Capital Commitments - Audit Process

The Companies Act needs capital commitments be disclosed through a way of note to the accounts.  Therefore the auditor must execute sufficient work to certify that such amounts are fairly and completely stated.  He may receive this information from the directors in a letter of representation however work must be performed to verify the amounts stated.  The director's minutes should be reviewed for evidence of authority to situate capital contracts.  Examination of capital commitments might be carried out and discussions held along with the suitable management staff.  Correspondence along with lawyers should be perused to find out whether any instructions have been provided for drawing up major contracts.  The notice must distinguish among expenditure authorised through the directors and the contracts that have already been entered into.