Audit procedures, p&l

Question 1

What is the key financial statement assertion when auditing the Statement of Profit or Loss?

Answer 1

Completeness – ensuring all income and expenses are fully recorded.

Question 2

What are the main challenges auditors face when auditing the Statement of Profit or Loss?

Answer 2

The high volume of transactions, such as sales or purchases, which requires efficient audit approaches.

Question 3

What audit approaches are commonly used for Statement of Profit or Loss items?

Answer 3

Tests of Control
Analytical Procedures
Tests of Detail

Question 4

What types of analytical procedures are used in auditing profit or loss items?

Answer 4

Comparing figures to prior year and budget
Month-by-month or branch-by-branch review
Examining relationships between profit or loss items and balances (e.g., revenue & receivables, purchases & payables)
Proof-in-total calculations for items like payroll, depreciation, or interest expense.

Question 5

Why are tests of control important in auditing profit or loss items?

Answer 5

They help verify that the client’s internal controls are effective in ensuring accurate recording of transactions.

Question 6

When might tests of detail be used in auditing profit or loss items?

Answer 6

To verify specific transactions or amounts, especially if there are high-risk areas or unusual fluctuations.