financial and non-financial). Y 1.1.1 (14)
7.2 Key ratios, trends and operating statistics. 1.1.1 (11),

Y 1.1.1 (14)
7.3 Period-on-period financial performance analysis (revenue growth, profitability, Y 1.1.1 (11)
leverage).
7.4 Budgets, forecasts, variance analyses. Y 1.1.1 (11)
7.5 Segment information and divisional, departmental or other level performance N/A
reports.
Consider the following:
• Sales, transfers and charges between segments, and elimination of inter-
segment amounts.
• Comparisons with budgets and other expected results, for example,
operating profits as a percentage of sales.
• The allocation of assets and costs among segments.
• Consistency with prior periods, and the adequacy of the disclosures with
respect to inconsistencies.
• Whether such measures create pressures on the entity to achieve
performance targets.
7.6 Employee performance measures and incentive compensation policies. Y 1.1.1 (10)
7.7 Comparisons of an entity's performance with that of competitors. 1.1.1(3)

and
N/A 1.1.1(11)
External
7.8 Information from analysts or credit agencies. N/A
7.9 Information from news and other media, including social media. N/A
7.10 Information from taxation authorities. N/A
7.11 Information from regulators. N/A
7.12 Information from trade unions. N/A
7.13 Information from providers of finance. N/A
8. The applicable financial reporting framework, and the entity's accounting policies and reasons for any
changes thereto
Financial reporting practices in terms of the applicable financial reporting framework
8.1 Accounting principles and industry-specific practices, including for industry- Y 1.6
specific significant classes of transactions, account balances and related
disclosures in the financial statements (for example, loans and investments for
banks, or research and development for pharmaceuticals).
1.3 Page 522 of 565 APM 2022

Y, N, N/A PAF Ref
8.2 Revenue recognition. Y 1.6
8.3 Accounting for financial instruments, including related credit losses. Y 1.6
8.4 Foreign currency assets, liabilities and transactions. Y 1.6
8.5 Accounting for unusual or complex transactions including those in controversial N/A
or emerging areas (for example, accounting for cryptocurrency).
8.5 Where changes in the entity's financial reporting (e.g., from prior periods) may N/A
be expected based on the understanding of the entity and its environment.
Selection and application of accounting policies, including any changes thereto as well as the reasons therefore
8.7 The methods the entity uses to recognize, measure, present and disclose Y 1.6
significant and unusual transactions.
8.8 The effect of significant accounting policies in controversial or emerging areas N/A
for which there is a lack of authoritative guidance or consensus.
8.9 Changes in the environment, such as changes in the applicable financial N/A
reporting framework or tax reforms that may necessitate a change in the entity’s
accounting policies.
8.10 Financial reporting standards and laws and regulations that are new to the entity N/A
and when and how the entity will adopt, or comply with, such requirements.
Accounting Estimates
8.11 Any transactions and other events and conditions that may give rise to the need N/A
for, or changes in, accounting estimates to be recognized or disclosed in the
8.12 The requirements of the applicable financial reporting framework related to Y 1.6
accounting estimates (including the recognition criteria, measurement bases,
and the related presentation and disclosure requirements); and how they apply
in the context of the nature and circumstances of the entity and its environment,
including how transactions and other events or conditions are subject to, or
affected by, inherent risk factors.
1.3 Page 523 of 565 APM 2022

Y, N, N/A PAF Ref
8.13 The nature of the accounting estimates and related disclosures expected to be Y 1.7
included in the entity’s financial statements,
For example consider:
- Allowance for doubtful debts
- Inventory obsolescence
- Warranty obligations
- Depreciation method or asset useful life
- Carrying value of investments
- Outcome of construction contracts
- Costs arising from litigation
- Share based payments
- Financial instruments not traded in an active and open market
9. Control environment
Once an understanding of the control environment is obtained, the evaluations specified on C4 must also be
completed.
Do we have notes on the set of controls, processes and structures that address the following matters:
9.1 How management’s oversight responsibilities are carried out, such as the entity’ Y 1.1.1 (17)
s culture and management’s commitment to integrity and ethical values.

- How management communicates to employees its views on business
practices and ethical behavior (e.g. policy statements and codes of conduct).
- Inspecting management's written code of conduct and observing whether

management acts in a manner that supports that code.
9.2 When those charged with governance are separate from management, the N/A
independence of, and oversight over the entity’s system of internal control by,
those charged with governance.
- Whether there are sufficient individuals who are independent from
management and objective in their evaluations and decision-making.
- How those charged with governance identify and accept oversight
responsibilities and whether those charged with governance retain oversight
responsibility for management's design, implementation and conduct of the
entity's system of internal control.
- Whether the importance of the responsibilities of the responsibilities of those
charged with governance is recognized in codes of practice and other laws and
regulations or guidance produced for the benefit of those charged with
governance.
- Whether the other responsibilities of those charged with governance include
oversight of the design and effective operation of whistle blower procedures.
1.3 Page 524 of 565 APM 2022

Y, N, N/A PAF Ref
9.3 The entity's assignment of authority and responsibility. Y 1.1.1 (6) &
For example consider: (10)
- Key areas of authority and responsibility and appropriate lines of reporting;
- Policies relating to appropriate business practices, knowledge and experience

of key personnel, and resources provided for carrying out duties; and
- Policies and communications directed at ensuring that all personnel

understand the entity’s objectives, know how their individual actions interrelate
and contribute to those objectives, and recognize how and for what they will be
held accountable.
9.4 How the entity attracts, develops, and retains competent individuals. 1.1.1 (6),
Y (10)
- Whether there are standards for recruiting the most qualified individuals – with
an emphasis on educational background, prior work experience, past
accomplishments, and evidence of integrity and ethical behavior.
- Whether there are training policies that communicate prospective roles and
responsibilities, including practices such as training schools and seminars that
illustrate expected levels of performance and behavior; and
- Whether there are periodic performance appraisals driving promotions that
demonstrate the entity’s commitment to the advancement of qualified personnel
to higher levels of responsibility.
9.5 How the entity holds individuals accountable for their responsibilities in the Y 1.1.1 (10)
pursuit of the objectives of the system of internal control;
- The mechanisms to communicate and hold individuals accountable for
performance of controls responsibilities and implement corrective actions as
necessary;
- Whether performance measures, incentives and rewards have been
established for those responsible for the entity’s system of internal control,
including how the measures are evaluated and maintain their relevance;
- How pressures associated with the achievement of control objectives impact
the individual’s responsibilities and performance measures; and
- How the individuals are disciplined as necessary.
9.6 Procedures for ensuring compliance with relevant laws and regulations. Y 1.1.1(8)
Accounting estimates
9.7 The nature and extent of oversight and governance that the entity has in place Y 1.1.1(8b)
over management’s financial reporting process relevant to accounting
estimates.
9.8 How management identifies the need for, and applies, specialized skills or Y 1.1.1 (8b)
knowledge related to accounting estimates, including with respect to the use of
a management’s expert.
1.3 Page 525 of 565 APM 2022

Y, N, N/A PAF Ref
9.9 How the entity’s risk assessment process identifies and addresses risks relating Y 1.1.1 (8b)
to accounting estimates.
9.10 The entity’s information system as it relates to accounting estimates, including Y 1.1.1a
the classes of transactions, events and conditions that are significant to the
financial statements and that give rise to the need for, or changes in, accounting
estimates and related disclosures.
9.11 For such accounting estimates and related disclosures identified above; how
management:
a) Identifies the relevant methods, assumptions or sources of data, and the Y 1.7
need for changes in them, that are appropriate in the context of the applicable
financial reporting framework.
b) Selects or designs, and applies, the methods used, including the use of Y 1.7
models.
c) Selects the assumptions to be used, including consideration of alternatives, Y 1.7

and identifies significant assumptions.
d) Selects the data to be used. Y 1.7
e) Understands the degree of estimation uncertainty, including through Y 1.7

considering the range of possible measurement outcomes.
f) Addresses the estimation uncertainty, including selecting a point estimate Y 1.7

and related disclosures for inclusion in the financial statements.
9.12 Any control activities relevant to the audit over management’s process for Y 1.7
making accounting estimates
9.13 How management reviews the outcome(s) of previous accounting estimates Y C4.1
and responds to the results of that review.
10. The entity's risk assessment process
Once an understanding of the entity's risk assessment process is obtained, the evaluation specified on C4 must also
be completed.
Do we have notes on the entity's process for:
10.1 Identifying business risks relevant to financial reporting objectives. 1.1.1 (15)
Y 1.1.2
10.2 Assessing the significance of those risks, including the likelihood of their
1.1.1 (15),
occurrence.
Y 1.1.2
10.3 Addressing those risks. 1.1.1 (15),

Y 1.1.2
11. Entity's process to monitor the system of internal control
1.3 Page 526 of 565 APM 2022

Y, N, N/A PAF Ref
Once an understanding of the entity's process to monitor the system of internal control is obtained, the evaluation
specified on C4 must also be completed.
Do we have notes that address our understanding of the entity’s process for monitoring the system of internal control
relevant to the preparation of the financial statements, including:
Note: Guidance is included in HKSA 315 paragraphs A116-A118 and Appendix
4.
11.1 Ongoing and separate evaluations for monitoring the effectiveness of controls, Y 1.1.1(17)
and the identification and remediation of control deficiencies identified.
11.2 The entity’s internal audit function, if any, including its nature, responsibilities N/A
and activities.
11.3 The sources of the information used and the basis upon which management Y 1.1.1(17)
considers the information to be sufficiently reliable for the purpose.
12. The information system and communication
Once an understanding of the entity's information system and communication is obtained, the evaluation specified on
C4 must also be completed.
The entity's information system and communication relevant to the preparation of the
financial statements should be documented to include the following areas:
12.1 The entity’s information processing activities, including its data and information,
the resources to be used in such activities and the policies that define, for
significant classes of transactions, account balances and disclosures:
a) How information flows through the entity’s information system, including how: Y 3.4
(i) Transactions are initiated, and how information about them is recorded, Y 3.4
processed, corrected as necessary, incorporated in the general ledger and
reported in the financial statements.
(ii) Information about events and conditions, other than transactions, is Y 3.4
captured, processed and disclosed in the financial statements.
b) The accounting records, specific accounts in the financial statements and Y 3.4
other supporting records relating to the flows of information in the information
system.
c) The financial reporting process used to prepare the entity’s financial Y 3.4
statements, including disclosures.
d) The entity’s resources, including the IT environment, relevant to (a) to (c) Y 3.4
above.
In obtaining the above understanding, consider:
- Inquiries of relevant personnel about the procedures used to initiate, record,
process and report transactions or about the entity’s financial reporting process;
- Inspection of policy or process manuals or other documentation of the entity’s
information system;
- Observation of the performance of the policies or procedures by entity’s
personnel; or
- Selecting transactions and tracing them through the applicable process in the
information system (i.e., performing a walk-through).
1.3 Page 527 of 565 APM 2022

Y, N, N/A PAF Ref
Additionally consider information obtained from outside of the general and
subsidiary ledgers which may include:
- Information obtained from lease agreements relevant to disclosures in the
- Information disclosed in the financial statements that is produced by an entity’
s risk management system.
- Fair value information produced by management’s experts and disclosed in
the financial statements.
- Information disclosed in the financial statements that has been obtained from
models, or from other calculations used to develop accounting estimates
recognized or disclosed in the financial statements, including information
relating to the underlying data and assumptions used in those models.
- Information disclosed in the financial statements about sensitivity analyses
derived from financial models that demonstrates that management has
considered alternative assumptions.
- Information recognized or disclosed in the financial statements that has been
obtained from an entity’s tax returns and records.
- Information disclosed in the financial statements that has been obtained from
analyses prepared to support management’s assessment of the entity’s ability
to continue as a going concern, such as disclosures, if any, related to events or
conditions that have been identified that may cast significant doubt on the entity’
s ability to continue as a going concern.
12.2 How the information system captures related party transactions. This should Y 1.1.1 (9)
include those controls in place for the approval, authorization and identification
of related party transactions and transactions outside the normal course of
business.
The financial reporting process used to prepare the entity’s financial statements, 1.7
12.3
including significant accounting estimates and disclosures. Y 3.4
12.4 How the entity communicates significant matters that support the preparation of
the financial statements and related reporting responsibilities in the information
system and other components of the system of internal control:
a) Between people within the entity, including how financial reporting roles and Y 1.1.1 (17)
responsibilities are communicated.
b) Between management and those charged with governance. Y 1.1.1 (17)
c) With external parties, such as those with regulatory authorities. Y 1.1.1 (17)
1.3 Page 528 of 565 APM 2022

Y, N, N/A PAF Ref
13. Control activities
13.1 Controls that address risks of material misstatement at the assertion level in the Y C5.1
control activities component.
These should include:

- Controls that address risks which are expected to be high risks.
- Controls over journal entries, including non-standard journal entries used to
record non-recurring, unusual transactions or adjustments.
- Controls for which test of operating effectiveness is likely to be planned
(including those which address risks for which substantive procedures alone do
not provide evidence).
- Other controls that are considered appropriate, based on professional
judgment.
Control activities include; authorization/performance reviews, information

processing, physical controls and segregation of duties, and as a minimum
would include those within the main transaction cycles.
13.2 Based on the controls identified in 13.1 above, identify the IT applications and Y 1.1.1a
other aspects of the entity's IT environment that are subject to risks arising from
the use of IT.
13.3 For such IT applications and other aspects of the IT environment identified in
13.2 above, identify:
a) The related risks arising from the use of IT. Y 1.1.1a
b) The entity's general IT controls that address such risks. Y 1.1.1a
14. Service Organizations
14.1 Where the entity uses a service organization:

a) The nature of the services provided by the service organization and the N/A
significance of those services to the user entity, including the effect thereof on
the user entity's internal control;
b) The nature and materiality of the transactions processed or accounts or N/A

financial reporting processes affected by the service organization;
c) The degree of interaction between the activities of the service organization N/A
and those of the user entity;
d) The nature of the relationship between the user entity and the service N/A
organization, including the relevant contractual terms for the activities
undertaken by the service organization;
e) How the entity's use of a service organization affects the user auditor's N/A
reporting responsibilities in relation to accounting records arising from laws or
regulations.
1.3 Page 529 of 565 APM 2022

Y, N, N/A PAF Ref
14.2 Controls at the user entity that relate to the services provided by the service N/A
organization, including those that are applied to the transactions processed by
the service organization.
15. Risk of fraud
Do we have notes on the following matters:
15.1 Management’s assessment of the risk that the financial statements may be Y 1.1.1 (16)
materially misstated due to fraud.
15.2 Management’s process for identifying and responding to the risks of fraud, Y 1.1.1 (16)
including any specific risks of fraud that management has identified or account
balances, classes of transactions or disclosures for which a risk of fraud is likely
to exist.
15.3 Management’s communication, if any, to those charged with governance N/A

regarding its processes for identifying and responding to the risks of fraud in the All TCWG
involve in
entity.
managing
the entity.
15.4 Management’s communication, if any, to employees regarding its views on Y 1.1.1 (17)
business practices and ethical behavior.
15.5 How those charged with governance exercise oversight of management’s

processes for identifying and responding to the risks of fraud in the entity and Y 1.1.1 (16)
the internal control that management has established to mitigate these risks.
16. Groups
16.1 Sufficient understanding of the group to enable assessment of the risk of N/A
material misstatement due to fraud or error. In particular:
a) Identification of components of the group that are likely to be significant.
b) Group wide controls including any internal audit function.

c) The consolidation process including:
i) matters relating to the financial reporting framework;
ii) matters relating to the mechanics of the consolidation process;
iii) matters relating to consolidation adjustments.
d) Instructions issued by Group Management to the components including
17. Related Parties
17.1 Ascertain whether there are any individuals (in addition to the directors) or Y 1.1.1 (9),
entities which should be treated as related parties. 1.5
a) Identify changes from the previous periods.
b) Ascertain the nature of the relationship.
c) Update details on PAF06 or elsewhere on the permanent file as
1.3 Page 530 of 565 APM 2022

REGISTER OF LAWS AND REGULATIONS
Summary of the legal and regulatory framework What procedures ensure compliance? Audit approach
1 Laws and regulations governing accounts MCL engages N&C to prepare financial statements Completion of disclosure checklist.
(e.g. Companies Ordinance) based on information in the MCL-approved trial
balance. Significant disclosures are also drafted by
Companies Ordinance and accounting standards
MCL, while N&C would prepare related notes based on
client-approved records.
Accordingly, MCL involves N&C to ensure that

disclosures are appropriate.
2 General business laws and regulations The factory and warehouse managers are responsible Review the accident book and consider
(e.g. health and safety, employment, hygiene, planning) for health and safety issues. They are required to report whether:
any problems or potential problems to the board. - any accidents recorded may give rise to a
Health and safety regulations are relevant in both the
claim against the company;
factory and warehouse. However, there are no particular
An accident book is kept and any incidents recorded. - the frequency or type of accidents suggests
concerns such as hazardous chemicals or dangerous
that there may be a wider problem.
equipment.
(See C8.3-5)
3 Other specific laws and regulations The client relies on N&C to prepare the tax return based Standard audit procedures conducted within
on historical information, which is routine with no Section P of the file.
contentious items.
CAP 112 Inland Revenue Ordinance
Reference should be made to specific requirements not bland statements about say employment legislation.
Sufficient detail should be recorded to enable consideration of the impact of the laws and regulations on the determination of material amounts and disclosures in the financial
statements.
1.4 Page 531 of 565 APM 2022

DETAILS OF RELATED PARTIES
Name of related party Nature of relationship Nature of transactions
Raymond Chan Director/shareholder Remuneration

Dividends
Loan account
Adeline Leung Director/shareholder Remuneration

Dividends
Loan account
Anthony Ho Director/shareholder Remuneration

Dividends
Loan account
Sherrin Chan, 100% shareholder in Spouse of Raymond Chan There are no transactions or balances
Chan Computers Limited. between MCL and Chan Computers.
Spouses of Adeline Leung and Close family None.

