Prepayments - Audit Process
Prepayments similar to accruals are not mostly checked through the double entry system. This creates them susceptible to mistake. The auditor's procedures involve:
1. That previous year's prepayments are written back.
2. Examining previous year's prepayments to obtain an appreciation of the kind of prepayments to expect the institute to have.
3. Comparison of previous year's listing along with the recent listing as prepayments do not change much from year to year, few items substantially greater or missing or less than last year's uses investigation. Obviously in the initial year of trading such a comparison is impossible.
4. Reliance on his knowledge of the accounts that frequently obtain prepayments such like rent, insurance, rates, advertising, etc. The auditor must examine that accounts to determine where prepayments have been understated.
5. Vouch the listing to maintain documentation of prepayments to establish the authenticity.