18 - Substantive Testing

Question 1

Standard test examples?

Answer 1

Opening balances - agree to PY

Cast schedules - add up

Disclosure checklist - ensure disclosures been presented

Accounting policies - agree they’re reasonable and comply

Closing balances - TB to FS

Question 2

How to design substantive procedures?

Answer 2

Verb
Population
Evidence
Reason

Question 3

Audit programme features?

Answer 3

Test
Assertion
Working paper reference
Initial

Question 4

PPE Common procedures?

Answer 4

Physically verify (s>f/f>s) - EXISTENCE/COMPLETENESS

Agree additions and disposals

Repairs and maintenance review (any expenses in error) COMPLETENESS/CLASSIFICATION

Impairment review (physical condition) - V

Depreciation reasonableness test (expectation of dep expense) - V

Recalc depreciation - V (CAAT)

Question 5

Common tests for trade receivables?

Answer 5

Subsequent cash testing - Tracing cash received after YE

Debtors circularisation - CAAT to select sample

Testing provision - CAAT calc receivables days to identify potentially irrecoverable

Question 6

Four key tests to determine whether there is sufficient appropriate evidence that a balance is recoverable?

Answer 6

Aged debtors report - query 60/90 days, round sim payments, early invoice unpaid but later ones cleared, customer paying less than invoiced

Reasonableness of policy relating to the allowance for receivables - how to calc allowance

Post year end credit notes - provisions not been made at YE

Post year end cash receipts - if not able to check review irrecoverable debt history too, credit checks

Question 7

Trade payables key risk

Answer 7

Completeness

Question 8

Common tests for trade payables?

Answer 8

Creditors circularisation

CAAT to sample and review supplier statement reconciliations - mix of types

Analytical review graphs

Search for unrecorded liabilities

Question 9

GRNI?

Answer 9

Goods received not invoices

Accrual

Dr inventory
Cr GRNI

Once invoice received

Dr GRNI
Cr trade payables

Question 10

Common tests for inventory?

Answer 10

Follow up test at inventory count

Cut off testing

Cost vs NRV testing

Testing inventory provision

Question 11

Common tests for intangible assets?

Answer 11

Costs capitalised to invoices

Review cash book for invoices not capitalised

Review research expense account that may relate to development so should be capitalised

Recalc amortisation charge

Review sales post YE to determine impairment

Compare actual costs to budgeted to endure costs not overcapitalised

Question 12

Common tests for derivatives?

Answer 12

External confirms

Review recs

Review operational data

Review JEs

Review contracts and docs

Review entities complaints management systems

Assess assumptions are reasonable

Recalc any FV adj

Consider post/pre YE events impact on valuations

Confirm validity of valuation models used

Verify external prices through 3rd party sources