Anthony Ho They are in full time employment and
have no business interests or
relationship with MCL.
Children of Adeline Leung and Close family None.
Anthony Ho They are in full time education and
(Note, the Chans have no children) have no business interests or
relationship with MCL.
Parents of all directors Close family None.
The parents of all the directors are
either deceased or retired and hence
have no business interests.
Holding Company Limited Parent company Loan of HK$5m in 2021

Possibility of dividend payments to
parent.
Service Company Limited Fellow subsidiary None
Repair Company Limited Fellow subsidiary None
Reca Limited Subsidiary of Chan Computers so controlled Sales to Reca on agreed terms
by Mrs. Chan
1.5 Page 532 of 565 APM 2022

M0001
SIGNIFICANT ACCOUNTING POLICIES
Evaluate whether the accounting

policy is appropriate and
Area of accounts Accounting policy
consistent with the applicable
financial reporting framework
Revenue The recognition of revenue from contracts with customers is based on the performance obligations identified in the contracts. Assessment of MCL's revenue
recognition Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service (i.e. recognition policy is performed on
an asset) to a customer who obtains the control of the asset. R6.7. The assessment noted that
the policy complies with HKFRS 15.
In respect of sale of computer products, revenue is recognized when control of the products has been transferred, being when the
products are delivered to the customer, and there is no unfulfilled obligation that could affect the customer's acceptance of the [Note: R6.7 is not included in this
products. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. No significant example file] .
element of financing is deemed present as the sales are made with a credit term of 30 days. The Company's obligation to replace
and replace faulty products under the standard warranty terms is recognized as a provision (see accounting policy on provision).
A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because
only the passage of time is required before the payment is due.
[Illustration of other areas of significant accounting policies are not included in this example file]
Conclusion
All policies are appropriate to the nature and circumstances of MCL and comply with the relevant HKFRSs.
1.6 Page 533 of 565 APM 2022

M0001
All accounting estimates should be recorded on this schedule. Where an estimate is not material it should still be recorded
ACCOUNTING ESTIMATES with sufficient information to justify the assessment of materiality.
Financial reporting Approach to making

(including disclosure) estimate Approach to estimation
Sources of data used Assessment of
Accounting estimate and regulatory (assumptions, uncertainty Control activities
in making estimate materiality
requirements and models, use of expert
how they are applied etc.)
Rates of depreciation on PPE is generally measured Management review the Where assets are leased, There is estimation No specific controls in this Depreciation is material
property, plant and at cost less accumulated useful economic life (UEL) the length of the lease per uncertainty in determining area. and the impact of any
equipment depreciation and annually based on lease agreements is the UEL and the residual misstatement could be
1.3(8.13) impairment losses, except historical and latest PPE factored into the estimate. values. Most residual values material. The estimate has
that the warehouse is held usage, maintenance For all assets are assumed to be zero. therefore been recorded on
under the revaluation incurred, remaining period consideration is given to Where there are multiple C4.1.
model and is still of the warranty, the useful the expected use within the possible alternatives to
depreciated as required by life suggested by the business by management, useful lives, management
the standard. Accounting supplier and the latest including when it discusses the possible
policies are required to be technology/machine anticipates replacing the options and forms a
disclosed as is models in the market. equipment. judgment based on what is
depreciation, impairment, considered reasonable for
carrying value etc. the particular asset and
particular circumstances of
the company.
1.7 Page 534 of 565 APM 2022

Valuation of property The warehouse is held Valuation is provided by Based on public data of Management use an No specific controls in this The value of the property is
1.1.1(5) under the revaluation external valuer appointed market transactions independent expert valuer to area. material and the impact of
model. Disclosures relating by management. collected by the valuer. establish the value of the any misstatement could be
to historical cost values property and discuss with the material. The estimate has
must still be given. Details
The valuer measures the valuer about the availability therefore been recorded on
of the valuation are also market value of the of alternative data source C4.1.
required to be disclosed. warehouse using the and comparable transactions
market approach (method) and their effects to the
The revalued amount is based on recent market possible range of value.
measured at the fair value transactions of properties
at the date of the of similar nature, location,
revaluation less any size, floor loading as well
subsequent accumulated as yields. The valuer
depreciation and makes adjustments to
subsequent accumulated reflect the differences of
impairment losses where the comparable
the fair value is measured transactions with the
in accordance with HKFRS subject property
13 Fair Value (warehouse).
Measurement .
1.7 Page 535 of 565 APM 2022

Rates of amortization of Amortized over UELs down The company amortizes Management forecasts / There is estimation No specific controls in this Total amortization is
capitalized research and to an assumed residual development expenditure budgets provided by uncertainty in determining area. material and the impact of
development expenditure value of zero. Accounting over 12 years. This seems management. the UEL, which is also quite any misstatement could
1.1.1(2), (12) policy and reconciliation long for IT products world judgmental. Management therefore be material. The
required. but the company is still considers the different estimate has been
selling the relevant potential outcomes and recorded on C4.1.
products to which the forms a judgment using
expenditure relates. Also, forecasts and budgets.
management reviews the
UEL policy annually
considering internal and
external factors to support
the use of 12 years UEL.
Allowance for recoverability The simplified approach Management performed Management's knowledge There is estimation No specific controls in this The allowance may be
of receivables under HKFRS 9 is used to the ECL assessment for and experience with uncertainty in determining area. material and has therefore
1.3(8.13) measure the loss each debtor individually customers (e.g., credit lifetime ECL. For been recorded on C4.1.
allowance at an amount based on MCL's historical worthiness; repayment longstanding customers, this
equal to lifetime expected loss pattern, the latest history); market news is usually relatively
credit losses (ECL). This information and current about the customers straightforward, although is
accounting policy must be conditions of debtors, and more complex and uncertain
disclosed. the latest economic for newer customers where
forecasts by the there is less history to use in
government. determining the estimate.
1.7 Page 536 of 565 APM 2022

Provision for obsolete and Inventory is recorded at the Review of inventories at Post year-end sales by There is estimation No specific controls in this All finished goods of MCL
slow moving inventories lower of cost and NRV. stock take and of stock product lines; any trend uncertainty in determining area. sell above the cost with a
1.1.1(2) records. that sales of relevant whether a provision is substantial mark-up. In
1.3(8.13) products are slowing down required and the amount of 2021, noted that all product
such a provision. There is lines recorded sales and
also judgment in determining still adaptable to the
the stock lines which are market needs. Hence any
considered slow moving. provision for obsolete and
Management seeks to use all slow moving inventories is
available information in not considered as material.
making the estimate and
discusses possible
alternatives for each
provision.
Provision for recall costs of Provision to be recognized Total provision is the sum Sales records; costs of These is estimation No specific controls in this The potential provision
faulty components at best estimate of the of a number of different manufacturing known to uncertainty in establishing area. could be material and has
1.3(8.13) expenditure required to actual costs and multiplied management according to the best estimate of been recorded on C4.1.
settle the present by the estimated number of the actual cost incurred expenditure required. This is
obligation at the reporting units sold. and their business based on the expected actual
date. Disclosure of carrying knowledge. costs and the number of
amount, addition to the units sold.
provision, amounts used
required.
Provision for claim re faulty If possibility of outflow is No provision required on Legal advice provided by Use of legal advice to aid in No specific controls in this The value of the provision
component 1.3(8.13) remote, then provision basis of legal advice. external legal counsel. determining whether a area. could be material, and has
does not require disclosure provision is required. therefore been recorded on
or recognition. If possibility Management discuss with C4.1.
of outflow is more than legal counsel about the
remote, disclosure is availability of alternative
required. If conditions in information and comparable
HKFRS 37 para 14 are met cases and their effects to the
it must be recognized. possible range of value.
1.7 Page 537 of 565 APM 2022

Valuation of forward The FX contract, as a Published exchange rates Market data from FT. There is estimation No specific controls in this The value of the FX
exchange contracts derivative should be at fair and the amounts and rates uncertainty in establishing area. contract could be material,
1.1.1(13) value. specified in the contract. fair value, however the depending on FX rates.
1.3(8.13) calculation is based on The estimate has therefore
market data which is readily been recorded on C4.1.
available.
Discount factor for loans The loan must be Research on the web and Current bank borrowing This is estimation uncertainty No specific controls in this The value of the loan is
from parent company discounted back at a correspondence with bank rates for similar entities in determining the discount area. material, therefore it is
below market rate. market rate of interest. on the rates they would obtained from banks. factor to use, and significant possible that the discount
1.1.1(13) charge for an equivalent judgment is required. Whilst factor could have a
1.3(8.13) loan. market data is useful in material effect. The
informing the decision, entity estimate has therefore
specific factors can make been recorded on C4.1.
this estimate very subjective.
1.7 Page 538 of 565 APM 2022

31-Dec-21 C2.1
M0001
INDEPENDENCE QUESTIONNAIRE
This questionnaire assumes a knowledge of the HKICPA Code of Ethics for Professional Accountants (revised 2018). It
must be completed annually for all clients to ensure that the firm complies with its requirements.
In the case of a financial statements audit, where relevant, all questions should be treated as applying to all partners and
staff in the firm or a network firm and to their close family.
Yes No
1 Fees
a) Do the total fees generated from the client represent a large proportion of the total fees N
of the firm, that dependence on that client and concern about losing the client could
create a perceived independence threat?
b) For a non-PIE audit only, for each of five consecutive years, do total fees from the N
audit client and its related entities represent, or are likely to represent, more than 30%
of the total fees received by the firm?
c) For a PIE audit only, for each of two consecutive years, do total fees from the audit N/A
client and its related entities represent, or are likely to represent, more than 15% of the
total fees received by the firm?
d) Are a large proportion of the fees charged to the audit client generated by providing N
services other than audit to the client?
e) Are any fees charged directly or indirectly to this client/group of clients by the firm or a N
network firm on a contingent basis?
f) Are there any overdue fees for any services? N
2 Loans and guarantees

Has the firm, network firm or audit team member (or their immediate family) made or N
received a material loan or guarantee of borrowings to or from the client?
(Note. A loan received from a client that is a bank or similar institution that is made under
normal lending procedures, terms and conditions may be ignored.)
3 Gifts and hospitality

a) Has the firm, network firm or any audit team member received gifts or favours, N
including hospitality, from the client unless the value is trivial and inconsequential?
b) Has the firm, network firm or any audit team member offered gifts or favours, including N
hospitality, from the client unless the value is trivial and inconsequential?
4 Litigation
Is there any actual or threatened litigation between the firm and the client in relation to N
fees, audit work, or other work?
5 Family and personal relationships

a) Are there any instances where the immediate family member of an audit team member N
is an employee in a position to exert significant influence over the client ’ s financial
position, financial performance or cash flows?
b) Are there any instances when a close family member of an audit team member is:
i) a director or officer of the client; or N
1.9 Page 539 of 565 APM 2022

Yes No
ii) an employee in a position to exert significant influence over the preparation of the
N
client’s accounting records or the financial statements?
c) Does any audit team member have a close relationship with an individual who is not an
immediate or close family member, but who is:
i) a director or officer of the client; or N
ii) an employee in a position to exert significant influence over the preparation of the N
d) Are partners and employees of the firm aware of a personal or family relationship
between:
i) a partner or employee of the firm or network firm who is not an audit team N
member; and
ii) a director or officer of the client or an employee of the client in a position to exert N
significant influence over the preparation of the client’s accounting records or the
financial statements?
6 Service with an audit client

a) Does the audit team include an individual who, during the period covered by the audit
report:
i) has served as a director or officer of the client; or N
ii) was an employee in a position to exert significant influence over the preparation of N
the client’s accounting records or the financial statements on which the firm will
express an opinion?
b) Before the period covered by the audit report, had any audit team member:
i) served as a director or officer of the client; or N
ii) been an employee in a position to exert significant influence over the preparation N
of the client’s accounting records or financial statements?
c) Has any partner or employee of the firm or a network firm served as a director or N
officer of the client?
d) Has any partner or employee of the firm or a network firm served as Company N
Secretary for the client?
7 Employment with an audit client

e) Have any former partners or audit team members joined the client as:
i) a director or officer; or N
ii) an employee in a position to exert significant influence over the preparation of the N
f) Have any audit team members notified the firm or network firm if they are entering N
employment negotiations with the client?
g) Is a partner joining a PIE audit client in a senior role (such as director etc.) where the N
client’s last issued audited annual financial statements were signed by that partner?
A PIE is defined in the glossary of HKICPA Code of Ethics for Professional

Accountants (revised 2018) as:
(a) A listed entity; or
(b) An entity:
1.9 Page 540 of 565 APM 2022

Yes No
(i) Defined by regulation or legislation as a public interest entity; or
(ii) For which the audit is required by regulation or legislation to be conducted in compliance with
the same independence requirements that apply to the audit of listed entities. Such regulation
might be promulgated by any relevant regulator, including an audit regulator.
Paragraph 400.8, Chapter A of the HKICPA Code of Ethics for Professional Accountants (revised
2018) also states that:
Firms are encouraged to determine whether to treat additional entities, or certain
categories of entities, as public interest entities because they have a large number
and wide range of stakeholders. Factors to be considered include:
- The nature of the business, such as the holding of assets in a fiduciary capacity for a
large number of stakeholders. Examples might include financial institutions, such as
banks and insurance companies, and pension funds.
- Size.
- Number of employees.
h) Has any Senior or Managing Partner (Chief Executive or equivalent) of the firm joined N
a PIE audit client in a senior role within 12 months of having held the Senior or
Managing Partner role?
i) Has the firm or network firm provided personnel to the client on secondment / loan N
basis?
8 Business relationships
a) Does the firm, network firm or audit team member have a material, close business N
relationship with the client or its management?
b) Does the firm, network firm or audit team member (or their immediate family) have a N
business relationship involving the holding of an interest in a closely-held entity when a
client or a director / officer of the client, or any group thereof, also holds an interest in
that entity?
9 Financial interests
a) Does the firm, network firm, audit team member (or their immediate family), any other
partner in the office from which the audit partner is based (or their immediate family),
or any other partner or managerial employee (or their immediate family) who provides
non-audit services to the client, except for any whose involvement is minimal have,
either beneficially or as trustee:
i) A direct financial interest in the client? N
ii) A material indirect financial interest in the client? N
iii) Any indirect financial interest in the client with the ability to influence investment N
decisions of the intermediary?
iv) Any trusteeships in a trust that holds shares in an audit client? N
v) A financial interest in an entity when a director / officer / controlling owner of the N

client is also known to have a financial interest in that entity?
vi) A financial interest in an entity when the client also has a financial interest in that N
entity?
b) Do any of the financial interests held (above) represent a controlling interest in the N
client where the client is material to the firm?
c) Does any audit team member have a close family member with a direct financial N
interest or a material indirect financial interest in the client?
1.9 Page 541 of 565 APM 2022

