Chapter 0a - Audit Procedures

Question 1

Outline and explain the table that can be used to determine the types of audit procedures required to obtain sufficient appropriate audit evidence about specific assertions

Answer 1

This table helps auditors select appropriate procedures based on the type of evidence they need to collect and the assertions they need to test.

VERB (the action) This column suggests the type of procedure to use (e.g., “Inspect”, “Recalculate”, “Observe”).

WHAT (are you looking at) This clarifies the subject of the procedure, like a document, control, or estimate.

WHY (are you doing it?)
This links the procedure to specific audit assertions, like:
* Existence
* Completeness
* Accuracy
* Valuation
* Rights and obligations
* Presentation and disclosure

Question 2

Outline the method that can be used to determine the types of audit procedures required to obtain sufficient appropriate audit evidence about specific assertions

Answer 2

1. Identify the Assertion You Need to Test
   For example, if you’re auditing inventory, the key assertions might be existence and valuation.
2. Look at the “WHY” Column
   Find the audit assertions you’re targeting. For example:
   * For existence: Consider procedures like Inspect, Observe, Confirm.
   * For valuation: Consider Enquire, Examine, Recalculate.
3. Move Left to the “WHAT” Column
   Decide what documents, estimates, or controls you should examine. For example:
   * For inventory existence, stock records or stock counts
4. Design Procedures - Combine
   Combine the three columns into practical audit procudures like:
   * “Inspect the physical inventory count sheets to ensure existence and completeness

Question 3

What is important to remember about the audit procedures you design with regards to the business itself?

Answer 3

When designing procedures, consider the nature of the business and the evidence it is likely to have available to it. For instance, a service organisation is unlikely to have ‘goods delivered notes’ for you to look at. You need to think about the type of business so that you are designing tests that are appropriate for that business. Just learning a list of procedures will not be enough, and hence question practice in this area is vital.

Question 4

What are the two categories of audit procedures? Briefly define each

Answer 4

• Control testing - process of evaluating whether a company’s internal controls are properly designed and operating effectively to prevent or detect material misstatements in the financial statements.
• Substantive procedures - procedures performed by auditors to detect material misstatements in financial statements. These tests are designed to gather direct evidence about the accuracy, completeness, and validity of financial statement balances and transactions.

Question 5

What areas of the financial statements will we design audit procedures for?

Answer 5

• Revenue
• Purchases/Expenses
• Tangible/Intangible Assets
• Inventory
• Trade Receivables
• Trade Payables
• Going Concern

Question 6

What are the assertions auditors will test with regards to revenue? (6)

Answer 6

1. Occurrence (or Validity) - Did the company actually earn the revenue?
2. Completeness - Has all the revenue been recorded?
3. Accuracy - Are the amounts recorded for revenue correct?
4. Cutoff - Was the revenue recorded in the right period?
5. Classification - Is the revenue recorded in the right accounts?
6. Presentation and Disclosure - Is the revenue shown and explained properly in the financial statements?

Question 7

Design tests of controls and substantive procedures to evaluate the assertions related to revenue

Question 8

What are the assertions auditors will test with regards to purchases/expenses? (6)

Answer 8

1. Occurrence (or Validity) - Did the company actually buy the goods or services?
2. Completeness - Has everything the company bought been recorded?
3. Accuracy - Are the amounts recorded for purchases correct?
4. Cutoff - Were the purchases recorded in the right period?
5. Classification - Are the purchases recorded in the right accounts?
6. Presentation and Disclosure - Are the purchases shown and explained properly in the financial statements?

Question 9

Design tests of controls and substantive procedures to evaluate the assertions related to purchases/expenses

Question 10

What are the assertions auditors will test with regards to tangible and intangible assets? (6)

Answer 10

1. Occurrence (or Validity) – Does the company actually own the asset?
2. Completeness – Have all assets been recorded?
3. Accuracy – Are the asset amounts recorded correctly?
4. Cutoff – Was the asset recorded in the right period?
5. Classification – Is the asset recorded in the right category (e.g., tangible vs. intangible)?
6. Presentation and Disclosure – Are the assets shown and explained properly in the financial statements?

Question 11

Design tests of controls and substantive procedures to evaluate the assertions related to tangible and intangible assets

Question 12

What are the assertions auditors will test with regards to inventory? (6)

Answer 12

1. Occurrence (or Validity) – Does the company actually own the inventory?
2. Completeness – Has all inventory been recorded?
3. Accuracy – Are the quantities and values of inventory recorded correctly?
4. Cutoff – Was the inventory recorded in the right period?
5. Classification – Is the inventory recorded in the correct account or category?
6. Presentation and Disclosure – Is the inventory shown and explained properly in the financial statements?

Question 13

Design tests of controls and substantive procedures to evaluate the assertions related to inventory

Question 14

What are the assertions auditors will test with regards to trade receivables? (6)

Answer 14

1. Occurrence (or Validity) – Do the recorded receivables actually exist and relate to real customers?
2. Completeness – Have all amounts owed by customers been recorded?
3. Accuracy – Are the receivable amounts recorded correctly?
4. Cutoff – Were the receivables recorded in the right period?
5. Classification – Are receivables recorded in the correct account or category?
6. Presentation and Disclosure – Are receivables shown and explained properly in the financial statements?

Question 15

Design tests of controls and substantive procedures to evaluate the assertions related to trade receivables

Question 16

What are the assertions auditors will test with regards to trade payables? (6)

Answer 16

1. Occurrence (or Validity) – Do the recorded payables actually relate to goods or services the company received?
2. Completeness – Have all amounts the company owes been recorded?
3. Accuracy – Are the payable amounts recorded correctly?
4. Cutoff – Were the payables recorded in the right period?
5. Classification – Are the payables recorded in the correct account or category?
6. Presentation and Disclosure – Are payables shown and explained properly in the financial statements?

Question 17

Design tests of controls and substantive procedures to evaluate the assertions related to trade payables

Question 18

What are the assertions auditors will test with regards to going concern? (6)

Answer 18

1. Occurrence (or Validity) – Are the assumptions and events related to going concern real and supportable?
2. Completeness – Have all relevant factors and risks affecting going concern been considered?
3. Accuracy – Are the forecasts and supporting data used in the going concern assessment correct?
4. Cutoff – Are future events and conditions assessed over the appropriate time frame (usually 12 months from the reporting date)?
5. Classification – Are any related liabilities or assets properly classified in light of going concern uncertainties?
6. Presentation and Disclosure – Has the company properly disclosed any material uncertainty or significant judgment regarding going concern?

Question 19

Design tests of controls and substantive procedures to evaluate the assertions related to going concern