Audit Evidence : Part 2 Flashcards
NCA : valuation further procedures
-Inspect the valuer’s report and agree with the value recorded in the NCA register to confirm amount.
- Consider the reasonableness of valuation by reviewing the experience of the valuer, their independence, the scope of work and assumptions used.
-Reperform the calculation on revaluation surplus and discuss with mgmt. about any variances arising.
Intangible Assets : Procedures
- For research costs, inspect the invoices and other supporting documents to agree costs to confirm fig. in F.S
- Inspect technical feasibility report to assess whether the item is technically feasible as per accounting stds. for correct capitalisation and classification.
- Inspect market research report to assess if the client has the ability to sell items and generate economic benefits to be capitalised for correct valuations.
- Review disclosure notes for I.A to ensure adequate disclosures have been made to confirm completeness
Acquired patent /license/ brand
-Recalculate amortisation cost and agree with mgmt. the calculation to ensure accuracy.
- Inspect impairment review report to identify whether acquired patent was tested for impairment as as result of possible indicators to ensure corrct valautions
-Agree the costs spent to bank statement to confirm valautions and accuracy.
-Obtain purchase agree to confirm existence and inspect for ownership, figure and date belong to client.
-Consider whether the director possesses adequate qualifications to estimate f.v or any value for correct valuations
Accounting estimates
-Used in the absence of precise measurement for amounts.
-Used to estimate provision for legal liabilities.
-Used to estimate provision for restructuring
-Used to estimate provision for warranties
- A provision for restructuring should not include costs such as relocation, retraining and marketing exp.s
- Provision for restructuring can only exist if there is a detailed and formal plan in place and has been communicated to all for implementation
-Public annoucement pre y/e - create provision
-Public announcement post y/e - subsequent and non-adjusting event.
Accounting estimates: procedures
- Develop the auditor’s own independent estimate and compare it with mgmt.’s estimate to identify any significant variances which are to be investigated.
- Discuss with mgmt. their assumptions behind determining the estimate and assess the reasonableness behind their assumptions
- Obtain mgmt representation letter to confirm that assumptions used in determining estimate are reasonable.
- Review F.S for adequate disclosures are made as per accounting std.
For detailed plan : Review board meeting minutes to identify discussion about restructuring organisation and approval and authorisation to confirm existence.
ISA 610 AND 620: Using the work of others and internal auditors: Who’s work can external auditors use ?
-External auditors can use the work of 3 parties, which are:
1. Service organisation
2. Internal audit dept.
3. External experts
2 types of experts:
- Auditor’s experts
- Mgmt.’s experts
Why do auditors have their own experts ?
- They have their own experts because:-
a. They don’t trust mgmt.’s expert’s judgement as they may lack independence and competence
b. So they compare their expert’s work with mgmt.’s expert’s work to identify significant inconsistencies.
Can external auditor trust and use work of I.A dept ?
- Yes they can use and rely upon the work of I.A dept as long as they report to TCWG or audit committee, however if don’t then we can no longer trust their work too.
Service organisation
-Where the client outsources work of certain areas of the organisation to 3rd parties.These 3rd parties are service organisations.
-The client may outsource functions like I.A dept, payroll processing and receivables collection and many more.
Why does client outsource?
-Client outsources work because producing in-house is expensive or due to lack of capability.
Why do auditors need to look at S.O’s work?
-Service organisation’s work does indirectly impact the client’s f.s.Hence, if service organisations work inefficiently then they could over or understate items in the F.S.
Factors to consider in relation to client’s use of S.Os :-
- Auditors need to gain an understanding of the services provided by the S.O to the client, the need of the contract and the materiality of the area/function that has been outsourced.
- Assess the design and implementation of I.C at the S.O.
- Try and visit S.O to perfrom test of controls on their I.C to ensure the operating effectiveness of the I.C
- If not possible to visit, then contact S.O auditors and request either type 1 or type 2 report.
Can auditor’s reference the work of S.O’s auditors ?
-Auditors are responsible for collecting sufficient and appropriate evidence and no reference should be made in the audit report to using information from SO’s auditors.
what is mandatory for auditor to do at S.O?
-It is mandatory for auditors to perform test of controls at 3rd party location as per ISA