Yes No
d) Are there any financial interests in the client held by individuals such as: partners and N
professional employees of the firm or network firm, apart from those who are
specifically not permitted to hold such financial interests (or their immediate family
members) and Individuals with a close personal relationship with an audit team
member?
10 Associated firms
Are you or your staff associated with any other practice or organization which has any N
dealings with the company?
11 Provision of non-audit services by the firm or a network firm

a) Are any services in relation to the management of the company performed by the firm N
or a network firm?
b) Are any accounting and bookkeeping services performed for the company by the firm Y
or a network firm such as preparation of the financial statements from trial balance,
bookkeeping or payroll services?
c) Do the financial statements include any specialist valuations carried out by the firm or N
a network firm?
d) Are the firm or a network firm currently acting for the client as an advocate in any
N
adversarial proceeding or situation such as a hearing before the tax authorities?
e) Has the firm or a network firm been involved in the design, provision or implementation N
of any IT systems?
f) Does the firm or a network firm provide advice on taxation matters or undertake tax Y
compliance work for the client?
g) Does the firm or a network firm provide any internal audit services for the client? N
h) Does the firm or a network firm provide any litigation support services for the client? N
i) Does the firm or a network firm provide any legal services for the client? N
j) Does the firm or a network firm provide any corporate finance services for the client? N
1.9 Page 542 of 565 APM 2022

Yes No
k) Does the firm or a network firm provide company secretarial services? N
Note. If a partner or employee of the firm or a network firm serves as Company
Secretary for a financial statement audit client the self-review and advocacy threats
created would generally be so significant that no safeguards could reduce the threat to
an acceptable level unless the duties and functions undertaken are limited to those of
a routine and formal administrative nature such as the preparation of minutes and
maintenance of statutory returns, and are permitted by law.
For general guidance please also refer to Statement 1.303 Restrictions on

Appointments as Secretaries and Directors of Audit Clients:
https://www.hkicpa.org.hk/en/Standards-and-regulation/Standards/Members-
Handbook-and-Due-Process/HandBook/Volume-I--Professional-Accountants--
Ordinance--Bylaws-Professional-Ethics--Conduct/1303-Restrictions-on-appointments-
as-secretaries-and-directors-of-audit-clients
l) Has the firm provided a service that is prohibited by the HKICPA Code of Ethics for N
Professional Accountants (revised 2018) such as acting as an advocate for the client
(e.g. certain restructuring services or adversarial negotiations or proceedings involving
tax authorities) or providing a valuation service, where the impact on the financial
statements could be material?
m) Has the firm or a network firm been involved in the provision of any recruitment
services? N
n) Does the client lack a designated individual (preferable a member of the management N
team) to make all judgments and decisions that are the proper responsibility of
management?
Name of designated management (where applicable): Adeline Leung
o) Where the firm provides multiple non-audit services to the audit client, in addition to
the threats created by each service individually, does the combined effect of such N
services create or impact threats to independence?
12 Long association of personnel with the audit client

Has there been any long association (as defined by the firm's quality control procedures) of N
senior personnel, including any engagement quality control reviewer, in the firm with the
assurance client?
(The audit engagement partner has acted for ___3___ years.)
Note: For audit clients that are public interest entities, please refer to Section 540, Chapter
A of the HKICPA Code of Ethics for Professional Accountants (revised 2018) for rotation
requirements applying to the engagement partner, engagement quality control reviewer
and any other key audit partner role.
13 Adequate resources
(a) Are there any indications that the engagement team is not competent or does not have N
the necessary time and resources?
(b) Are there any indications that the firm or engagement team will not be able to N
demonstrate compliance with ethical requirements?
14 Proper performance
(a) Are there any aspects of the client, or other factors, that will adversely affect the firm’s N
ability to perform the audit properly?
1.9 Page 543 of 565 APM 2022

Yes No
(b) Are there any issues concerning the integrity of the principal owners, key management N
or those charged with governance of the entity?
(c) Are there any management imposed limitations in scope that can result in a N
qualification of opinion and cause the firm normally not to accept appointment or
reappointment as auditor under the provision of section 400.52, Chapter C of HKICPA
Code of Ethics for Professional Accountants (revised 2018)?
(d) Where the previous year's audit report was qualified is this likely to be repeated this N
year because of the action or inaction of management?
Safeguards
Where any of the above questions have been answered ‘yes’, specify what safeguards are proposed to maintain integrity
and independence, and to ensure the availability of resources and the ability to perform the audit properly.
The firm prepares the statutory accounts from a trial balance provided by the client; however, the client approves all
journal adjustments and also approves the wording of any narrative notes. The affairs of the client are routine, there are
no contentious areas. There is therefore not a significant threat to the firm's independence from the provision of tax and
accounting services and specific safeguards are not required. The firm assists the client in the routine exercise of
preparing the tax return and no tax advisory services are provided.
Conclusion
Having regard to any safeguards identified above, I am satisfied that appropriate procedures regarding the acceptance
and continuance of this client relationship and audit engagement have been followed, and that the conclusions reached in
this regard are appropriate and have been properly documented. In arriving at this conclusion I confirm that I have:
a) obtained all relevant information from the firm (and where applicable network firms) to identify and evaluate
circumstances and relationships that may create a threat to independence;
b) evaluated information on identified breaches, if any, of the firm ’ s independence policies and procedures to
determine whether they create a threat to independence for this audit engagement;
c) taken appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards;
and
d) documented the conclusion on independence and any relevant discussions within the firm that support this view.
Engagement Partner: B Lee Date: 12 March 2022
Consultation (to be completed where appropriate)

In my opinion the steps proposed are sufficient to maintain independence and to ensure the availability of resources and
the ability to perform the audit properly.
Second Partner: Date:
1.9 Page 544 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 2/19 2.6
M0001
NEW CLIENT CHECKLIST

Yes No N/A Ref
Pre-interview
1 Are we satisfied that we are independent and are likely to have adequate resources and
knowledge to complete the audit? ü PAF 1.9
2 Are we satisfied that the acceptance of the appointment would not have an adverse
effect on the reputation of the practice?
ü
3 Are we satisfied that acceptance of the engagement will not create any conflict of interest
with existing clients?
ü PAF 1.9
4 Are we satisfied that there are no other reasons why we would not wish to act for the
client (for example financial difficulties or litigation)?
ü
Anti-Money laundering and counter-terrorist financing considerations

1 Are we satisfied that the client is a bona fide business? ü AML File
2 Are we satisfied that there are no concerns regarding the integrity of the directors,
management or shareholders of the client?
ü AML File
3 Have we considered whether there are any suspicious transaction indicators, including
those stated in Appendix D of the AML Guidelines, and taken note of section 640 of the
Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional
Accountants (Chapter F of the Code of Ethics for Professional Accountants) (“AML
Guidelines”)?
ü AML File
4 Have we performed sanctions screening of the client and its beneficial owners to ensure
that they are not included in the latest United Nations sanctions and designated person
lists (and other sanction lists), and taken note of section 650 of the AML Guidelines?
ü AML File
5 Have we taken reasonable steps to establish and verify the beneficial ownership of the
client?
ü AML File
Note: In order to perform sanctions checking on the client and the client’s beneficial
owners (BOs), a practitioner would need to have a reasonable understanding
of the beneficial ownership of the client. Therefore, basic identification of the
BOs is important. Carrying out additional procedures to verify that identity
may not be necessary. However, if a BO ’ s name comes up in a sanctions
check and the practitioner wants to be sure, and not decline the client
outright, they could seek additional evidence to establish the case one way or
the other at that stage.
6 Except for statutory annual audit services, will we carry out or prepare for the client for
any transactions or services specified in paragraphs 600.2.1 and 600.2.2 of the AML
Guidelines (Note 1)? If "yes", have we performed the required customer due diligence on
the client, and are we aware of the relevant requirements of the AML Guidelines,
including section 620 (Note 2)?
ü AML File
Note 1: Section 5A and Schedule 1 of the Anti-Money Laundering and Counter-Terrorist

Financing Ordinance (Cap.615) ("AMLO") refer.
Note 2: Schedule 2 of AMLO refers.
2.6 Page 545 of 565 APM 2022

Yes No N/A Ref
Procedures 7 and 8 are not necessary for AML purposes if the work is related only to an audit
of financial statements, but they would be considered as good practice.
If a practice decides to adopt good practices, it should apply Chapter F (customer due
diligence, ongoing monitoring, record keeping requirements, etc.) to statutory audit services
just as it would for any transactions or services specified in paragraphs 600.2.1 and 600.2.2 of
the AML Guidelines.
7 If the client has been introduced by a principal or staff member of the firm, or a long-
standing client, do we have written confirmation from the introducer of the client ’ s
identity?
8 Have we got written for references from other sources?

Specify:
Note Evidence of identity and verification of client's identity, if required, could be

obtained from a variety of different sources. Examples are given in Appendix
C of the AML Guidelines (i.e. Appendix C in Chapter F of the Code).
Points for interview

1 Have we identified which marketing source gave rise to the new client?
Specify: Brochure
ü
2 Has the name of previous accountant been obtained?

Specify: ü PAF 8.4
3 Have full personal details of directors and shareholders been obtained?

PAF 4.1/ AML
ü File
4 Have we completed section 1 of the permanent file? ü
5 Have we requested details/copies of the items below?

· Certificate of incorporation ü PAF 4.6
· Articles of Association ü
· Last annual return ü PAF 4.4
· Books and records See current
ü audit file
· Organization chart ü
PAF 1.1.3
PAF 3.1
· Last set of accounts ü PAF 9.1
· Fixed asset register See current
ü audit file
· Last tax return ü PAF 8.4
6 Have we obtained all the documentation required for the consideration of money
laundering, as noted above?
ü AML File
7 Has the client signed or agreed to sign the necessary authorisations?

· Tax authority ü
· Bank authority ü PAF 2.2
· Building society authority ü
· Other (specify) ü
8 Has the client been quoted a fee for the audit? If yes, give details below:
ü PAF 2.1
See PAF 2.1 engagement letter
2.6 Page 546 of 565 APM 2022

Yes No N/A Ref
Offices Procedures
1 Have we written to the previous auditors for all necessary information? PAF Section
ü 8
2 Have all statutory matters concerning the resignation of the previous auditor and our PAF Section
appointment been dealt with?
ü 8
3 Have we carried out a company search? ü PAF 4.4.1
4 Have we written for information from other sources?

Specify: PAF Section
Previous auditor ü
8
5 Have we sent an engagement letter covering all the services that we will provide to the
client? ü PAF 2.1
6 Have we notified the tax authorities and requested a copy of the last tax return if not PAF Section
otherwise available? ü 8
7 Have the necessary files been opened? ü
8 Have the client’s details been entered onto the time records? ü
9 Have we carried out an initial assessment to determine whether the client will require a PAF Section
hot file review under the firm’s quality control procedures?
ü 8
Where “no” answer has been given to any of the questions and the appointment has been accepted detail below the action taken and reasons, where
necessary:
Prepared by: Date:

Partner: Date:
Action agreed
[Note: The AML File and PAF Sections 2, 4 and 8 are not reproduced in this example file.]
2.6 Page 547 of 565 APM 2022

31-Dec-21 Reviewed by: BL Date: 2/22 2.7
M0001
Register of non-audit services for audit clients
Which threats apply to

Type of service Fee this service (tick all that Safeguards required
apply)?*
SI SR M A F I
Accounting services HK$100k ü Statutory accounts are prepared from the
clients management accounts. The client
prepares and approves all adjustments and
also the wording of narrative notes.
Preparation of the statutory accounts is
therefore a largely mechanical exercise. The
firm's usual review processes are therefore an
adequate safeguard.
Tax services HK$50k ü The firm assists the client in the routine
exercise of preparing the tax return and no tax
advisory services are provided. The tax
returns are routine, based on MCL's based on
historical information with no contentious
items. The firm's usual review processes are
therefore an adequate safeguard.
Internal audit services
Information technology
services
Valuation / actuarial
valuation services
Litigation support services
Legal services
Recruitment services
Remuneration services
Corporate finance
services
Transaction related
services
Total fee HK$150k
In my opinion the safeguards identified above ensure that any non-audit services provided to the audit client do not
jeopardise the firm’s objectivity and independence.
Partner BL Date: 2/22
Second partner Date:

(where required)
*SI = self interest; SR = self review; M = management; A = advocacy; F = familiarity; I = intimidation
2.7 Page 548 of 565 APM 2022

Manufacturing Company Limited Prepared by: AW Date: 11/03/22 Ref:
31-Dec-21 Reviewed by: JO Date: 12/3/22 2.8
M0001
REGISTER OF INVOLVEMENT IN THE AUDIT
Manager / senior in
Year Independent / second partner Audit partner
charge of the audit
1 2018 BL Senior JO
2 2019 BL Senior JO
Senior AW
3 2020 BL
Manager JO
Senior AW
4 2021 BL
Manager JO
10
2.8 Page 549 of 565 APM 2022

ŎŢůŶŧŢŤŵŶųŪůŨġńŰŮűŢůźġōŪŮŪŵŦť ĴįĲ
ŐųŨŢůŪŻŢŵŪŰůġŤũŢųŵ
ŅŪųŦŤŵŰųŴ œŢźŮŰůťġńũŢů łťŦŭŪůŦġōŦŶůŨ łůŵũŰůźġŉŰ

ĩŎŢůŢŨŪůŨĪ ĩŇŪůŢůŤŦĪ ĩŅŦŷŦŭŰűŮŦůŵĪ
ņŭŪŻŢţŦŵũġŔũŦů
ĩőłĪ
ŎŢůŢŨŦųŴ ŕŦųŦůŤŦġŊű ŕŪŧŧŢůźġŘŢŪĮźŪů łťųŪŢůġŘŢŭŬŦų

ĩŇŢŤŵŰųźġĮġŌŰŸŭŰŰůĪ ĩŘŢųŦũŰŶŴŦġĮġŉŌĪ ĩłŤŤŰŶůŵŴĪ
ŕũŦġŤũŢųŵġŴũŰŸŴġŵũŰŴŦġŴŵŢŧŧġŵũŢŵġŢųŦġųŦŭŦŷŢůŵġŧųŰŮġŢůġŢŶťŪŵġűŦųŴűŦŤŵŪŷŦį
3.1 Page 550 of 565 APM 2022

