Question

When auditing an organization, what as set is being audited when reviewing the Factory Overhead Account?

Answer 1

While auditing an orgnization, the following are set to be audited when reviewing the Factory Overhead Account:

1) Obtain the budget of Factory Overheads and ensure that the budget prepared is practicable and reasonable.

2) Overheads are allocated based on the appropriate basis. The basis of apportionment of Overheads among the depatments should be reviewed and ensure that the basis of apportionment is reasonable and practicable.

3) Check the overheads incurred and ensure that they are genuinely incurred by the organization but not the mere book entries.

4) Compare the actual overheads with the absorbed overheads and check the treatment of over or under absorption of overheads in the books of account.

5) Check if the amount tranferred to the work in progress account is correct.