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ACCA Audit and Assurance > 10: Audit Procedures > Flashcards

10: Audit Procedures Flashcards

1
Q

What are other words for procedures?

A

Evidence/Testing

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2
Q

What does all Audit evidence need to be?

A
  • Sufficient

- Appropriate

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3
Q

What is directional testing?

A

Starting with source documents and agreeing them to the financial statements. Or vice versa

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4
Q

What are you testing for with Directional testing from the source documents to the financial statements?

A

Understatement / Completeness

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5
Q

What are you testing for with Directional testing from the financial statements to the source documents?

A

Overstatements / existence

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6
Q

When writing test/audit procedure what do we need to talk about?

A

Action——>Source——-> Objective

Ie. Take items on NCA register + Physically inspect them to confirm their existence.

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7
Q

What are the four areas we have procedures for, for non-current assets.?

A

Valuation
Existence
Completeness
Rights and obligations

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8
Q

What are the four things we test for in NCA valuation?

A

Additions
Depreciation
Disposals
Revaluations

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9
Q

What are the two tests for Additions in valuation of NCA?

A
  • Compare costs to invoice

- Review capital expenditure budget to check for plans to replace

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10
Q

What are the four tests for Depreciation in valuation of NCA?

A
  • Review depreciation policies for reasonableness by comparing to prior years and industry norms
  • For sample recalculate depreciation charge to see if agrees with asset register
  • Perform a proof in total calculation of depreciation,
  • Review disclosure of depreciation charges and policies in draft FS
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11
Q

What are the three tests for Disposals in valuation of NCA?

A
  • Agree sales proceeds to invoice and bank statement
  • Recaluate profit or loss on disposal and compare
  • Review capital expenditure budget and see if disposal matched plan and why if not.
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12
Q

What are the three tests for Revaluations in valuation of NCA?

A
  • Assess reasonableness of valuer. Assumptions used.
  • Agree revalued amounts to valuation report(revaluation reserve)
  • Physically inspect assets for impairment
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13
Q

How do we test existence of NCA’s?

A

Select a sample and physically inspect

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14
Q

What are the four tests for Completeness of NCA?

A
  • Reconcile PPE schedule with general ledger
  • Select a sample of assets at premises and inspect asset register for match
  • Rec the non-current asset register to general ledger and investigate differences
  • Review maintenance expense account for items of capital nature
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15
Q

What are the four tests for Rights and obligations of NCA?

A
  • Verify ownership via deeds
  • Agree purchase invoices to additions made relating to entity
  • Review any lease agreements to ensure they are correctly treated as finance or operating lease
  • Inspect vehicle registration documents to confirm owenership.
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16
Q

What are the three stages for the audit of inventory?

A

Prior to count
Inventory count (At y/e date)
Final audit

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17
Q

What are the 7 procedures prior to attending inventory count?

A

▪ Review prior year working papers
▪ Contact client to obtain stocktaking instructions
▪ Book audit staff to attend the inventory counts
▪ Obtain copy of inventory count instructions from the client
▪ Ascertain whether any inventory is held by third parties
▪ Obtain last year’s inventory count memo
▪ Prepare audit programme for the count

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18
Q

What are the 4 procedures to confirm inventory held at third party locations?

A

▪ Send a letter requesting direct confirmation of inventory balances

▪ Attend the inventory count (if one is to be performed)

▪ Inspect report on warehouse controls adequacy

▪ Inspect any documentation in respect of third party inventory

19
Q

What are the 4 procedures to confirm inventory held at third party locations?

A

▪ Send a letter requesting direct confirmation of inventory balances

▪ Attend the inventory count (if one is to be performed)

▪ Inspect report on warehouse controls adequacy

▪ Inspect any documentation in respect of third party inventory

20
Q

What are the two factors we are focussing on at the inventory count?

A

Existence & Completeness

Valuation

21
Q

What are the 6 tests for existence and completeness during the inventory count?

A
  • Observe counting teams are following procedure
  • Select a sample and perform test counts from inventory sheets to warehouse isle
  • Observe procedures for moving inventory during the count
  • Identify last GRN and GDN to perform cut off procedures
  • Record any inventory held for third parties
22
Q

What are the 3 tests for valuation during the inventory count?

A

▪ Discuss with the warehouse manager how he has estimated the raw materials quantities.

▪ Confirm the procedures for identifying and segregating damaged goods are operating correctly.

▪ Select a sample of damaged items and confirm whether the level of damage is correctly noted.

23
Q

What are the two factors we are focussing on at the final audit?

A

Existence & Completeness

Valuation

24
Q

What are the 7 tests for valuation during the final audit?

A

▪ Agree costs to purchase invoice for a sample

▪ Discuss with management the costs and how these are updated

▪ Review variances of costs and discuss with management how these are treated.

▪ Select a sample of year end goods to test if NRV is approprate

▪ Review aged inventory reports and identify any slow moving goods, discuss with management why

▪ Review the inventory records to identify the level of adjustments made throughout the year fordamaged/obsolete items.

▪ Follow up any damaged/obsolete items noted by the auditor at the inventory counts attended, to ensure that the inventory records have been updated correctly.

25
Q

What are the 2 tests for existence and completeness during the final audit?

A

▪ Cast the inventory sheet and agree to the financial statements
▪ Trace the items counted on the inventory count day and agree to the client’s final inventory sheets

26
Q

What is a substantive procedure for receivables to help ensure we don’t have receivables that wont get paid?

A

Perform a positive trade receivables circularisation for a sample of the year end balances and get permission to follow up with any non-replies.

27
Q

What substantive procedure helps to ensure receivables are all correctly classified?

A

Review sales ledger for any credit balances and discuss with management whether these should be classified as payables.

