To perform effective and sufficient testing on borrowings is not only focus on control testing but also focus on control validation by selecting some supporting document for vouching.

The auditor could use different methods and amounts of sample to be vouched based on the risk assessment result. There is a good start for understanding the overall picture of borrowings testing before going detail to its audit procedures.

Understanding its control, assertions and possible risk is a good start for all auditors to design effective audit procedures.

Understanding Control:

Before specifically go to the understanding control of borrowings, the position of the borrowing which presented in the balance sheet, a part of the financial statement is really important for accountants when preparing financial statements for their company.

Borrowing is a fund which the company gets it from other related corporate companies or financial institutions to operate their business.

In short, borrowing is referred to as a liability that one company owes to other related corporate companies or financial institutions to run their business.

Borrowing listing must be prepared to keep tracking of the movement of its balances. In the borrowing listing, the audit could get information such as sources of those borrowings and ending balances of the current borrowed amount which presented in the financial statements as mention above.

Borrowing is a significant area that auditors must be focusing on. Deeply understanding of its control is required to perform by an experienced auditor.


  • Completeness: Completeness is one of the assertions that auditors should be focused on. To ensure the completeness of the borrowings in the balance sheet, the auditor has to obtain borrowing listing to reconcile with trial balance (TB). If there is variance, under/overestimated might be occurred and further reconciliation must be performed.
  • Existence: There are the risks that the borrowings presented in the balance sheet might not have existed. The auditor should perform checking on the borrowing contract by selecting some transactions in the borrowing listing.
  • Accuracy: This assertion is concerning the actual amount of the borrowing which presented in the balance sheet as well as in the borrowings listing. It means that amounts and other data relating to transactions have been recorded at the correct amounts. For instance, the amount appearing in the borrowing contract is reflected in the actual borrowing amount from the lender.
  • Presentation and disclosure: This assertion is concerning the disclosure of significant information that matters to other users of the financial statements. That information includes accounting manual, term, and condition of borrowings as well as its interest payment to the lenders.
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Common Risks Related to Borrowings audit:

Audit risks related to borrowings are different based on auditor understanding of its control, the nature of the borrowings and also the time constrain that allows the auditor to perform the audit. The following are the risks that normally come up when performing an audit on the borrowings;

  • The significant variance of borrowing reconciliation which management could not explain to the auditor. In this case, the auditor needs to ensure that the variance is explained with the proper acceptable explanation.
  • The discrepancy between balance per recording and its supporting document: It is important for the auditor to perform a test of detail by selecting some sample of borrowing transactions to check. It is a risk that impacts audit opinion.
  • Borrowing contract is loss during the auditing period: To achieve the audit testing on the borrowings, vouching on borrowing contract is required. In case that the contract is a loss, the audit could not ensure that the borrowing has existed and accurate. Another audit documentation and justification is required.

Audit Procedures:

  • Reconcile the borrowings listing to the general ledger and trial balance: The auditor should obtain the Company’s borrowings listing and financial statements for the period of auditing as well as relevant period. Before working on the listing of the borrowings, the auditor should make sure that the listing and the TB are reconciled.
  • Obtained movement of the borrowings during the period: The auditor should obtain the movement of borrowings and re-perform to make sure its movement is correctly performed.
  • Perform testing on the movement of the borrowing is important for the auditor to ensure the balance of the borrowing is tight to its supporting document. Meant that, the audit should test the addition of the borrowings during the audited period as well as payment of the borrowing to lenders by obtained its supporting documents for vouching.
  • Sending borrowing confirmation is also an important part for the auditor to ensure the ending balance, interest rate, and maturity date as well as to achieve the audit’s assertions.
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Written by San Chancrersna