Hong Kong Aided School Accounting and Auditing

1. Hong Kong Aided School Accounting and Auditing Prepared by: Wendy Fung

2. Outline of Presentation • Comparison of company statutory audit and school audit • General introduction to aided school audit • Audit procedures for school audit • Peachtree accounting application

3. Comparison of company statutory audit and school audit • Management • School supervisor vs Board of directors • ED vs IRD • Standard format

4. Comparison of company statutory audit and school audit • Code of Aid for Primary/Secondary Schools(ED) vs Statement of Standard Accounting Practice (HKSA)

5. General introduction to aided school audit • Various types of schools • Aided primary/secondary school • Private primary/secondary school • Caput school • Bought place school • Direct subsidy scheme school

6. Our Clients • Kindergarten • Aided Primary School • Aided Secondary School

7. General introduction to aided school audit • Reference materials issued by Education Department (ED) • circulars • guidelines • letters

8. General introduction to aided school audit • Individual grant • Grant income (Government Fund Accounts) • Non-recurrent grants of fixed assets • Other income (School and Sponsor Fund Accounts)

9. Audit procedures for school audit • ED current Circular of Annual Accounts of Aided Primary/Secondary School (any update or change?) • Last year ED Observation

10. Audit procedures for school audit • Opening balance checking between last year audited financial statements and current year accounting records

11. Audit procedures for school audit • Closing balance checking between client’s financial statements and accounting records • Preliminary assess the completeness of accounting records prepared by client

12. Audit procedures for school audit • Audit standard documents • engagement letter • letter of representation • audit planning • bank confirmation • inventory and cash confirmation (samples are saved in P:/Schools/Documents)

13. Audit procedures for school audit - Income • Monthly source documents for grants received from Government (Government Fund Accounts) • remittance advice • ED letters • Classify grants received into appropriate Grant Audit Schedule

14. Audit procedures for school audit - Income • Compare the Grant Audit Schedule with client’s accounting records to find out discrepancies • Make audit adjustments (if any)

15. Audit procedures for school audit - Income • Other income (not received from Government) is classified in General Funds account or Income and Expenditure account (School and Sponsor Fund Accounts)

16. Audit procedures for school audit - Expenditure • Verify the proper approval from ED • general guideline • approval letter • By materiality

17. Audit procedures for school audit - Salaries Grant • Material item • Grants received (completeness) • monthly paylist from ED • remittance advice • ED letter

18. Audit procedures for school audit - Salaries Grant • Salaries expense (valid and proper approval) • bank autopay list or statement • forms submitted to ED with proper authorization

19. Audit procedures for school audit - Government Fund Accounts • Year-end balances • surplus • deficit • Follow specific treatment of respective fund

20. Audit procedures for school audit - School and Sponsor Fund Accounts • Make sure in the school and sponsor fund • no grant income from Government Fund Account • no expenditure of Government Fund Account • no secret accounting record or bank accounts

21. Audit procedures for school audit - School fees and tong fai • Objective : completeness • Source document • bank autopay list • statement of local education allowance scheme

22. Audit procedures for school audit - School fees and tong fai • Source document • ED circular to check the rate per pupil or per class and calculate the total amount should be received • Compare our calculation with client’s accounting records

23. Audit procedures for school audit • All account balances of grants appear in Balance Sheet • Deficits are absorbed in General Funds Account or Income and Expenditure Account

24. Audit procedures for school audit - Balance Sheet • Fixed assets • funded by Government Fund : under Non-recurrent Grants section • funded by School Fund : under Accumulated Fund

25. Audit procedures for school audit - Balance Sheet • Bank accounts • Government fund • School fund • ED Grant surplus balances • Other debtors and creditors

26. Audit procedures for school audit - Notes • Breakdowns and explanations in Notes per requirements of the financial statements and ED circular

27. Audit procedures for school audit • http://www.ed.gov.hk/ednewhp/html_circulars.html • doubtful accounting treatment: check against ED circular

28. Audit procedures for school audit • Final procedures • complete financial statements and check up-to-date wordings • review outstanding matters • review audit adjustments

29. Audit procedures for school audit • Final procedures • prepare confirmation for necessary balances • prepare audit completion package • prepare covering letter submitted to ED

30. Peachtree accounting application • Chart of Accounts • samples prepared by Eddie Leung • Asset type accounts • Liability type accounts • Profit-and-loss type account

31. Peachtree accounting application • Grants account under • General domain • Special domain • Grant outside Operating Expenses Block Grant (OEBG)

32. Peachtree accounting application • School and class grant • Salaries grant • Administration grant Balance sheet type and Profit-and-loss type account

33. Peachtree accounting application • Review chart of accounts • Enter opening balance and compare with last year’s audited financial statements • Prepare entries to arrive at the balances of items stated on the ED Observation

34. Peachtree accounting application • General journal entry : record transactions • Grant account (balance sheet type account) • income received and expenditure incurred record directly in the grant account

35. Peachtree accounting application • Special treatment on the following three grants • School and class grant • Salaries grant • Administration grant

36. Peachtree accounting application • These three grants have both balance sheet type account and profit-and-loss type account in Chart of Accounts • Entries should be entered into profit-and-loss type account first (instead of balance sheet type account)

37. Peachtree accounting application • Grant received: • Debit to bank account or receivables • Credit to the the income of appropriate grant (profit-and-loss account)

38. Peachtree accounting application • Expenditure incurred • Debit to appropriate type of grant expense (profit-and-loss account) • Credit to bank account or payables

39. Peachtree accounting application • At year-end, eliminate the balance of income and expense (profit-and-loss type account) under the same type of grant and transfer to corresponding balance sheet type grant account • Obtain grant surplus or deficit carried forward to next year or transferred out

40. Peachtree accounting application • Classify and input data into the detailed profit-and-loss type account instead of balance sheet type account • Efficient to prepare the breakdowns and explanations in Notes to the financial statements

41. Peachtree accounting application • Amount shown as surplus (deficit) for the year in the “Income Statement” of Peachtree Accounting = Total income less total expenditures in the General Fund or Income and Expenditure Account only

42. Peachtree accounting application • Fixed assets • Additional entries for capitalizing grant expenditures as fixed assets • Check ED letter or supporting documents for proper treatment of capitalization

43. Peachtree accounting application • Fixed assets • Debit to appropriate type of fixed assets (e.g. buildings, furniture and equipment) • Credited to corresponding Non-recurrent Grants (funded by Government Fund) or Accumulated Fund (funded by School Fund)

44. Peachtree accounting application • Check up-to-date ED circular and letter to make necessary adjusting entries

45. THE END