Audit Procedures

Question 1

Verbs to use when writing a procedure:

Answer 1

Compare
Inspect
Verify
Trace
Inquire
Recalculate
Obtain
Review
Ascertain
Perform
Reperform

Question 2

Pieces of Evidence to use in procedures:

Answer 2

Assets
Ask (enquiry)
Aged analysis
Bank statements
Board minutes
Budgets
Correspondence
Controls (tests of or walkthroughs)
Contracts
Calculations
Cut-off testing
Credit notes
Comparisons
Documents (be specific)
Direct confirmations
Experts
Events post YE
Estimates (Review management estimates, variance analysis)
WR

Question 2

What is an example of Inspection of documents

Answer 2

Reviewing, checking invoices / contracts/ receipts

Question 3

What is an example of Observation?

Answer 3

Watching processes
Inventory counts
Cash handling

Question 4

What is an example of Inquiry?

Answer 4

Asking questions to management or staff.
To understand processes / controls.
To Ascertain why something unusual has occurred e.g. in MJs.

Question 5

What is an example of Confirmation?

Answer 5

External verification, letters to 3rd parties (banks, customers, suppliers)
To confirm balances.

Question 6

What is an example of Recalculation?

Answer 6

Depreciation / amortization
Payroll
Finance costs e.g. interest on loans
Inventory valuation
Prepayments & Accruals
Profit Margins
Provision for bad debts

To ensure accuracy / accurate valuation /

Question 7

What is an example of Reperformance?

Answer 7

Re-doing procedures to get the same result.
Bank reconciliation
Approval of Transactions
Payroll
Control Testing – Invoice Matching [3 step matching process (purchase order, goods receipt note, and invoice)]

Question 8

What is an example of Analytical procedures?

Answer 8

Comparing numbers
Analyze data
Identify trends / ratio / unusual transactions > error / fraud

Question 9

What is an example of substantive testing?

Revenue

Answer 9

Substantive Test of Transactions (Revenue):
Procedure: Selecting a sample of sales transactions from the ledger and tracing them to supporting documents, such as invoices, shipping documents, and customer payments.
Purpose: To verify the occurrence, accuracy, and cutoff assertions for revenue

Question 10

What is an example of substantive testing?

Inventory

Answer 10

Substantive Test of Account Balances (Inventory):
Procedure: Performing a physical inventory count and comparing the results to the recorded inventory balance in the financial statements.

Purpose: To confirm the existence and valuation of inventory.

Question 11

What is an example of substantive testing?

Payroll

Answer 11

Substantive Analytical Procedures (Payroll Expenses):
Procedure: Comparing total payroll expenses to prior periods and investigating significant variances.

Purpose: To identify unusual trends or anomalies in payroll expenses, supporting the completeness and accuracy assertions.

Question 12

What is an example of Vouching?

Answer 12

Tracing backwards
From FS to FI (sources)
Legitimate?

Question 13

What is an example of Tracing?

Answer 13

Tracing forwards
From source to FS
Recorded correctly.

Question 14

What is an example of Cut-off testing?

Answer 14

Checking timelines
Recorded in correct period

Question 15

What is the purpose of Substantive Analytical Procedures?

ARE

A - Assist
R - Reliable / Relevant
E - Efficiency

Answer 15

Assist auditor in forming overall conclusion on FS.
Used to obtain Reliable / Relevant audit evidence by identifying expected relationships / detecting MM.
Assist audit Efficiency > reduce need for tests of detail, reduce sample size, identify further work required.