ŎŢůŶŧŢŤŵŶųŪůŨġńŰŮűŢůźġōŪŮŪŵŦť AW 3/22 Ĵįĵ
ŔźŴŵŦŮŴġŏŰŵŦŴ
Objective:
Perform walk-through of MCL's information systems on transactions and information captured for incorporation in the
general ledger.
Results:
Walk-through performed and documented below. Walk-through documents provided by MCL for selected transactions in
June 2021 demonstrating and supporting the following processes are filed on PAF 3.4 Appendix [Note. Walk-through
documents are not produced in this model file].
[Note. A walk-through procedure to determine whether a control has been implemented is not a test of controls.]
ŘŦŢŬůŦŴŴ ńŰůŵųŰŭ
ĩœŦŧġłķĪ ĩœŦŧġńĶįĲĪ
őŶųŤũŢŴŦġŐųťŦųŪůŨ
łĲ őŶųŤũŢŴŦġŰųťŦųġŤŰŮűŭŦŵŦťġţźġŕŦųŦůŤŦġŊűġĩŕŊĪ
łĳ ŐųťŦųŴġŢţŰŷŦġŉŌĥġĲĶĭıııġŢųŦġŢŶŵũŰųŪŻŦťġţźġœŢźŮŰůťġńũŢůġĩœńĪ ŚġĩĲĶĪ
łĴ ŐųťŦųŴġŸŪŵũġůŦŸġŴŶűűŭŪŦųŴġŢųŦġŢŶŵũŰųŪŻŦťġţźġœŢźŮŰůťġńũŢůġĩœńĪ ŚġĩĲķĪ
łĵ ŐųťŦųŴġŢųŦġŵũųŦŦġűŢųŵġťŰŤŶŮŦůŵŴġŢůťġŢųŦġűųŦĮůŶŮţŦųŦťĻ
ĲįġńŰűźġŵŰġŴŶűűŭŪŦų
ĳįġńŰűźġųŦŵŢŪůŦťġţźġŕŊ
ĴįġńŰűźġŵŰġŢŤŤŰŶůŵŴį
łĶ ŕŊġŤŰűźġŧŪŭŦťġţźġŴŶűűŭŪŦų
łķ łŤŤŰŶůŵŴġŤŰűźġűŭŢŤŦťġŪůġŢůġŰųťŦųġŰŶŵŴŵŢůťŪůŨġŧŪŭŦġŪůġůŶŮŦųŪŤŢŭġŰųťŦų
łĸ ŕũŦġŰŶŵŴŵŢůťŪůŨġŰųťŦųŴġŧŪŭŦġŪŴġűŦųŪŰťŪŤŢŭŭźġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġœń ŚġĩĲĸĪ
łĹ łůźġŢŤŬůŰŸŭŦťŨŦŮŦůŵŴġŰŧġŰųťŦųŴġŧųŰŮġŴŶűűŭŪŦųŴġŢųŦġŧŪŭŦťġţźġŕŊġţźġŴŶűűŭŪŦų
ňŰŰťŴġœŦŤŦŪŷŦťġĮġŇŢŤŵŰųź
ŃĲ łŭŭġťŦŭŪŷŦųŪŦŴġųŦŤŦŪŷŦťġţźġŵũŦġŭŰŨŪŴŵŪŤġŵŦŢŮġŢųŦġųŦŤŰųťŦťġŪůġŢġŨŰŰťŴġųŦŤŦŪŷŦťġţŰŰŬįġŕũŪŴ
ŭŪŴŵŴġŵũŦġťŢŵŦĭġŴŶűűŭŪŦųĭġŨŰŰťŴġųŦŤŦŪŷŦťġůŰŵŦġůŶŮţŦųġŢůťġűŶųŤũŢŴŦġŰųťŦųġůŶŮţŦųį
Ńĳ ňŰŰťŴġųŦŤŦŪŷŦťġŢųŦġŷŦųŪŧŪŦťġŢůťġŤũŦŤŬŦťġŢŨŢŪůŴŵġŵũŦġŨŰŰťŴġųŦŤŦŪŷŦťġůŰŵŦġĩňœŏĪ ŚġĩĴĪ
ŃĴ łůźġŮŪŴŴŪůŨġŪŵŦŮŴġŢųŦġųŦűŰųŵŦťġŵŰġŵũŦġŴŶűűŭŪŦųġŢůťġůŰŵŦťġŰůġŵũŦġĩňœŏĪ ŚġĩĴĪ
Ńĵ ŕũŦġňœŏġŪŴġŴŪŨůŦťġţźġŵũŦġŴŵŰųŦŴġŮŢůŢŨŦų ŚġĩĴĪ
ŃĶ ŔŵŰŤŬġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧųŰŮġŵũŦġňœŏįġŕũŪŴġŪŴġŢŭŴŰġůŰŵŦťġŰůġŵũŦġňœŏ ŚġĩĴĪ
Ńķ ŕũŦġňœŏġŪŴġűŢŴŴŦťġŵŰġŢŤŤŰŶůŵŴġĩŪůġŉŌĪ
Ńĸ ŕũŦġňœŏġŪŴġŮŢŵŤũŦťġŸŪŵũġŵũŦġŰŶŵŴŵŢůťŪůŨġűŶųŤũŢŴŦġŰųťŦų
ŃĹ ŊŧġŢůźġŪŵŦŮŴġŰůġŵũŦġŰųťŦųġŢųŦġŴŵŪŭŭġŰŶŵŴŵŢůťŪůŨġŢġŤŰűźġŰŧġŵũŦġŰųťŦųġŪŴġŵŢŬŦůġŢůťġűŭŢŤŦť
ţŢŤŬġŰůġŵũŦġŰŶŵŴŵŢůťŪůŨġŰųťŦųŴġŧŪŭŦġŢŮŦůťŦťġŵŰġŴũŰŸġŸũŢŵġŪŴġŴŵŪŭŭġŰŶŵŴŵŢůťŪůŨį
Ńĺ ŕũŦġŰųťŦųġŸŪŵũġŵũŦġňœŏġŢŵŵŢŤũŦťġŪŴġűŭŢŤŦťġŰůġŢġŧŶŭŧŪŭŭŦťġŰųťŦųŴġŧŪŭŦġŪůġűŶųŤũŢŴŦġůŶŮţŦų
ŰųťŦųį
ŃĲı őũźŴŪŤŢŭġŤŰůŵųŰŭĻġŕũŦųŦġŪŴġŢġŴŦűŢųŢŵŦġŭŰŤŬŢţŭŦġŴŵŰųŦġŧŰųġŵũŦġŮŰųŦġŷŢŭŶŢţŭŦġŤŰŮűŰůŦůŵŴġŵŰ ŚġĩĵĪ
ŸũŪŤũġŰůŭźġŵũŦġťŪųŦŤŵŰųŴĭġŵũŦġŴŵŰųŦġŮŢůŢŨŦųġŢůťġŵũŦġŧŢŤŵŰųźġŮŢůŢŨŦųġũŢŷŦġŢġŬŦźį
3.4 Page 551 of 565 APM 2022

őŶųŤũŢŴŦġŊůŷŰŪŤŦŴġĩłŭŭĪ
ńĲ łŭŭġŪůŷŰŪŤŦŴġŢųŦġųŦŤŰųťŦťġŪůġŵũŦġűŶųŤũŢŴŦġťŢźġţŰŰŬ
ńĳ ŊůŷŰŪŤŦŴġŢųŦġŮŢŵŤũŦťġŵŰġŰųťŦųŴġŧųŰŮġŵũŦġŧŶŭŧŪŭŭŦťġŰųťŦųŴġŧŪŭŦ
ńĴ ŊůŷŰŪŤŦŴġŵũŢŵġŮŢŵŤũġŸŪŵũġŢůġŧŶŭŧŪŭŭŦťġŰųťŦųġŵũŢŵġũŢŴġţŦŦůġŴŪŨůŦťġţźġŕŊġŰųġœńġŢųŦ ŚġĩĲĹĪ
ŢűűųŰŷŦťġŧŰųġűųŰűŰŴŦťġűŢźŮŦůŵġţźġłťųŪŢůġŘŢŭŬŦųġĩłŘĪġį
ńĵ ŕũŦġŤŰŴŵġűŦųġŶůŪŵġŧŰųġŦŢŤũġŤŰŮűŰůŦůŵġŧŰųġŵũŪŴġťŦŭŪŷŦųźġŪŴġŶűťŢŵŦťġŪůġŵũŦġŧŢŤŵŰųź
ŪůŷŦůŵŰųźġųŦŤŰųťŴġĩŮŢŪůŵŢŪůŦťġŪůġłŤŤŦŴŴġĮġŴŦŦġţŦŭŰŸĪġŧųŰŮġŵũŦġŪůŷŰŪŤŦġŢůťġŨŰŰťŴ
ńĶ ųŦŤŦŪŷŦťġůŰŵŦį
ŕũŦġŪůŷŰŪŤŦŴġŢųŦġŵũŦůġűŭŢŤŦťġŰůġŢġűŢźŮŦůŵġűŦůťŪůŨġŧŪŭŦġŸŪŵũġŵũŦġűŶųŤũŢŴŦġŰųťŦųġŢůť
ňœŏġŢŵŵŢŤũŦťį
ńķ ŊůŷŰŪŤŦŴġůŰŵġŧŶŭŭźġŴŶűűŰųŵŦťġţźġŢůġŢűűųŰŷŦťġŰųťŦųġŢųŦġŴŦůŵġŵŰġœńġŧŰųġŢűűųŰŷŢŭį ŚġĩĸĪ
ńĸ ŢŶŵũŰųŪŻŦťġŪůŷŰŪŤŦŴġųŦŤŦŪŷŦťġţŢŤŬġŧųŰŮġœńġŢųŦġŢťťŦťġŵŰġŵũŦġűŢźŮŦůŵġűŦůťŪůŨġŧŪŭŦ
őŢźŮŦůŵŴ
ŅĲ ŕũŦųŦġŪŴġŢġŸŦŦŬŭźġűŶųŤũŢŴŦġŭŦťŨŦųġűŢźŮŦůŵġųŶůįġŕũŦġųŶůġųŦŴŶŭŵġŪŴġųŦŷŪŦŸŦťġţźġłŘį
Ņĳ ŊůŷŰŪŤŦŴġŪůġŵũŦġűŢźŮŦůŵġűŦůťŪůŨġŧŪŭŦġŢųŦġųŦŷŪŦŸŦťġţźġłŘġŵŰġŪťŦůŵŪŧźġŵũŰŴŦġťŶŦġŧŰų
űŢźŮŦůŵġţŢŴŦťġŰůġŵũŦġŤųŦťŪŵġŵŦųŮŴġŢŨųŦŦťġŸŪŵũġŵũŦġŴŶűűŭŪŦųį
ŅĴ łġŭŪŴŵġŰŧġűųŰűŰŴŦťġűŢźŮŦůŵŴġŪŴġűųŰťŶŤŦťġŢůťġűųŦŴŦůŵŦťġŵŰġłťŦŭŪůŦġōŦŶůŨġĩłōĪĭġŵŰŨŦŵũŦų ŚġĩĲĺĪ
ŸŪŵũġŵũŦġŴŶűűŰųŵŪůŨġŪůŷŰŪŤŦŴĭġŰųťŦųŴġħġňœŏŴĭġŧŰųġŢűűųŰŷŢŭį
Ņĵ łŭŭġűŢźŮŦůŵŴġŢųŦġŮŢťŦġţźġţŢůŬġŵųŢůŴŧŦųġŸũŦųŦġűŰŴŴŪţŭŦ
ŅĶ ŐůŤŦġűŢŪťĭġŪůŷŰŪŤŦŴġĩŸŪŵũġŰųťŦųŴġħġňœŏŴġŢŵŵŢŤũŦťĪġŢųŦġŧŪŭŦťġŪůġůŶŮŦųŪŤŢŭġŰųťŦųġŰŧġŵũŦ
űŢźŮŦůŵġųŦŧŦųŦůŤŦġĩŦŭŦŤŵųŰůŪŤġŰųġŤũŦŲŶŦĪ
Ņķ łŭŭġűŢźŮŦůŵŴġŢųŦġųŦŤŰųťŦťġŪůġŵũŦġŤŢŴũġţŰŰŬġţźġŵũŦġŢŤŤŰŶůŵŴġťŦűŢųŵŮŦůŵ
őŶųŤũŢŴŦġōŦťŨŦų
ņĲ ŕũŦġűŶųŤũŢŴŦġŭŦťŨŦųġŪŴġűŰŴŵŦťġŸŦŦŬŭźġŧųŰŮġŵũŦġűŶųŤũŢŴŦġťŢźġţŰŰŬġŢůťġŤŢŴũġţŰŰŬįġŕũŦ
űŰŴŵŪůŨġŪŴġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġłŘį
ņĳ łŭŭġŴŶűűŭŪŦųġŴŵŢŵŦŮŦůŵŴġŢųŦġųŦŤŰůŤŪŭŦťġŢŴġųŦŤŦŪŷŦťġţźġłŘį
ņĴ łůźġťŪŧŧŦųŦůŤŦŴġŢųŦġŪůŷŦŴŵŪŨŢŵŦťġţźġłŘį ŚġĩĲĲĪ
ņĵ łŭŭġŤŰŮűŭŦŵŦťġŴŶűűŭŪŦųġŴŵŢŵŦŮŦůŵġųŦŤŰůŤŪŭŪŢŵŪŰůŴġŢųŦġųŦŷŪŦŸŦťġţźġłōį
ņĶ łůźġŢťūŶŴŵŮŦůŵŴġŵŰġŢġűŶųŤũŢŴŦġŭŦťŨŦųġŢŤŤŰŶůŵġŢŴġŢġųŦŴŶŭŵġŰŧġŢġųŦŤŰůŤŪŭŪŢŵŪŰůġŮŶŴŵġţŦ
ŢűűųŰŷŦťġţźġłō
3.4 Page 552 of 565 APM 2022