28
Q

What are 7 substantive procedures for valuation of receivables?

A
  • Inspect aged receivables report to identify slow moving balances and discuss whether allowance or write down is necessary
  • Calculate aged rec days and compare with prior years. Investigate differences.
  • Review after date cash receipts and follow through to pre-year end balances.
  • Review rec of sales ledger control account to sales ledger list of balances
  • Review board minutes to see if there are any materially disputed receivables
  • Review customer correspondence to assess if there are any invoice disputes
  • Review a sample of post year end credits to identify any relating to pre year end transactions to verify that they have not been included in receivables.
29
Q

What is a substantial procedure to confirm existence of receivables?

A

Select a sample of year end receivables and agree back to supporting documentation of GDN and sales order.

30
Q

What is a substantive procedure to confirm rights and obligations to a receivable?

A

For a sample confirm the trade terms to original credit agreement and sales invoice

31
Q

What are two substantive tests to confirm cut off for receivables?

A
  • For a sample cast to the receivables control account and the financial statements
  • Select a sample of GDN before and after year end and follow through to sales invoice to ensure they are recorded in the correct period.
32
Q

What is a test to confirm correct classification of receivables

A

Ensure they are recorded as non current assets.

33
Q

What are two substantive procedures to confirm from external parties the trade payables balance?

A
  • Perform a positive trade payables circularisation for a sample of the companies year end balances and get permission to send a reminder letter to follow up.
  • Obtain a supplier statement and reconcile to purchases ledger balance and investigate reconciling items
34
Q

What is a good test to ensure payables are recorded correctly in FS?

A

Check the purchase ledger for any debit balances and check whether these should be included as receivables.

35
Q

What are 7 substantive procedures for valuation of payables?

A
  • Inspect aged payables report to identify slow moving balances and discuss whether allowance is necessary
  • Calculate aged payables days and compare with prior years. Investigate differences.
  • Review after date cash payments and follow through to pre-year end balances.
  • Review purchases ledger control account to sales ledger list of balances
  • Review board minutes to see if there are any materially disputed payables
  • Review supplier correspondence to assess if there are any invoice disputes
  • Review a sample of post year end credit notes to identify any pre year end transactions that may need to be included in payables
36
Q

What is a substantive procedure for confirmation of payables balances existence?

A

Select a sample of payables balances and agree back to valid supporting documentation such as the GRN

37
Q

What are four substantive procedures for completeness of payables?

A

-Obtain a list of payable balances. Cast and agree to the payable control account and the financial statements.

▪ Select a sample of goods received notes (GRN) before and just after the year end and follow through to the purchase invoice to ensure they are recorded in the correct accounting period.

▪ Review the list of trade payables against prior years to identify any significant omissions.

▪ Enquire of management their process for identifying goods received but not invoiced or logged in the purchase ledger and ensure that it is reasonable to ensure completeness of payables.

38
Q

What are the 9 substantive procedures for contingent liabilities/provisions?

A
  • Enquire with management how the estimate is made and the data it is based
  • Determine whether events occurring up to the date of the auditors report provide evidence regarding the estimate
  • Review method of measurement used and assess reasonableness of assumptions made
  • Test operating effectiveness of controls over how management made the estimate
  • Develop an expectation of the possible estimate to evaluate managements estimate
  • Evaluate whether estimates are reasonable or misstated
  • Obtain evidence on whether uncertainty is reasonable
  • Obtain written representation letter confirming they think their estimates are reasonable
39
Q

What are 5 substantive procedures for cash flow forecast?

A
  • Check the opening balance of the forecast matches closing balance of cash book to ensure opening balance is accurate.
  • Consider how accurate company forecast has been in past by comparing past forecast with actual outcomes. To test reliability.
  • Determine assumptions made in preparation of forecast.
  • Review board minutes for relevant issues relating to forecast.
  • Review work of internal audit department in prepping the forecast.
40
Q

What are 4 substantive procedures for loan payables?

A
  • Agree year end loan balance to any available loan statements to confirm obligations existence and valuation.
  • Agree interest payments to the loan agreement and bank statements
  • Analyse any relevant disclosures of interest rates, amounts due to ensure completeness and accuracy.
  • Recalculate interest accrual to ensure arithmetic accuracy
41
Q

What are 4 substantive procedures for share capital?

A
  • Agree authorised share capital and nominal value disclosures with underlying shareholder agreements.
  • Inspect cashbook for evidence of cash receipts from share issues
  • Inspect terms of share certificates and reconcile cash receipts and new share capital totals
  • Inspect board minutes any dividends declared prior to year end.
42
Q

What are 5 substantive procedures for directors enolments?

A
  • Rec reported directors salary o payroll records
  • Inspect board minutes for evidence of directors bonus announcements
  • Rec director bonus payments to cash book
  • Inspect board minutes for approval of related third party transactions
  • Obtain representation letter from directors that they have disclosed all directors remuneration.
43
Q

What are 4 substantive procedures for reserves?

A
  • Rec opening reserves to closing reserves including profit for year and dividends paid.
  • Compare opening reserves to closing reserves in financial statements
  • Rec movements in revaluation reserves to the non-current asset register
  • Corroborate revaluations by comparing independently produced reports
44
Q

What are 5 substantive procedures for reserves?

A

▪ Inspect invoices received after the year end that relate to services provided before the year end. Trace them to any accruals made to ensure completeness and accuracy of the amounts.

▪ Obtain a list of accruals from the client; cast it to confirm arithmetical accuracy.

▪ Agree the figure per the schedule to the general / nominal ledger and financial statements.

▪ Recalculate a sample of accrued costs by reference to contracts and payment schedules.

▪ Analytically review in comparison to previous period to try and identify if any balances are perhaps missing.

ACCA Audit and Assurance (12 decks)

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