Chap 10 Substantive Procedures

Question 1

Important point

Answer 1

We shall identify risk at assertion level and perform procedure at assertion level

Question 2

Tangible non current assets
Additions

Answer 2

-Obtain list and agree with fixed assets’ schedule
-Inspect (authorization, sale deeds and legal documents)
-Physical verification
-Check date of capitalisation
-Test calculation of depreciation (assess reasonableness of life)

Question 3

Disposal - Tangible non current assets

Answer 3

-Obtain list and agree
-Inspect (authorisation, sale deed, invoice)
-Check removal from books
-Recalculate gain/loss

Question 4

Revalued assets - tangible non current assets

Answer 4

-Agree with valuation report
-Ensure valuation -for entire class -upto date -Method is consistent
-Check disclosure
-Recalculate surplus
-Physically inspect condition

Question 5

Self constructed asset

Answer 5

-Inspect permission of authorities (naqsha approve)
-Select sample of cost and inspect
.suppliers invoice
.bills
.payroll records
-Discuss capitalisation policy and review list of capital expenditure
-Compare budget with actual cost
-Expert’s assessment of soc
-Check depreciation start on completion
-Presentation and disclosure

Question 6

Closing balance (tangible non current assets)

Answer 6

-Completeness (agree, record, physical verification) (asal se document)
-Existence (document se real)
-Valuation and allocation
-Rights and obligation (land, vehicle, others)
-Classification (scan ledger)
-Presentation

Question 7

Procedures to check depreciation

Answer 7

Review fixed asset register
Recalculate depreciation (sahi hai ya nhi)
Compare ratio of depreciation
Check reasonableness of estimate
Review gain/loss of disposal
Check physical condition of asset (if impairment)

Question 8

Intangibles - procedure

Answer 8

•Approval of acquisition
•Check calculation of goodwill
-to check cost (agreement + bank statement)
- Fv of net asset (due diligence report)
Above two procedures are performed when business is acquired

•ensure annual impairment testing
-evaluate assumptions
-engage expert (if necessary)
•If impairment recorded then check accounting and disclosure

Question 9

Development cost (intangible)

Answer 9

•Criteria
•Discuss feasibility of project with mgmt
•Select sample of cost and check supporting documents
•Review list of capitalised expenses for proper classification
•Obtain representation regarding intention
•Check amortisation and impairment

Question 10

Insurance

Answer 10

1. Read insurance agreement/policy
2. Inspect communication
3. Check if it is virtually certain
4. Record only if virtually certain

Question 11

Litigation

Answer 11

Send confirmation letter to lawyer
Read minutes of meeting
Discuss with mgmt about Expected settlement/Outcome
Read case filed
Written representation of client (if he want to settle)

Question 12

Loss by fire/flood

Answer 12

Physically inspect location
Assess reasonableness of inventory/assets of location
Appropriate accounting, disclosures
Use expert