ŇŢŤŵŰųźġőųŰťŶŤŵŪŰů
ŇĲ ņŢŤũġţŢŵŤũġŰŧġŤŢųťŴġŪŴġŨŪŷŦůġŢġūŰţġůŶŮţŦųįġłŭŭġŤŢųťġŵźűŦŴġŶŴŦġŵũŦġŴŢŮŦġůŶŮţŦų ŚġĩĶĪ
ŴŦŲŶŦůŤŦįġłġŴŶŧŧŪŹġŪŴġŢťťŦťġŵŰġťŦůŰŵŦġŵũŦġŤŢųťġŵźűŦįġŕũŦġůŶŮţŦųŪůŨġŴŦųŷŦŴġŢŴġŢġŭŰŨŪŤŢŭ
ŤŰůŵųŰŭġŢůťġŷŦųŪŧźġŤŰŮűŭŦŵŦůŦŴŴġŰŧġŤŢųťŴį
ŔġĮġŔŰŶůťġŤŢųť
ňġĮġňųŢűũŪŤŴġŤŢųť
ŏġĮġŏŦŵŸŰųŬġŤŢųť
ŕġĮġŕŗġŵŶůŦųġŤŢųť
Ňĳ ŘũŦůġŢġūŰţġŪŴġŤųŦŢŵŦťġŵũŦġűųŰťŶŤŵŪŰůġŮŢůŢŨŦųġŴŵŢųŵŴġŢġūŰţġŤŢųťġŢůťġųŦŤŰųťŴġŵũŦ
ŤŰŮűŰůŦůŵŴġŵŰġţŦġŪŴŴŶŦť
ŇĴ ŕũŦġŴŵŰųŦŴġŮŢůŢŨŦųġŤũŦŤŬŴġŵũŢŵġŵũŦġŤŰŮűŰůŦůŵŴġŪŴŴŶŦťġŮŢŵŤũġŵũŰŴŦġųŦŤŰųťŦťġŰůġŵũŦġūŰţ
ŤŢųť
Ňĵ ŇŢŤŵŰųźġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧųŰŮġŵũŦġūŰţġŤŢųťġŢůťġŵũŦġūŰţġŤŢųťġŪŴġŪůŪŵŪŢŭŦťġŵŰ
ŪůťŪŤŢŵŦġŵũŢŵġŵũŪŴġũŢŴġŰŤŤŶųųŦť
ŇĶ łŴġŵũŦġūŰţġŮŰŷŦŴġŵũųŰŶŨũġŵũŦġŧŢŤŵŰųźġŭŢţŰųġũŰŶųŴġŢųŦġŢťťŦťġţźġŦŢŤũġŴŦŤŵŪŰů
Ňķ ŕũŦġŤŰŮűŭŦŵŦťġůŶŮţŦųġŰŧġŤŢųťŴġŪŴġųŦŤŰųťŦťġŰůġŵũŦġūŰţġŤŢųť
Ňĸ ŇŢŤŵŰųźġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧųŰŮġŵũŦġūŰţġŤŢųťġţŦŧŰųŦġŵũŦġūŰţġŤŢųťŴġŢųŦġŴŦůŵġŵŰ
ŧŢŤŵŰųźġŮŢůŢŨŦų
ŇĹ ŕŊġųŦŷŪŦŸŴġŢůťġŢűűųŰŷŦŴġŵũŦġūŰţġŤŢųťŴġŧŰųġŢŭŭġŤŰŮűŭŦŵŦťġūŰţŴġŵŰġŦůŴŶųŦġŵũŢŵġŵũŦ ŚġĩķĪ
ŮŢŵŦųŪŢŭŴġŢůťġŭŢţŰųġţŰŰŬŦťġŵŰġŦŢŤũġūŰţġŢűűŦŢųġųŦŢŴŰůŢţŭŦ
Ňĺ ŕŊġűųŪŤŦŴġŵũŦġūŰţġŤŢųťŴġţŢŴŦťġŰůġŵũŦġũŰŶųŭźġųŢŵŦŴġŧŰųġŦŢŤũġŴŦŤŵŪŰůġŢůťġŵũŦġŤŰŴŵġŰŧ
ŤŰŮűŰůŦůŵŴġţŰŰŬŦťġŵŰġŵũŦġūŰţ
ŇĲı ŕũŦġŧŢŤŵŰųźġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧŰųġŵũŦġŤŰŴŵŴġŰŧġůŦŸġűųŰťŶŤŵŪŰůġţŢŵŤũŦŴġţźġŕŊ
ŇŢŤŵŰųźġŊůŷŦůŵŰųźġœŦŤŰųťŴ
ňĲ œŦŤŰųťŴġŢųŦġŮŢŪůŵŢŪůŦťġŪůġŢůġłŤŤŦŴŴġťŢŵŢţŢŴŦ
ňĳ łġťŦŴűŢŵŤũġůŰŵŦġŪŴġŨŦůŦųŢŵŦťġŧŰųġŢŭŭġŵųŢůŴŧŦųŴġŵŰġŵũŦġŸŢųŦũŰŶŴŦġŪůġŉŌ
ňĴ ŕũŦġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧųŰŮġŵũŦġťŦŴűŢŵŤũġůŰŵŦŴġţźġŵũŦġŴŵŰųŦŴġŮŢůŢŨŦųġŸũŰ
ųŦŵŢŪůŴġŢġŤŰűźġŪůġťŢŵŦġŰųťŦųį
ňĵ ŕũŦġŤŰŮűŰůŦůŵġŤŰŴŵġŧŰųġŦŢŤũġťŦŭŪŷŦųźġŪŴġŶűťŢŵŦťġţźġŵũŦġŢŤŤŰŶůŵŴġťŦűŢųŵŮŦůŵį ŚġĩĹĪ
ňĶ łŭŭġŤŰŮűŰůŦůŵŴġŢųŦġŷŢŭŶŦťġŰůġŢġŧŪųŴŵĮŪůĮŧŪųŴŵĮŰŶŵġĩŇŊŇŐĪġţŢŴŪŴįġŕũŦġťŢŵŢţŢŴŦġŬŦŦűŴġŢ ŚġĩĺĪ
ųŦŤŰųťġŰŧġŵũŦġŲŶŢůŵŪŵźġŢůťġŤŰŴŵġŰŧġŦŢŤũġťŦŭŪŷŦųźį
ňķ łġŴŢŮűŭŦġŰŧġŪůŷŦůŵŰųźġŭŪůŦŴġŢųŦġŤŰŶůŵŦťġŦŢŤũġŸŦŦŬġĩŦŷŦųźġŇųŪťŢźġŰųġŕũŶųŴťŢźġŪŧġŇųŪťŢź
ŪŴġŢġűŶţŭŪŤġũŰŭŪťŢźĪġŵŰġŤŰůŧŪųŮġŵũŦġŢŤŤŶųŢŤźġŰŧġŵũŦġŪůŷŦůŵŰųźġųŦŤŰųťŴįġŕũŦġůŶŮţŦųġŰŧ
ŭŪůŦŴġŤŰŶůŵŦťġŦŢŤũġŸŦŦŬġŪŴġŴŶŤũġŵũŢŵġŦŷŦųźġŭŪůŦġŪŴġŤŰŶůŵŦťġŢŵġŭŦŢŴŵġŰůŤŦġŪůġŵũŦġźŦŢųġŪů
ŢťťŪŵŪŰůġŵŰġŵũŦġźŦŢųġŦůťġŤŰŶůŵ
ňĸ łůźġťŪŴŤųŦűŢůŤŪŦŴġŢŴġųŦŤŰůŤŪŭŦťġŪůġŵũŦġŤŰŶůŵŴġŢųŦġŪůŷŦŴŵŪŨŢŵŦťġţźġŵũŦġŴŵŰųŦŴġŮŢůŢŨŦų ŚġĩĸĪ
ňĹ łůźġťŢŮŢŨŦťġŰųġŢűűŢųŦůŵŭźġŰŭťġŴŵŰŤŬġŪŴġŢŭŴŰġųŦűŰųŵŦťġŵŰġŵũŦġŴŵŰųŦŴġŮŢůŢŨŦųį
ňŰŰťŴġœŦŤŦŪŷŦťġĮġŘŢųŦũŰŶŴŦ
ŉĲ ŊůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŶűťŢŵŦťġŧųŰŮġŵũŦġŧŢŤŵŰųźġťŦŴűŢŵŤũġůŰŵŦ
ŉĳ ŕũŦġŨŰŰťŴġųŦŤŦŪŷŦťġŢųŦġůŰŵġŤũŦŤŬŦťġŢŨŢŪůŴŵġŵũŦġťŦŴűŢŵŤũġůŰŵŦ ŚġĩĵĪ
3.4 Page 553 of 565 APM 2022

ŔŢŭŦŴ
ŊĲ łŭŭġŤŶŴŵŰŮŦųġŰųťŦųŴġŢųŦġŢűűųŰŷŦťġţźġłťŦŭŪůŦġōŦŶůŨġĩłōĪġŪůġŵŦųŮŴġŰŧġŵũŦŪųġţŢŤŬŨųŰŶůťĭ ŚġĩĲĳĪ
ŤųŦťŪŵġŸŰųŵũŪůŦŴŴĭġŢţŪŭŪŵźġŵŰġŴŢŵŪŴŧźġŰųťŦųġŦŵŤį
Ŋĳ łŤŤŰŶůŵŴġťŦűŵįġŤũŦŤŬġŵũŦġŰųťŦųġŢŨŢŪůŴŵġŵũŦġŪůŷŦůŵŰųźġųŦŤŰųťŴġŵŰġŤŰůŧŪųŮġŵũŢŵġŵũŦġŪŵŦŮŴ ŚĩĶĪ ŚġĩĲĴĪ
ųŦŲŶŪųŦťġŢųŦġŪůġŴŵŰŤŬį
ŕũŪŴġŤŰůŵųŰŭġŮŢźġůŰŵġŸŰųŬġŦŧŧŦŤŵŪŷŦŭźġŢŴġŵũŦġŸŢųŦũŰŶŴŦġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġůŰŵġŶűĮ
ŵŰĮťŢŵŦįġĩłŘĪ
ŊĴ ŘũŦųŦġŵũŦųŦġŪŴġŪůŴŶŧŧŪŤŪŦůŵġŪůŷŦůŵŰųźġŵŰġŮŦŦŵġŢůġŰųťŦųġŵũŦġŰųťŦųġŪŴġűŢŴŴŦťġţŢŤŬġŵŰġłō
ŸũŰġŭŪŢŪŴŦŴġŸŪŵũŰŶŵġœńġŵŰġťŦŵŦųŮŪůŦġŸũŦŵũŦųġŧŶųŵũŦųġŤŢųťŴġŴũŰŶŭťġţŦġŮŢůŶŧŢŤŵŶųŦť
Ŋĵ ŘũŦųŦġŵũŦųŦġŪŴġŴŶŧŧŪŤŪŦůŵġŪůŷŦůŵŰųźġłŘġŨŦůŦųŢŵŦŴġŢġŴŢŭŦŴġŪůŷŰŪŤŦġŧųŰŮġŵũŦġŤŶŴŵŰŮŦų
ŊĶ ŰųťŦų
ŕũŪŴġŪŴġŢġŧŪŷŦġűŢųŵġűųŦġůŶŮţŦųŦťġťŰŤŶŮŦůŵġŧŰųġŷŦųŪŧŪŤŢŵŪŰůġŢůťġųŦŤŰůŤŪŭŪŢŵŪŰůġŢŨŢŪůŴŵ ŚġĩĲĵĪ
ŦŢŤũġŰŵũŦųĻ
ĲįġŔŢŭŦŴġŪůŷŰŪŤŦġŵŰġŤŶŴŵŰŮŦų
ĳįġłŤŤŰŶůŵŴġŤŰűźġĮġůŶŮŦųŪŤŢŭ
ĴįġłŤŤŰŶůŵŴġŤŰűźġĮġŢŭűũŢţŦŵŪŤŢŭ
ĵįġŅŦŴűŢŵŤũġůŰŵŦġŵŰġŤŶŴŵŰŮŦų
ĶįġőŪŤŬŪůŨġŭŪŴŵġŧŰųġŴŵŰųŦŴ
Ŋķ ŕũŦġŴŢŭŦŴġŪůŷŰŪŤŦġŪŴġŴŦůŵġŵŰġŵũŦġŤŶŴŵŰŮŦų
Ŋĸ ŕũŦġťŦŴűŢŵŤũġůŰŵŦġŢůťġűŪŤŬŪůŨġŭŪŴŵġŢųŦġŴŦůŵġŵŰġŵũŦġŸŢųŦũŰŶŴŦ
ŊĹ ŘŢųŦũŰŶŴŦġŴŵŢŧŧġŶŴŦġŵũŦġűŪŤŬŪůŨġŭŪŴŵġŵŰġŤŰŭŭŢŵŦġŵũŦġŰųťŦų
Ŋĺ ŕũŦġűŪŤŬŪůŨġŭŪŴŵġŪŴġŪůŪŵŪŢŭŦťġŢŴġŧŶŭŧŪŭŭŦťġŢůťġŧŪŭŦťġŪůġůŶŮŦųŪŤŢŭġŰųťŦų
ŊĲı ňŰŰťŴġŢųŦġŴŦůŵġŵŰġŵũŦġŤŶŴŵŰŮŦųġŸŪŵũġŵũŦġťŦŴűŢŵŤũġůŰŵŦ
ŊĲĲ ŔŢŭŦŴġŢųŦġųŦŤŰųťŦťġŰůġŢġťŢŪŭźġţŢŴŪŴġŪůġŵũŦġŴŢŭŦŴġťŢźġţŰŰŬġŢůťġŴŢŭŦŴġŭŦťŨŦųġŪůġŵũŦġűųŰűŦų ŚġĩĲĵĪ
űŦųŪŰťġŢŤŤŰųťŪůŨġŵŰġŵũŦġŵŦųŮŴįġŕũŦġűŰŴŵŪůŨġŪŴġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġłŘį
ŘŢųŦũŰŶŴŦġŪůŷŦůŵŰųźġųŦŤŰųťŴ
ŋĲ ŘŢųŦũŰŶŴŦġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŬŦűŵġŰůġŢůġłŤŤŦŴŴġťŢŵŢţŢŴŦįġŕũŪŴġŪŴġŴŦűŢųŢŵŦġŧųŰŮġŵũŦ
ŧŢŤŵŰųźġťŢŵŢţŢŴŦġţŶŵġŪŴġŴŵųŶŤŵŶųŦťġŪůġŢůġŪťŦůŵŪŤŢŭġŸŢźį
ŋĳ ŕũŦųŦġŪŴġŢġţŢŤŬŭŰŨġŰŧġťŦŴűŢŵŤũġůŰŵŦŴġŵŰġţŦġŦůŵŦųŦťġŰůġŵũŦġŴźŴŵŦŮ ŚġĩĴĪ
ŋĴ ŕũŦųŦġŴũŰŶŭťġţŦġŸŦŦŬŭźġŤŰŶůŵŴġŰŧġŪůŷŦůŵŰųźġŭŪůŦŴġŢŴġŪůġŵũŦġŧŢŤŵŰųźġŴŵŰųŦŴįġŉŰŸŦŷŦųĭ ŚġĩĴĪ
ŵũŦŴŦġŢųŦġůŰŵġŶůťŦųŵŢŬŦůġŢŴġţŢŤŬŭŰŨŴġŪůġűųŰŤŦŴŴŪůŨġŧŢŤŵŰųźġťŦŴűŢŵŤũġůŰŵŦŴġŢůťġűŪŤŬŪůŨ
ŭŪŴŵŴġŮŦŢůġŵũŢŵġŵũŦġŪůŷŦůŵŰųźġųŦŤŰųťŴġŢųŦġŧųŦŲŶŦůŵŭźġŸųŰůŨį
ŔŢŭŦŴġŭŦťŨŦų
ŌĲ ŔŢŭŦŴġŢųŦġųŦŤŰųťŦťġŰůġŢġťŢŪŭźġţŢŴŪŴġŪůġŵũŦġŴŢŭŦŴġťŢźġţŰŰŬġŢůťġŴŢŭŦŴġŭŦťŨŦųġŪůġŵũŦġűųŰűŦų ŚġĩĲĵĪ
űŦųŪŰťġŢŤŤŰųťŪůŨġŵŰġŵũŦġŵŦųŮŴįġŕũŦġűŰŴŵŪůŨġŪŴġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġłŘį
Ōĳ œŦŤŦŪűŵŴġŧųŰŮġŤŶŴŵŰŮŦųŴġŢųŦġŢŭŭŰŤŢŵŦťġŵŰġŵũŦġŴŢŭŦŴġŭŦťŨŦųġŪůġŢŤŤŰųťŢůŤŦġŸŪŵũġųŦŮŪŵŵŢůŤŦ
ŢťŷŪŤŦŴġŰůġŢġťŢŪŭźġţŢŴŪŴ
ŌĴ ńŶŴŵŰŮŦųġųŦŮŪŵŵŢůŤŦġŢťŷŪŤŦŴġŢųŦġŧŪŭŦťġŪůġťŢŵŦġŰųťŦų
Ōĵ łůġŢŨŦťġŢůŢŭźŴŪŴġŰŧġųŦŤŦŪŷŢţŭŦŴġŪŴġűųŰťŶŤŦťġŦŷŦųźġŮŰůŵũġŢůťġŪŴġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦť ŚġĩĹĪ
ţźġłōį
ŌĶ łůźġŭŢŵŦġűŢźŮŦůŵġŰůġŭŢųŨŦųġŢŤŤŰŶůŵŴġŪŴġťŦŢŭŵġŸŪŵũġťŪųŦŤŵŭźġţźġłōįġŔŮŢŭŭŦųġŢŤŤŰŶůŵŴġŢųŦ ŚġĩĺĪ
űŢŴŴŦťġŵŰġłŘġŵŰġŤũŢŴŦ
3.4 Page 554 of 565 APM 2022

