Chapter 10 - Liabilities, Shareholders Funds And Stat Books

Question 1

What is the main concern for liability check?

Answer 1

Understatement - not include all liabilities to improve the companies financial position.

Harder for the auditor to test completeness as what they are looking for isn’t there - documents -> FS

Question 2

Audit tests for liabilities

Answer 2

Obtain a list of payables and reconcile to the nominal - completeness.
Cut off testing - completeness.
Post year end nominal to for u reconciled liabilities - completeness.
Supplier statements - existence, rights and obligations.
Analytical review - prior year comparison, calculate payable days.
Review the clients file of unpaid invoices.

Question 3

Accruals

Answer 3

If accruals are material to the FS then must be tested. Sample of accruals selected and agreed back to the supporting doc, verify the existence.

Question 4

Provisions and contingencies

Answer 4

Ask client for a list
Review board minutes
Correspond with experts eg. Solicitors

Question 5

Shareholders funds

Answer 5

Check authorised share capital to the memorandum and articles of association.
Check board minutes any changes in share capital.
Trace all shares issued to cash book.
Review companies house for evidence.
Ensure all share re purchased are legal.

Question 6

The memorandum and articles of association

Answer 6

Docs that must be filed with companies house which includes:

Name, address, authorised share capital, purpose of the company.