Audit Response Flashcards
New audit client of the firm
Ensure they have a suitably experienced team
Adequate time allocated for team members to obtain an understanding
detailed team briefing to cover key areas of risk.
Financial accountant taken ill suddenly
Discuss with management the technical
competency and experience of the temporary
financial accountant.
audit engagement team should ensure that
increased substantive procedures are
undertaken on the material areas
Secure bank finance
audit engagement team should maintain
professional scepticism throughout the course
of the audit.
Detailed cut-off testing on areas
such as revenue, inventory and payables
should be performed to ensure that cut-off
has been correctly applied and substantive
procedures performed on estimates and
judgements to ensure accuracy
Machine cost capitlized
Discuss the accounting treatment with the
directors
Obtain a breakdown of the
remaining capitalised costs and agree to
supporting documentation to ensure that they
meet the recognition criteria in IAS 16
Inventory delivery time
Discuss with management the point at which
inventory is recorded and review the contract
with the supplier to verify the requirements in
place.
Extend cut-off testing by reviewing pre and
post year-end GRNs and supplier dispatch
notes to verify that inventory is recorded at
the correct point
Increase receivable days
Extend post year-end cash receipts testing
and perform a review of the aged receivables
listing to assess the valuation of receivables.
Discuss with management the adequacy of
any allowance for receivables.
Review post year end cash book to see if anything has been received
Staff members made redundant
Obtain the calculation of the redundancy
payments and agree that a provision has
been included as a liability in the year-end
financial statements.
Agree the redundancy payments have been
paid post year end.
Fraud
- Maintain professional scepticism
- discuss among engagement team, clients susceptibility to fraud
- identify and assess the risks of material misstatement due to fraud
- consider any incentives to commit fraud
IAS 38 Intangible assets
Obtain a breakdown of the expenditure and verify that it
relates to the development of the new products.
Review expenditure documentation to determine whether the costs relate to the research or development stage.
Discuss the accounting treatment with the finance director and ensure it is in accordance with IAS 38.
$4M bank loan
During the audit, the team would need to confirm that
the $4 million loan finance was received.
In addition, the split between current and non-current liabilities and the disclosures for this loan should be reviewed in detail to ensure compliance with relevant accounting standards and local legislation.
Details of security should be agreed to the bank
confirmation letter.