őŢźųŰŭŭ
ōĲ őŢźųŰŭŭġŧŰųġŵũŦġŸŢųŦũŰŶŴŦġŢůťġŵũŦġŧŢŤŵŰųźġŢųŦġŮŢŪůŵŢŪůŦťġŰůġłĬőŢźųŰŭŭġűŢŤŬŢŨŦġţźġŵũŦ
ŢŤŤŰŶůŵŴġťŦűŢųŵŮŦůŵġŪůġŉŌ
ōĳ ŇŰųġŸŦŦŬŭźġűŢŪťġŴŵŢŧŧġŵũŦġųŦŴűŦŤŵŪŷŦġűŢźųŰŭŭŴġĩŧŢŤŵŰųźġħġŸŢųŦũŰŶŴŦĪġŢųŦġŢűűųŰŷŦťġţźġŕŊ ŚġĩĳĲĪ
ŢůťġŕŘġűųŪŰųġŵŰġűŢźŮŦůŵ
ōĴ ŐŷŦųŵŪŮŦġŪŴġůŰŵŪŧŪŦťġŰůġŢġŸŦŦŬŭźġţŢŴŪŴġŢůťġŪŴġűŢŪťġŢġŸŦŦŬġŪůġŢųųŦŢųŴ
ōĵ ŐŷŦųŵŪŮŦġŪŴġŢűűųŰŷŦťġţźġŵũŦġŸŢųŦũŰŶŴŦġŢůťġŧŢŤŵŰųźġŮŢůŢŨŦųŴ ŚġĩĳĳĪ
ōĶ ŎŰůŵũŭźġŴŵŢŧŧġĩťŪųŦŤŵŰųŴġŢůťġŮŢůŢŨŦųŴĪġŢųŦġůŰŵġűŢŪťġŰŷŦųŵŪŮŦ
ōķ ŕũŦġŮŰůŵũŭźġűŢźųŰŭŭġŪŴġŢűűųŰŷŦťġţźġłō ŚġĩĳĲĪ
ōĸ łŭŭġűŢźŮŦůŵŴġŢųŦġţźġţŢůŬġŵųŢůŴŧŦų
ŐŵũŦųġŦŹűŦůťŪŵŶųŦ
ŎĲ łŭŭġŦŹűŦůťŪŵŶųŦġŰŶŵŴŪťŦġŵũŦġůŰųŮŢŭġűųŰťŶŤŵŪŰůġűųŰŤŦŴŴġŮŶŴŵġţŦġŢűűųŰŷŦťġţźġŰůŦġŰŧġŵũŦ ŚġĩĳıĪ
ťŪųŦŤŵŰųŴ
ńŢŴũġţŰŰŬ
ŏĲ ŕũŦġŤŢŴũġţŰŰŬġŪŴġűŰŴŵŦťġťŢŪŭź
ŏĳ łŭŭġţŢůŬġŢŤŤŰŶůŵŴġŢųŦġųŦŤŰůŤŪŭŦťġŮŰůŵũŭźġţźġłŘ ŚġĩĲıĪ
ŏĴ łŭŭġųŦŤŰůŤŪŭŪŢŵŪŰůŴġŢųŦġųŦŷŪŦŸŦťġţźġłō ŚġĩĲıĪ
łŤŤŰŶůŵŪůŨġŴźŴŵŦŮ
ŐĲ ŕũŪŴġŪŴġŮŢŪůŵŢŪůŦťġŰůġłĬġłŤŤŰŶůŵŴġűŢŤŬŢŨŦ
Őĳ ņŹŤŦűŵŪŰůŴġųŦűŰųŵŴġŢųŦġųŶůġŦŢŤũġŸŦŦŬġţźġłŘġŢůťġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġłōġŵŰ ŚġĩĳĴĪ
ŤŰůŧŪųŮġŵũŦġŪůŵŦŨųŪŵźġŰŧġťŢŵŢġűŰŴŵŪůŨį
ŐĴ ŕũŦųŦġŪŴġŢġůŦŵŸŰųŬġŢŤųŰŴŴġŵũŦġŸŢųŦũŰŶŴŦġŢůťġŵũŦġŧŢŤŵŰųźġŪůġŌŰŸŭŰŰů
Őĵ łġţŢŤŬĮŶűġŪŴġųŶůġŰŷŦųůŪŨũŵġŢŵġŵũŦġŦůťġŰŧġŦŢŤũġŸŰųŬŪůŨġťŢźġŢůťġŴŵŰųŦťġŰŧŧĮŴŪŵŦį ŚġĩĳĸĪ
ŐĶ ŕũŦųŦġŢųŦġĶġţŢŤŬĮŶűġŵŢűŦŴġŰůŦġŧŰųġŦŢŤũġťŢźġŰŧġŵũŦġŸŦŦŬġŴŰġŢŵġŢůźġŵŪŮŦġŵũŦųŦġŢųŦġĶġťŢźŴ
ŸŰųŵũġŰŧġţŢŤŬĮŶűŴįġŊůġŢťťŪŵŪŰůġŵũŦġŮŰůŵũĮŦůťġŵŢűŦŴġŢųŦġųŦŵŢŪůŦťį
Őķ ŎŰůŵũŭźġŮŢůŢŨŦŮŦůŵġŢŤŤŰŶůŵŴġŢųŦġűųŦűŢųŦťġţźġłŘġŧųŰŮġŢġŴŵŢůťŢųťġųŦűŰųŵġŰůġŵũŦġłĬ
űŢŤŬŢŨŦ
Őĸ ŎŰůŵũŭźġŮŢůŢŨŦŮŦůŵġŢŤŤŰŶůŵŴġŢųŦġųŦŷŪŦŸŦťġŢůťġŢűűųŰŷŦťġţźġłōġţŦŧŰųŦġţŦŪůŨ ŚġĩĳĵĪ
ŤŪųŤŶŭŢŵŦťġŵŰġŰŵũŦųġťŪųŦŤŵŰųŴ
ŐĹ œŰŶŵŪůŦġŮŰůŵũġŦůťġūŰŶųůŢŭŴġŢųŦġűųŦűŢųŦťġţźġłŘġŢůťġŢűűųŰŷŦťġţźġłōį ŚġĩĳĶĪ
Őĺ ŏŰůĮųŰŶŵŪůŦġūŰŶųůŢŭŴġŢųŦġŪůŪŵŪŢŵŦťġŢůťġŢűűųŰŷŦťġţźġłō ŚġĩĳķĪ
ŇŪŹŦťġŢŴŴŦŵŴ
őĲ ŕũŦġŧŪŹŦťġŢŴŴŦŵġųŦŨŪŴŵŦųġŪŴġŮŢŪůŵŢŪůŦťġŪůġņŹŤŦŭġţźġłŘ
őĳ őũźŴŪŤŢŭġŤŰůŵųŰŭĻġłŭŭġŢŴŴŦŵŴġũŢŷŦġŢġŭŢţŦŭġŸŪŵũġŢġŶůŪŲŶŦġůŶŮţŦųġŵũŢŵġŤŰųųŦŴűŰůťŴġŵŰġŵũŦ ŚġĩĲĪ
ŦůŵųźġŪůġŵũŦġŧŪŹŦťġŢŴŴŦŵġųŦŨŪŴŵŦų
őĴ ŕũŦġųŦŨŪŴŵŦųġŪůŤŭŶťŦŴġŵũŦġŤŰŴŵĭġŭŰŤŢŵŪŰůġŢůťġťŢŵŦġŰŧġűŶųŤũŢŴŦġŰŧġŦŢŤũġŢŴŴŦŵ
őĵ łŘġűŦųŪŰťŪŤŢŭŭźġŷŦųŪŧŪŦŴġŢůťġŤũŦŤŬŴġŢġŴŢŮűŭŦġŰŧġŢŴŴŦŵŴġŧųŰŮġŵũŦġųŦŨŪŴŵŦųġŵŰġŵũŦġűũźŴŪŤŢŭ ŚġĩĳĪ ŚġĩĳĪ
ŢŴŴŦŵŴįġŉŰŸŦŷŦųĭġŵũŪŴġŪŴġůŰŵġťŰůŦġŰůġŢġųŦŨŶŭŢųġţŢŴŪŴġŢůťġŵũŦġųŦŤŰųťŴġŢųŦġůŰŵġŢŭŸŢźŴ
ųŦŵŢŪůŦťį
3.4 Page 555 of 565 APM 2022

MCL AW 7.4.1
28/3
Right-of-use asset calculations JO 1/4
We have assessed the contract and noted that it falls within the scope of HKFRS 16. Please refer to F1.1 for our review
and conclusion. [Note: F1.1 not produced in this example file]
The contract does not contain terms for early termination or extension. Also, no rental deposit required.
Asset description MITSUBISHI FGC20N (4,000lb gas forklift)

Interest rate implicit in the lease Note * 9.90%
Right-of-use asset HK$ 175,000.00 Agreed to contract
Total interest payable HK$ 27,987.62 Verified using excel formula function
Total payable under agreement HK$ 202,987.62 $5638.88*36 months
Lease term (months) 36 Agreed to contract
Monthly repayments HK$ 5,638.55 Verified using excel formula function
Gross
repayable
analysis
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022
May-19 36 175,000.00 1,512.84 (5,638.55) 170,874.29 4,125.71
Jun-19 35 170,874.29 1,470.82 (5,638.55) 166,706.57 4,167.73
Jul-19 34 166,706.57 1,428.80 (5,638.55) 162,496.81 4,209.75
Aug-19 33 162,496.81 1,386.77 (5,638.55) 158,245.04 4,251.78
Sep-19 32 158,245.04 1,344.75 (5,638.55) 153,951.24 4,293.80
Oct-19 31 153,951.24 1,302.73 (5,638.55) 149,615.41 4,335.82
Nov-19 30 149,615.41 1,260.70 (5,638.55) 145,237.57 4,377.85
Dec-19 29 145,237.57 1,218.68 (5,638.55) 140,817.70 4,419.87
Jan-20 28 140,817.70 1,176.66 (5,638.55) 136,355.80 4,461.89
Feb-20 27 136,355.80 1,134.63 (5,638.55) 131,851.89 4,503.92
Mar-20 26 131,851.89 1,092.61 (5,638.55) 127,305.95 4,545.94
Apr-20 25 127,305.95 1,050.59 (5,638.55) 122,717.98 4,587.96
May-20 24 122,717.98 1,008.56 (5,638.55) 118,088.00 4,629.99
Jun-20 23 118,088.00 966.54 (5,638.55) 113,415.99 4,672.01
Jul-20 22 113,415.99 924.52 (5,638.55) 108,701.95 4,714.03
Aug-20 21 108,701.95 882.49 (5,638.55) 103,945.89 4,756.06
Sep-20 20 103,945.89 840.47 (5,638.55) 99,147.81 4,798.08
Oct-20 19 99,147.81 798.45 (5,638.55) 94,307.71 4,840.10
Nov-20 18 94,307.71 756.42 (5,638.55) 89,425.58 4,882.13
Dec-20 17 89,425.58 714.40 (5,638.55) 84,501.43 4,924.15
Jan-21 16 84,501.43 672.38 (5,638.55) 79,535.26 4,966.17
Feb-21 15 79,535.26 630.35 (5,638.55) 74,527.06 5,008.20
Mar-21 14 74,527.06 588.33 (5,638.55) 69,476.84 5,050.22
Apr-21 13 69,476.84 546.30 (5,638.55) 64,384.59 5,092.25
May-21 12 64,384.59 504.28 (5,638.55) 59,250.32 5,134.27
Jun-21 11 59,250.32 462.26 (5,638.55) 54,074.03 5,176.29
Jul-21 10 54,074.03 420.23 (5,638.55) 48,855.71 5,218.32
Aug-21 9 48,855.71 378.21 (5,638.55) 43,595.38 5,260.34
Sep-21 8 43,595.38 336.19 (5,638.55) 38,293.01 y/end 5,302.36
bal
Oct-21 7 38,293.01 294.16 (5,638.55) 32,948.63 5,344.39
Nov-21 6 32,948.63 252.14 (5,638.55) 27,562.22 L6 5,386.41
Dec-21 5 27,562.22 210.12 (5,638.55) 22,133.79 5,428.43
Jan-22 4 22,133.79 168.09 (5,638.55) 16,663.33 5,470.46 5,638.55
Feb-22 3 16,663.33 126.07 (5,638.55) 11,150.85 5,512.48 5,638.55
Mar-22 2 11,150.85 84.05 (5,638.55) 5,596.35 5,554.50 5,638.55
Apr-22 1 5,596.35 42.02 (5,638.37) 0.00 5,596.35 5,638.37
666 27,987.62 (202,987.62) 175,000.00 22,554.02
5,294.96 22,133.79
Q2.1 L6
7.4.1 Page 556 of 565 APM 2022

Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have
reviewed management's calculation and tested the inputs used and noted that the rate is appropriately.
Please refer to Appendix 1 for work preformed [not produced in this example file] .
[COVID-19 related rent concessions do not apply to this illustration]
7.4.1 Page 557 of 565 APM 2022

MCL AW 7.4.2
28/3
We have assessed the contract and noted that it falls within the scope of HKFRS 16. Please refer to F1.1 for our review
and conclusion. [Note: F1.1 not produced in this example file]
Asset description MITSUBISHI EOP15-24 (3,000lb Order picker)

Gross
repayable
analysis
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022
May-19 36 157,000.00 1,357.24 (5,058.58) 153,298.66 3,701.34
Jun-19 35 153,298.66 1,319.54 (5,058.58) 149,559.61 3,739.04
Jul-19 34 149,559.61 1,281.84 (5,058.58) 145,782.87 3,776.74
Aug-19 33 145,782.87 1,244.13 (5,058.58) 141,968.42 3,814.45
Sep-19 32 141,968.42 1,206.43 (5,058.58) 138,116.28 3,852.15
Oct-19 31 138,116.28 1,168.73 (5,058.58) 134,226.43 3,889.85
Nov-19 30 134,226.43 1,131.03 (5,058.58) 130,298.88 3,927.55
Dec-19 29 130,298.88 1,093.33 (5,058.58) 126,333.63 3,965.25
Jan-20 28 126,333.63 1,055.63 (5,058.58) 122,330.68 4,002.95
Feb-20 27 122,330.68 1,017.93 (5,058.58) 118,290.03 4,040.65
Mar-20 26 118,290.03 980.23 (5,058.58) 114,211.67 4,078.35
Apr-20 25 114,211.67 942.53 (5,058.58) 110,095.62 4,116.05
May-20 24 110,095.62 904.82 (5,058.58) 105,941.86 4,153.76
Jun-20 23 105,941.86 867.12 (5,058.58) 101,750.41 4,191.46
Jul-20 22 101,750.41 829.42 (5,058.58) 97,521.25 4,229.16
Aug-20 21 97,521.25 791.72 (5,058.58) 93,254.39 4,266.86
Sep-20 20 93,254.39 754.02 (5,058.58) 88,949.83 4,304.56
Oct-20 19 88,949.83 716.32 (5,058.58) 84,607.57 4,342.26
Nov-20 18 84,607.57 678.62 (5,058.58) 80,227.61 4,379.96
Dec-20 17 80,227.61 640.92 (5,058.58) 75,809.95 4,417.66
Jan-21 16 75,809.95 603.22 (5,058.58) 71,354.59 4,455.36
Feb-21 15 71,354.59 565.52 (5,058.58) 66,861.52 4,493.06
Mar-21 14 66,861.52 527.81 (5,058.58) 62,330.76 4,530.77
Apr-21 13 62,330.76 490.11 (5,058.58) 57,762.29 4,568.47
May-21 12 57,762.29 452.41 (5,058.58) 53,156.12 4,606.17
Jun-21 11 53,156.12 414.71 (5,058.58) 48,512.25 4,643.87
Jul-21 10 48,512.25 377.01 (5,058.58) 43,830.68 4,681.57
Aug-21 9 43,830.68 339.31 (5,058.58) 39,111.41
y/end 4,719.27
bal
Sep-21 8 39,111.41 301.61 (5,058.58) 34,354.44 4,756.97
L6
Oct-21 7 34,354.44 263.91 (5,058.58) 29,559.77 4,794.67
.1
Nov-21 6 29,559.77 226.21 (5,058.58) 24,727.39 4,832.37
Dec-21 5 24,727.39 188.51 (5,058.58) 19,857.32 4,870.07
Jan-22 4 19,857.32 150.80 (5,058.58) 14,949.54 4,907.78 5,058.58
Feb-22 3 14,949.54 113.10 (5,058.58) 10,004.07 4,945.48 5,058.58
Mar-22 2 10,004.07 75.40 (5,058.58) 5,020.89 4,983.18 5,058.58
Apr-22 1 5,020.89 37.70 (5,058.59) 0.00 5,020.89 5,058.59
666 25,108.89 (182,108.89) 157,000.00 20,234.33

L6
4,750.33 19,857.32
Q2.1 L6
7.4.2 Page 558 of 565 APM 2022

Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have
reviewed management's calculation and tested the inputs used and noted that the rate is appropriately.
Please refer to Appendix 1 for work preformed [not produced in this example file] .
7.4.2 Page 559 of 565 APM 2022

MCL AW 7.4.3
28/3
We have assessed the contract and noted that it falls within the scope of HKFRS 16. Please refer to F1.1 for our review and conclusion.
[Note: F1.1 not produced in this example file]
Asset description 3 x Mini Cooper (D4T4 1, D4T4 2, D4T4 3)

61,089.78
Q2.1 Gross repayable analysis
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022 2023
HK$ HK$ HK$ HK$ HK$ HK$ HK$
Aug-20 36 629,400.00 7,187.03 (21,176.67) 615,410.36 13,989.64
Sep-20 35 615,410.36 6,987.39 (21,176.67) 601,221.09 14,189.28
Oct-20 34 601,221.09 6,787.75 (21,176.67) 586,832.17 14,388.92
Nov-20 33 586,832.17 6,588.11 (21,176.67) 572,243.61 14,588.56
Dec-20 32 572,243.61 6,388.47 (21,176.67) 557,455.42 14,788.20
Jan-21 31 557,455.42 6,188.83 (21,176.67) 542,467.58 14,987.84
Feb-21 30 542,467.58 5,989.19 (21,176.67) 527,280.10 15,187.48
Mar-21 29 527,280.10 5,789.55 (21,176.67) 511,892.99 15,387.12
Apr-21 28 511,892.99 5,589.91 (21,176.67) 496,306.23 15,586.76
May-21 27 496,306.23 5,390.27 (21,176.67) 480,519.84 15,786.40
Jun-21 26 480,519.84 5,190.63 (21,176.67) 464,533.80 15,986.04
Jul-21 25 464,533.80 4,991.00 (21,176.67) 448,348.13 16,185.67
Aug-21 24 448,348.13 4,791.36 (21,176.67) 431,962.81 16,385.31
Sep-21 23 431,962.81 4,591.72 (21,176.67) 415,377.86 16,584.95
Oct-21 22 415,377.86 4,392.08 (21,176.67) 398,593.27 16,784.59
Nov-21 21 398,593.27 4,192.44 (21,176.67) 381,609.03 16,984.23
Dec-21 20 381,609.03 3,992.80 (21,176.67) 364,425.16 17,183.87
y/end
Jan-22 19 364,425.16 3,793.16 (21,176.67) 347,041.64 bal 17,383.51 21,176.67
Feb-22 18 347,041.64 3,593.52 (21,176.67) 329,458.49 L6 17,583.15 21,176.67
Mar-22 17 329,458.49 3,393.88 (21,176.67) 311,675.70 17,782.79 21,176.67
Apr-22 16 311,675.70 3,194.24 (21,176.67) 293,693.26 17,982.43 21,176.67
221778.36 L6
May-22 15 293,693.26 2,994.60 (21,176.67) 275,511.19 18,182.07 21,176.67

