AEIOU

Question 1

What is meant by occurrence?

Answer 1

The transactions and events that have been recorded or disclosed have occurred, and such transactions and events pertain to the entity

Question 2

Completeness? (income statement)

Answer 2

All transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included.

Question 3

Accuracy?

Answer 3

Amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described

Question 4

Cut–off?

Answer 4

Transactions and events have been recorded in the correct accounting period

Question 5

Classification?

Answer 5

Transactions and events have been recorded in the proper accounts

Question 6

Existence? (Balance sheet)

Answer 6

Assets, liabilities and equity interests exist.

Question 7

Rights and obligations? (balance sheet)

Answer 7

The entity holds or controls the rights to assets, and liabilities are the obligations of the entity

Question 8

Completeness (Balance sheet)

Answer 8

All assets, liabilities and equity interests that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included.

Question 9

Valuation (Balance sheet)

Answer 9

Assets, liabilities and equity interests have been included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measured and described.

Question 10

Classification (Balance sheet)

Answer 10

Assets, liabilities and equity interests have been recorded in the proper accounts.

Question 11

Differences between completeness and accuracy?

Answer 11

Completeness: That it is included
Accuracy: That it is correct

Question 12

Direction of testing for completeness?

Answer 12

Source documents => FSs

Question 13

Direction of testing for occurrence?

Answer 13

FSs => Source documents

Question 14

Relevant test for occurence?

Answer 14

Select a sample of entries from the sales account in the general ledger and trace to the appropriate sales invoice and supporting goods dispatched notes and customer orders.

Question 15

Relevant test for completeness? (Income statement)

Answer 15

Select a sample of customer orders and check to dispatch notes and sales invoices and the posting to the sales account in the general ledger.

Question 16

Relevant test for accuracy?

Answer 16

Reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy.

Question 17

Relevant test for cut-off?

Answer 17

Transactions are recorded in the correct accounting period

Question 18

Relevant test for classification?

Answer 18

Check purchase invoices postings to general ledger accounts.

Question 19

Relevant test for presentation?

Answer 19

Confirm that the total employee benefits expense is analysed in the notes to the financial statements under separate headings– ie wages and salaries, pension costs, social security contributions and taxes, etc.

Question 20

Relevant test for existence?

Answer 20

Physical verification of non–current assets, circularisation of receivables, payables and the bank letter.

Question 21

Relevant test for rights and obligations?

Answer 21

Case of property, deeds of title can be reviewed. Current assets are often agreed to purchase invoices although these are primarily used to confirm cost. Long term liabilities such as loans can be agreed to the relevant loan agreement.

Question 22

Relevant test for completeness? (balance sheet)

Answer 22

Review of the repairs and expenditure account can sometimes identify items that should have been capitalised and have been omitted from non–current assets.

Reconciliation of payables ledger balances to suppliers’ statements is primarily designed to confirm completeness although it also gives assurance about existence.

Question 23

Relevant test for accuracy, valuation and allocation?

Answer 23

Vouching the cost of assets to purchase invoices and checking depreciation rates and calculations

Question 24

Relevant test for classification (balance sheet)

Answer 24

Test for transactions of checking purchase invoice postings to the appropriate accounts in the general ledger will be relevant again. Also that research expenditure is only classified as development expenditure if it meets the criteria specified in IAS 38 Intangible Assets.

Question 25

Relevant test for presentation (balance sheet)

Answer 25

Auditors often use disclosure checklists to ensure that financial statement presentation complies with accounting standards and relevant legislation. These cover all items (transactions, assets, liabilities and equity interests) and would include for example confirming that disclosures relating to non–current assets include cost, additions, disposals, depreciation, etc.