Jun-22 14 275,511.19 2,794.96 (21,176.67) 257,129.48 18,381.71 21,176.67
Jul-22 13 257,129.48 2,595.32 (21,176.67) 238,548.13 18,581.35 21,176.67
Aug-22 12 238,548.13 2,395.68 (21,176.67) 219,767.13 18,780.99 21,176.67
Sep-22 11 219,767.13 2,196.04 (21,176.67) 200,786.50 18,980.63 21,176.67
Oct-22 10 200,786.50 1,996.40 (21,176.67) 181,606.23 19,180.27 21,176.67
Nov-22 9 181,606.23 1,796.76 (21,176.67) 162,226.32 19,379.91 21,176.67
Dec-22 8 162,226.32 1,597.12 (21,176.67) 142,646.77 19,579.55 21,176.67
Jan-23 7 142,646.77 1,397.48 (21,176.67) 122,867.57 19,779.19 21,176.67
Feb-23 6 122,867.57 1,197.84 (21,176.67) 102,888.74 19,978.83 21,176.67
142646.78 L6
Mar-23 5 102,888.74 998.20 (21,176.67) 82,710.27 20,178.47 21,176.67

Apr-23 4 82,710.27 798.56 (21,176.67) 62,332.16 20,378.11 21,176.67
May-23 3 62,332.16 598.92 (21,176.67) 41,754.41 20,577.75 21,176.67
Jun-23 2 41,754.41 399.28 (21,176.67) 20,977.02 20,777.39 21,176.67
Jul-23 1 20,977.02 199.64 (21,176.66) (0.00) 20,977.02 21,176.66
666 132,960.11 (762,360.11) 629,400.00 254,120.04 148,236.68

L6 L6
Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have reviewed management's
calculation and tested the inputs used and noted that the rate is appropriately. Please refer to Appendix 1 for work preformed [not
produced in this example file] .
7.4.3 Page 560 of 565 APM 2022

MCL AW 7.4.4
28/3
Asset description 2 x MITSUBISHI PMWT11N

6,818.61
Q2.1
Gross repayable analysis
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022 2023 2024
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
Oct-21 36 244,500.00 2,337.81 (7,993.05) 238,844.76 5,655.24
Nov-21 35 238,844.76 2,272.87 (7,993.05) 233,124.58 5,720.18
Dec-21 34 233,124.58 2,207.93 (7,993.05) 227,339.46 y/end 5,785.12
Jan-22 33 227,339.46 2,142.99 (7,993.05) 221,489.41 bal 5,850.06 7,993.05
Feb-22 32 221,489.41 2,078.05 (7,993.05) 215,574.41 L6 5,915.00 7,993.05
Mar-22 31 215,574.41 2,013.11 (7,993.05) 209,594.47 5,979.94 7,993.05
Apr-22 30 209,594.47 1,948.18 (7,993.05) 203,549.60 6,044.87 7,993.05
74486.67 L6
May-22 29 203,549.60 1,883.24 (7,993.05) 197,439.79 6,109.81 7,993.05
Jun-22 28 197,439.79 1,818.30 (7,993.05) 191,265.03 6,174.75 7,993.05
Jul-22 27 191,265.03 1,753.36 (7,993.05) 185,025.34 6,239.69 7,993.05
Aug-22 26 185,025.34 1,688.42 (7,993.05) 178,720.71 6,304.63 7,993.05
Sep-22 25 178,720.71 1,623.48 (7,993.05) 172,351.14 6,369.57 7,993.05
Oct-22 24 172,351.14 1,558.54 (7,993.05) 165,916.63 6,434.51 7,993.05
Nov-22 23 165,916.63 1,493.60 (7,993.05) 159,417.18 6,499.45 7,993.05
Dec-22 22 159,417.18 1,428.66 (7,993.05) 152,852.79 6,564.39 7,993.05
Jan-23 21 152,852.79 1,363.72 (7,993.05) 146,223.46 6,629.33 7,993.05
Feb-23 20 146,223.46 1,298.78 (7,993.05) 139,529.20 6,694.27 7,993.05
Mar-23 19 139,529.20 1,233.84 (7,993.05) 132,769.99 6,759.21 7,993.05
Apr-23 18 132,769.99 1,168.91 (7,993.05) 125,945.85 6,824.14 7,993.05
May-23 17 125,945.85 1,103.97 (7,993.05) 119,056.76 6,889.08 7,993.05
Jun-23 16 119,056.76 1,039.03 (7,993.05) 112,102.74 6,954.02 7,993.05
Jul-23 15 112,102.74 974.09 (7,993.05) 105,083.78 7,018.96 7,993.05
Aug-23 14 105,083.78 909.15 (7,993.05) 97,999.88 7,083.90 7,993.05
Sep-23 13 97,999.88 844.21 (7,993.05) 90,851.03 7,148.84 7,993.05
Oct-23 12 90,851.03 779.27 (7,993.05) 83,637.25 7,213.78 7,993.05
152852.79
Nov-23 11 83,637.25 714.33 (7,993.05) 76,358.54 7,278.72 7,993.05

L6
Dec-23 10 76,358.54 649.39 (7,993.05) 69,014.88 7,343.66 7,993.05

Jan-24 9 69,014.88 584.45 (7,993.05) 61,606.28 7,408.60 7,993.05
Feb-24 8 61,606.28 519.51 (7,993.05) 54,132.74 7,473.54 7,993.05
Mar-24 7 54,132.74 454.57 (7,993.05) 46,594.27 7,538.48 7,993.05
Apr-24 6 46,594.27 389.64 (7,993.05) 38,990.85 7,603.41 7,993.05
May-24 5 38,990.85 324.70 (7,993.05) 31,322.50 7,668.35 7,993.05
Jun-24 4 31,322.50 259.76 (7,993.05) 23,589.20 7,733.29 7,993.05
Jul-24 3 23,589.20 194.82 (7,993.05) 15,790.97 7,798.23 7,993.05
Aug-24 2 15,790.97 129.88 (7,993.05) 7,927.80 7,863.17 7,993.05
Sep-24 1 7,927.80 64.94 (7,992.74) 0.00 7,927.80 7,992.74
666 43,249.49 (287,749.49) 244,500.00 95,916.60 95,916.60 71,937.14

L6 L6 L6
Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have reviewed management's calculation and tested
the inputs used and noted that the rate is appropriately. Please refer to Appendix 1 for work preformed [not produced in this example file] .
7.4.4 Page 561 of 565 APM 2022

MCL AW 7.4.5
28/3
Asset description Flux Capacitor

45,538.24
Q2.1
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022 2023 2024 2025 2026
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
May-21 60 760,000.00 6,044.90 (15,739.49) 750,305.41 9,694.59
Jun-21 59 750,305.41 5,944.15 (15,739.49) 740,510.07 9,795.34
Jul-21 58 740,510.07 5,843.40 (15,739.49) 730,613.98 9,896.09
Aug-21 57 730,613.98 5,742.65 (15,739.49) 720,617.15 9,996.84
Sep-21 56 720,617.15 5,641.91 (15,739.49) 710,519.57 10,097.58
Oct-21 55 710,519.57 5,541.16 (15,739.49) 700,321.23 10,198.33
Nov-21 54 700,321.23 5,440.41 (15,739.49) 690,022.15 10,299.08
Dec-21 53 690,022.15 5,339.66 (15,739.49) 679,622.32 y/end 10,399.83
Jan-22 52 679,622.32 5,238.91 (15,739.49) 669,121.75 bal 10,500.58 15,739.49
Feb-22 51 669,121.75 5,138.16 (15,739.49) 658,520.42 L6 10,601.33 15,739.49
Mar-22 50 658,520.42 5,037.42 (15,739.49) 647,818.35 10,702.07 15,739.49
L6
Apr-22 49 647,818.35 4,936.67 (15,739.49) 637,015.53 10,802.82 15,739.49
May-22 48 637,015.53 4,835.92 (15,739.49) 626,111.96 10,903.57 15,739.49
Jun-22 47 626,111.96 4,735.17 (15,739.49) 615,107.64 11,004.32
132656.31
15,739.49
Jul-22 46 615,107.64 4,634.42 (15,739.49) 604,002.57 11,105.07 15,739.49
Aug-22 45 604,002.57 4,533.67 (15,739.49) 592,796.76 11,205.82 15,739.49
Sep-22 44 592,796.76 4,432.93 (15,739.49) 581,490.19 11,306.56 15,739.49
Oct-22 43 581,490.19 4,332.18 (15,739.49) 570,082.88 11,407.31 15,739.49
Nov-22 42 570,082.88 4,231.43 (15,739.49) 558,574.82 11,508.06 15,739.49
Dec-22 41 558,574.82 4,130.68 (15,739.49) 546,966.01 11,608.81 15,739.49
Jan-23 40 546,966.01 4,029.93 (15,739.49) 535,256.45 11,709.56 15,739.49
Feb-23 39 535,256.45 3,929.18 (15,739.49) 523,446.15 11,810.31 15,739.49
Mar-23 38 523,446.15 3,828.44 (15,739.49) 511,535.10 11,911.05 15,739.49
Apr-23 37 511,535.10 3,727.69 (15,739.49) 499,523.29 12,011.80 15,739.49
May-23 36 499,523.29 3,626.94 (15,739.49) 487,410.74 12,112.55 15,739.49
Jun-23 35 487,410.74 3,526.19 (15,739.49) 475,197.44 12,213.30 15,739.49
Jul-23 34 475,197.44 3,425.44 (15,739.49) 462,883.40 12,314.05 15,739.49
Aug-23 33 462,883.40 3,324.69 (15,739.49) 450,468.60 12,414.80 15,739.49
Sep-23 32 450,468.60 3,223.95 (15,739.49) 437,953.06 12,515.54 15,739.49
Oct-23 31 437,953.06 3,123.20 (15,739.49) 425,336.77 12,616.29 15,739.49
Nov-23 30 425,336.77 3,022.45 (15,739.49) 412,619.73 12,717.04 15,739.49
Dec-23 29 412,619.73 2,921.70 (15,739.49) 399,801.94 12,817.79 15,739.49
Jan-24 28 399,801.94 2,820.95 (15,739.49) 386,883.40 12,918.54 15,739.49
Feb-24 27 386,883.40 2,720.20 (15,739.49) 373,864.12 13,019.29 15,739.49
Mar-24 26 373,864.12 2,619.46 (15,739.49) 360,744.08 13,120.03 15,739.49
Apr-24 25 360,744.08 2,518.71 (15,739.49) 347,523.30 13,220.78 15,739.49
May-24 24 347,523.30 2,417.96 (15,739.49) 334,201.77 13,321.53 15,739.49
L6
Jun-24 23 334,201.77 2,317.21 (15,739.49) 320,779.49 13,422.28 15,739.49

Jul-24 22 320,779.49 2,216.46 (15,739.49) 307,256.47 13,523.03 15,739.49
546966.01
Aug-24 21 307,256.47 2,115.71 (15,739.49) 293,632.69 13,623.78 15,739.49

Sep-24 20 293,632.69 2,014.97 (15,739.49) 279,908.17 13,724.52 15,739.49
Oct-24 19 279,908.17 1,914.22 (15,739.49) 266,082.90 13,825.27 15,739.49
Nov-24 18 266,082.90 1,813.47 (15,739.49) 252,156.88 13,926.02 15,739.49
Dec-24 17 252,156.88 1,712.72 (15,739.49) 238,130.11 14,026.77 15,739.49
Jan-25 16 238,130.11 1,611.97 (15,739.49) 224,002.59 14,127.52 15,739.49
Feb-25 15 224,002.59 1,511.22 (15,739.49) 209,774.33 14,228.27 15,739.49
Mar-25 14 209,774.33 1,410.48 (15,739.49) 195,445.31 14,329.01 15,739.49
Apr-25 13 195,445.31 1,309.73 (15,739.49) 181,015.55 14,429.76 15,739.49
May-25 12 181,015.55 1,208.98 (15,739.49) 166,485.04 14,530.51 15,739.49
Jun-25 11 166,485.04 1,108.23 (15,739.49) 151,853.78 14,631.26 15,739.49
Jul-25 10 151,853.78 1,007.48 (15,739.49) 137,121.78 14,732.01 15,739.49
Aug-25 9 137,121.78 906.73 (15,739.49) 122,289.02 14,832.76 15,739.49
Sep-25 8 122,289.02 805.99 (15,739.49) 107,355.52 14,933.50 15,739.49
Oct-25 7 107,355.52 705.24 (15,739.49) 92,321.27 15,034.25 15,739.49
Nov-25 6 92,321.27 604.49 (15,739.49) 77,186.27 15,135.00 15,739.49
Dec-25 5 77,186.27 503.74 (15,739.49) 61,950.52 15,235.75 15,739.49
Jan-26 4 61,950.52 402.99 (15,739.49) 46,614.02 15,336.50 15,739.49
Feb-26 3 46,614.02 302.24 (15,739.49) 31,176.78 15,437.25 15,739.49
Mar-26 2 31,176.78 201.50 (15,739.49) 15,638.78 15,537.99 15,739.49
Apr-26 1 15,638.78 100.75 (15,739.53) 0.00 15,638.78 15,739.53
1,830 184,369.44 (944,369.44) 760,000.00 188,873.88 188,873.88 188,873.88 188,873.88 62,958.00
L6 L6
440,705.76 L6
Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have reviewed management's calculation
and tested the inputs used and noted that the rate is appropriately. Please refer to Appendix 1 for work preformed [not produced in this example
file] .
7.4.5 Page 562 of 565 APM 2022

MCL AW 7.4.6
28/3
Asset description Factory

Right-of-use asset HK$ 9,800,000.00 Agreed to contract
Total interest payable HK$ 6,002,579.20 Verified using excel formula function
Total payable under agreement HK$ 15,802,579.20 $131688.16*120 months
1,016,965.90
Q2.1
Month Factor B/fwd Interest Repay C/fwd Capital repaid 2022 2023 2024 2025 2026 2027 2028 2029
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
Jan-20 120 9,800,000.00 99,216.19 (131,688.16) 9,767,528.03 32,471.97
Feb-20 119 9,767,528.03 98,389.38 (131,688.16) 9,734,229.25 33,298.78
Mar-20 118 9,734,229.25 97,562.58 (131,688.16) 9,700,103.67 34,125.58
Apr-20 117 9,700,103.67 96,735.78 (131,688.16) 9,665,151.29 34,952.38
May-20 116 9,665,151.29 95,908.98 (131,688.16) 9,629,372.11 35,779.18
Jun-20 115 9,629,372.11 95,082.18 (131,688.16) 9,592,766.13 36,605.98
Jul-20 114 9,592,766.13 94,255.38 (131,688.16) 9,555,333.34 37,432.78
Aug-20 113 9,555,333.34 93,428.57 (131,688.16) 9,517,073.76 38,259.59
Sep-20 112 9,517,073.76 92,601.77 (131,688.16) 9,477,987.37 39,086.39
Oct-20 111 9,477,987.37 91,774.97 (131,688.16) 9,438,074.18 39,913.19
Nov-20 110 9,438,074.18 90,948.17 (131,688.16) 9,397,334.19 40,739.99
Dec-20 109 9,397,334.19 90,121.37 (131,688.16) 9,355,767.40 41,566.79
Jan-21 108 9,355,767.40 89,294.57 (131,688.16) 9,313,373.81 42,393.59
Feb-21 107 9,313,373.81 88,467.77 (131,688.16) 9,270,153.41 43,220.39
Mar-21 106 9,270,153.41 87,640.96 (131,688.16) 9,226,106.21 44,047.20
Apr-21 105 9,226,106.21 86,814.16 (131,688.16) 9,181,232.22 44,874.00
May-21 104 9,181,232.22 85,987.36 (131,688.16) 9,135,531.42 45,700.80
Jun-21 103 9,135,531.42 85,160.56 (131,688.16) 9,089,003.82 46,527.60
Jul-21 102 9,089,003.82 84,333.76 (131,688.16) 9,041,649.41 47,354.40
Aug-21 101 9,041,649.41 83,506.96 (131,688.16) 8,993,468.21 48,181.20
Sep-21 100 8,993,468.21 82,680.15 (131,688.16) 8,944,460.20 49,008.01
Oct-21 99 8,944,460.20 81,853.35 (131,688.16) 8,894,625.40 49,834.81
Nov-21 98 8,894,625.40 81,026.55 (131,688.16) 8,843,963.79 50,661.61
Dec-21 97 8,843,963.79 80,199.75 (131,688.16) 8,792,475.38 y/end 51,488.41
Jan-22 96 8,792,475.38 79,372.95 (131,688.16) 8,740,160.17 bal 52,315.21 131,688.16
Feb-22 95 8,740,160.17 78,546.15 (131,688.16) 8,687,018.15 L6 53,142.01 131,688.16
Mar-22 94 8,687,018.15 77,719.35 (131,688.16) 8,633,049.34 53,968.81 131,688.16
Apr-22 93 8,633,049.34 76,892.54 (131,688.16) 8,578,253.72 54,795.62 131,688.16
L6
May-22 92 8,578,253.72 76,065.74 (131,688.16) 8,522,631.30 55,622.42 131,688.16

Jun-22 91 8,522,631.30 75,238.94 (131,688.16) 8,466,182.08 56,449.22 131,688.16
Jul-22 90 8,466,182.08 74,412.14 (131,688.16) 8,408,906.06 57,276.02
682,351.44
131,688.16
Aug-22 89 8,408,906.06 73,585.34 (131,688.16) 8,350,803.24 58,102.82 131,688.16
Sep-22 88 8,350,803.24 72,758.54 (131,688.16) 8,291,873.61 58,929.62 131,688.16
Oct-22 87 8,291,873.61 71,931.73 (131,688.16) 8,232,117.19 59,756.43 131,688.16
Nov-22 86 8,232,117.19 71,104.93 (131,688.16) 8,171,533.96 60,583.23 131,688.16
Dec-22 85 8,171,533.96 70,278.13 (131,688.16) 8,110,123.93 61,410.03 131,688.16
Jan-23 84 8,110,123.93 69,451.33 (131,688.16) 8,047,887.10 62,236.83 131,688.16
Feb-23 83 8,047,887.10 68,624.53 (131,688.16) 7,984,823.47 63,063.63 131,688.16
Mar-23 82 7,984,823.47 67,797.73 (131,688.16) 7,920,933.04 63,890.43 131,688.16
Apr-23 81 7,920,933.04 66,970.92 (131,688.16) 7,856,215.80 64,717.24 131,688.16
7.4.6 Page 563 of 565 APM 2022

Q2.1
May-23 80 7,856,215.80 66,144.12 (131,688.16) 7,790,671.77 65,544.04 131,688.16
Jun-23 79 7,790,671.77 65,317.32 (131,688.16) 7,724,300.93 66,370.84 131,688.16
Jul-23 78 7,724,300.93 64,490.52 (131,688.16) 7,657,103.29 67,197.64 131,688.16
Aug-23 77 7,657,103.29 63,663.72 (131,688.16) 7,589,078.85 68,024.44 131,688.16
Sep-23 76 7,589,078.85 62,836.92 (131,688.16) 7,520,227.60 68,851.24 131,688.16
Oct-23 75 7,520,227.60 62,010.12 (131,688.16) 7,450,549.56 69,678.04 131,688.16
Nov-23 74 7,450,549.56 61,183.31 (131,688.16) 7,380,044.71 70,504.85 131,688.16
Dec-23 73 7,380,044.71 60,356.51 (131,688.16) 7,308,713.07 71,331.65 131,688.16
Jan-24 72 7,308,713.07 59,529.71 (131,688.16) 7,236,554.62 72,158.45 131,688.16
Feb-24 71 7,236,554.62 58,702.91 (131,688.16) 7,163,569.37 72,985.25 131,688.16
Mar-24 70 7,163,569.37 57,876.11 (131,688.16) 7,089,757.31 73,812.05 131,688.16
Apr-24 69 7,089,757.31 57,049.31 (131,688.16) 7,015,118.46 74,638.85 131,688.16
May-24 68 7,015,118.46 56,222.50 (131,688.16) 6,939,652.81 75,465.66 131,688.16
Jun-24 67 6,939,652.81 55,395.70 (131,688.16) 6,863,360.35 76,292.46 131,688.16
Jul-24 66 6,863,360.35 54,568.90 (131,688.16) 6,786,241.09 77,119.26 131,688.16
Aug-24 65 6,786,241.09 53,742.10 (131,688.16) 6,708,295.03 77,946.06 131,688.16
Sep-24 64 6,708,295.03 52,915.30 (131,688.16) 6,629,522.17 78,772.86 131,688.16
L6
Oct-24 63 6,629,522.17 52,088.50 (131,688.16) 6,549,922.51 79,599.66 131,688.16
Nov-24 62 6,549,922.51 51,261.70 (131,688.16) 6,469,496.04 80,426.46 131,688.16
3,920,000.00
Dec-24 61 6,469,496.04 50,434.89 (131,688.16) 6,388,242.78 81,253.27 131,688.16
Jan-25 60 6,388,242.78 49,608.09 (131,688.16) 6,306,162.71 82,080.07 131,688.16
Feb-25 59 6,306,162.71 48,781.29 (131,688.16) 6,223,255.84 82,906.87 131,688.16
Mar-25 58 6,223,255.84 47,954.49 (131,688.16) 6,139,522.17 83,733.67 131,688.16
Apr-25 57 6,139,522.17 47,127.69 (131,688.16) 6,054,961.70 84,560.47 131,688.16
May-25 56 6,054,961.70 46,300.89 (131,688.16) 5,969,574.42 85,387.27 131,688.16
Jun-25 55 5,969,574.42 45,474.08 (131,688.16) 5,883,360.35 86,214.08 131,688.16
Jul-25 54 5,883,360.35 44,647.28 (131,688.16) 5,796,319.47 87,040.88 131,688.16
Aug-25 53 5,796,319.47 43,820.48 (131,688.16) 5,708,451.79 87,867.68 131,688.16
Sep-25 52 5,708,451.79 42,993.68 (131,688.16) 5,619,757.31 88,694.48 131,688.16
Oct-25 51 5,619,757.31 42,166.88 (131,688.16) 5,530,236.03 89,521.28 131,688.16
Nov-25 50 5,530,236.03 41,340.08 (131,688.16) 5,439,887.95 90,348.08 131,688.16
Dec-25 49 5,439,887.95 40,513.28 (131,688.16) 5,348,713.07 91,174.88 131,688.16
Jan-26 48 5,348,713.07 39,686.47 (131,688.16) 5,256,711.38 92,001.69 131,688.16
Feb-26 47 5,256,711.38 38,859.67 (131,688.16) 5,163,882.89 92,828.49 131,688.16
Mar-26 46 5,163,882.89 38,032.87 (131,688.16) 5,070,227.60 93,655.29 131,688.16
Apr-26 45 5,070,227.60 37,206.07 (131,688.16) 4,975,745.51 94,482.09 131,688.16
May-26 44 4,975,745.51 36,379.27 (131,688.16) 4,880,436.62 95,308.89 131,688.16
Jun-26 43 4,880,436.62 35,552.47 (131,688.16) 4,784,300.93 96,135.69 131,688.16
Jul-26 42 4,784,300.93 34,725.66 (131,688.16) 4,687,338.43 96,962.50 131,688.16
Aug-26 41 4,687,338.43 33,898.86 (131,688.16) 4,589,549.13 97,789.30 131,688.16
Sep-26 40 4,589,549.13 33,072.06 (131,688.16) 4,490,933.04 98,616.10 131,688.16
Oct-26 39 4,490,933.04 32,245.26 (131,688.16) 4,391,490.14 99,442.90 131,688.16
Nov-26 38 4,391,490.14 31,418.46 (131,688.16) 4,291,220.44 100,269.70 131,688.16
Dec-26 37 4,291,220.44 30,591.66 (131,688.16) 4,190,123.93 101,096.50 131,688.16
Jan-27 36 4,190,123.93 29,764.86 (131,688.16) 4,088,200.63 101,923.30 131,688.16
Feb-27 35 4,088,200.63 28,938.05 (131,688.16) 3,985,450.52 102,750.11 131,688.16
Mar-27 34 3,985,450.52 28,111.25 (131,688.16) 3,881,873.61 103,576.91 131,688.16
Apr-27 33 3,881,873.61 27,284.45 (131,688.16) 3,777,469.91 104,403.71 131,688.16
May-27 32 3,777,469.91 26,457.65 (131,688.16) 3,672,239.39 105,230.51 131,688.16
Jun-27 31 3,672,239.39 25,630.85 (131,688.16) 3,566,182.08 106,057.31 131,688.16
Jul-27 30 3,566,182.08 24,804.05 (131,688.16) 3,459,297.97 106,884.11 131,688.16
Aug-27 29 3,459,297.97 23,977.24 (131,688.16) 3,351,587.05 107,710.92 131,688.16
Sep-27 28 3,351,587.05 23,150.44 (131,688.16) 3,243,049.34 108,537.72 131,688.16
Oct-27 27 3,243,049.34 22,323.64 (131,688.16) 3,133,684.82 109,364.52 131,688.16
Nov-27 26 3,133,684.82 21,496.84 (131,688.16) 3,023,493.50 110,191.32 131,688.16
Dec-27 25 3,023,493.50 20,670.04 (131,688.16) 2,912,475.38 111,018.12 131,688.16
Jan-28 24 2,912,475.38 19,843.24 (131,688.16) 2,800,630.45 111,844.92 131,688.16
Feb-28 23 2,800,630.45 19,016.44 (131,688.16) 2,687,958.73 112,671.72 131,688.16
Mar-28 22 2,687,958.73 18,189.63 (131,688.16) 2,574,460.20 113,498.53 131,688.16
Apr-28 21 2,574,460.20 17,362.83 (131,688.16) 2,460,134.88 114,325.33 131,688.16
L6
4,190,123.93
7.4.6 Page 564 of 565 APM 2022

Q2.1
May-28 20 2,460,134.88 16,536.03 (131,688.16) 2,344,982.75 115,152.13 131,688.16
L6
Jun-28 19 2,344,982.75 15,709.23 (131,688.16) 2,229,003.82 115,978.93 131,688.16
Jul-28 18 2,229,003.82 14,882.43 (131,688.16) 2,112,198.08 116,805.73 131,688.16
4,190,123.93
Aug-28 17 2,112,198.08 14,055.63 (131,688.16) 1,994,565.55 117,632.53 131,688.16
Sep-28 16 1,994,565.55 13,228.82 (131,688.16) 1,876,106.21 118,459.34 131,688.16
Oct-28 15 1,876,106.21 12,402.02 (131,688.16) 1,756,820.08 119,286.14 131,688.16
Nov-28 14 1,756,820.08 11,575.22 (131,688.16) 1,636,707.14 120,112.94 131,688.16
Dec-28 13 1,636,707.14 10,748.42 (131,688.16) 1,515,767.40 120,939.74 131,688.16
Jan-29 12 1,515,767.40 9,921.62 (131,688.16) 1,394,000.86 121,766.54 131,688.16
Feb-29 11 1,394,000.86 9,094.82 (131,688.16) 1,271,407.52 122,593.34 131,688.16
Mar-29 10 1,271,407.52 8,268.02 (131,688.16) 1,147,987.37 123,420.14 131,688.16
Apr-29 9 1,147,987.37 7,441.21 (131,688.16) 1,023,740.42 124,246.95 131,688.16
May-29 8 1,023,740.42 6,614.41 (131,688.16) 898,666.68 125,073.75 131,688.16
Jun-29 7 898,666.68 5,787.61 (131,688.16) 772,766.13 125,900.55 131,688.16
Jul-29 6 772,766.13 4,960.81 (131,688.16) 646,038.78 126,727.35 131,688.16
Aug-29 5 646,038.78 4,134.01 (131,688.16) 518,484.62 127,554.15 131,688.16
Sep-29 4 518,484.62 3,307.21 (131,688.16) 390,103.67 128,380.95 131,688.16
Oct-29 3 390,103.67 2,480.40 (131,688.16) 260,895.92 129,207.76 131,688.16
Nov-29 2 260,895.92 1,653.60 (131,688.16) 130,861.36 130,034.56 131,688.16
Dec-29 1 130,861.36 826.80 (131,688.16) (0.00) 130,861.36 131,688.16
7,260 6,002,579.20 (15,802,579.20) 9,800,000.00 1,580,257.92 1,580,257.92 1,580,257.92 1,580,257.92 1,580,257.92 1,580,257.92 1,580,257.92 1,580,257.92
L6 L6
4,740,773.76 L6 4,740,773.76 L6
Note * The interest rate is derived using the company's borrowing rate adjusted for the asset-specific rate. We have reviewed management's calculation and tested the inputs used and
noted that the rate is appropriately. Please refer to Appendix 1 for work preformed [not produced in this example file] .
7.4.6 Page 565 of 565 APM 2022

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HKICPA AUDIT PRACTICE MANUAL 2022

Client name Manufacturing Company Limited

File number M0001

Ref Sheet Title Is this Notes

CURRENT AUDIT FILE

A001 Ai Section A index

A004 A1.3 Final completion

B001 Bi Section B index

C001 Ci Section C index

Questions Page 1 of 565 APM 2022

D001 Di Section D Optional programmes index

E001 Ei Section E Intangible assets index

F001 Fi Section F PPE index

G001 Gi Section G Investments in group or associated undertakings index

H001 Hi Section H Other investments index

I001 Ii Section I Inventories index

Questions Page 2 of 565 APM 2022

J001 Ji Section J Trade & other receivables index

K001 Ki Section K Bank balances and cash index

L001 Li Section L Trade & other payables index

M001 Mi Section M Long-term loans and deferred income index

N001 Ni Section N Provisions, contingent liabilities and financial commitments

O001 Oi Section O Share capital, reserves and statutory records index

P001 Pi Section P Income taxes index

Q001 Qi Section Q Income index

R001 Ri Section R Profit and loss index

Questions Page 3 of 565 APM 2022

S001 Si Section S Operating effectiveness of controls index

T001 Ti Section T Subsequent events index

U001 Not Used

V001 Vi Section V General ledger index

W001 Wi Section W Consolidation index

X001 Xi Section X Accounts working papers index

App01 App1.1 Business combinations - index

Questions Page 4 of 565 APM 2022

Questions Page 5 of 565 APM 2022

AUDIT FILE INDEX

Ai Page 6 of 565 APM 2022

1 Final completion memorandum A1

1.2 Final subsequent events review A1.2

1.3 Final completion checklist A1.3

2 Accounts & tax computations

2.1 Final accounts A2.1

2.2 Tax computations A2.2

4 Draft accounts, typing instructions, calling over checklist (Aapp1)

Ai Page 7 of 565 APM 2022

FINAL COMPLETION MEMORANDUM

1. Approval for Signing the Audit Report

I authorize the issue of the completion of the audit report.

Bob Lee 25/4/2022

Audit engagement partner Date

Second partner (where appropriate ) Date

3. Final Subsequent Events Review A1.2 Completed - YES / NO

4. Other (Including late amendments to the file) A1.3 Completed - YES / NO

A1 Page 8 of 565 APM 2022

FINAL SUBSEQUENT EVENTS REVIEW

2 Read the management minutes held since the Y Y O4 Review of minutes JO

4 Enquire with management whether any Y Y T2.1 Discussed with JO

(c) whether sales of assets have occurred or Y Y None JO