Chapter 10 Procedures Flashcards
Audit Procedures for Receivables?
- Obtain aged receivables listing, cast and agree to financial statements.
- Request direct confirmation from customers to confirm existence and rights.
- Inspect GDNs and invoices included in the listing to confirm amounts.
- Inspect cash received post year end to confirm valuation.
- Calculate receivables days and compare with credit terms.
- Enquire with management about an long overdue debts.
- Inspect correspondence with customers for disputes.
- Recalculate the allowance for irrecoverable debts and compare with level of old debts to assess adequacy.
Audit Procedures for Prepayments?
- Inspect invoices to confirm expenditure relates to subsequent period.
- Recalculate the prepayment to verify.
- Inspect bank statement to confirm it was paid before the year end.
Audit Procedures for Inventory before count?
- review the previous year working papers for issues.
- review the client’s instructions issued to the counters for adequacy.
- Identify any problem areas and discuss them with the client.
Audit Procedures for Inventory during count?
- Observe the conduct of the count to ensure instruction being carried out properly.
- Make limited test counts to check the accuracy of the count.
- Make notes of any damaged or possibly obsolete inventory.
- Record document numbers for subsequent test of cut off.
- Reach a conclusion as to whether the count was carried out satisfactorily.
Audit procedures on work in progress?
- Obtain a schedule of contracts in progress at the year end, cast it and agree the total to the general ledger and draft financial statements.
- Agree a sample of items from the schedule to the inventory count records to confirm existence.
- Agree costs to supporting documentation such as supplier’s invoice and payroll records/timesheets for accuracy/valuation.
- For any overheads absorbed into the work in progress valuation, review the basis of the absorption and assess its reasonableness.
- Enquire of the contract manager how the percentage of completion of the job has been determined at the year end and agree the stage of completion of the job to records taken at the inventory count.
- Confirm that net realisable value is greater than cost by agreeing the contract price less costs to complete and cash received post year end.
- To assess the completeness of work in progress, select a sample of orders and trace through to the list of jobs included in work in progress.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to depreciation.
- If buildings have been valued recently, inspect the valuation report to assess whether the cost is significantly higher than the valuation.
- Research market values of similar properties on the internet to assess the market value and compare this with the cost recorded in the financial statements.
- Physically inspect the assets for signs of damage which may indicate
impairment. - Review profits/losses on disposals in previous years to determine whether the finance director’s claims are valid.
- Calculate the recoverable amount of the assets and compare with carrying amount to determine whether the assets are impaired and should be written down.
- Using an appropriate depreciation rate, calculate the estimated misstatement for the current year and prior years.
- Review the financial statement disclosure on accounting policies to confirm that the company’s policy for not depreciating assets is disclosed and explained.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the company restructure.
- Review board minutes to confirm the decision was made before the year end and therefore an obligation exists at the reporting date.
- Inspect a copy of the announcement made to staff to confirm this occurred after the year end.
- Review the financial statements to ensure that the restructure is accounted for as a material non‐adjusting event. The financial statements should include disclosure of the event but should not include a provision for the restructuring costs as there was no obligation at the year end.
- Obtain a breakdown of the restructuring costs, cast and agree to the disclosure note relating to the non‐adjusting event.
- Review the breakdown of costs for any obvious omissions to ensure
completeness. - Review subsequent events to obtain further evidence regarding the accuracy of the costs which should be included in the disclosure note.
- For costs such as redundancies, calculate the estimated cost and compare with management’s estimate to ensure reasonableness.
- For other restructuring costs, inspect quotations or draft agreements to ensure reasonableness.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to inventory.
- Enquire with management whether the previous auditor attended the count. If so, contact the previous auditor and review their working papers.
- Perform counts on a sample of items of inventory at the current date and perform a roll back to the year‐end inventory count to evaluate the accuracy of the year‐end count.
- If the company has an internal audit department which was involved in overseeing the count,
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the rights issue of shares?
- Agree the authorised share capital and nominal value disclosures to the shareholding agreements and other documents to identify the new shares issued have been included.
- Inspect the cash book for evidence of cash received from the share issue and ensure amounts are disclosed accurately in the financial statements.
- Inspect board minutes to agree when the rights issue was agreed and the amount issued in the current year.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Walker Co’s trade payables?
- Obtain aged payables listing, cast and agree back to financial statements.
- Obtain/perform supplier statement reconciliations to identify discrepancies.
- Obtain direct confirmation of balances from suppliers where suppliers statements are not available.
- Inspect post year end bank statements for payments made which may indicate unrecorded liabilities.
- Calculate payable ratio days and compare with credit terms given to identify unusually difference and discuss with management.
- Inspect purchase invoices and GRNS included on the listing to confirm accuracy of recording.
- Inspect GRns for before the year end to ensure completeness.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Walker Co’s accruals?
- Obtain accruals listing, cast and agree back to financial statements.
- Compare the accruals list with prior year to identify any missing accruals and discuss with management.
- Agree income tax accrual to tax computation.
- Agree payroll tax accrual to payroll records.
- Inspect post-year end bank statements for payments of accruals to confirm the amount is reasonable.
- Inspect invoices received post year end to confirm amount of the accrual.
Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Walker Co’s year-end bank balances?
1.Obtain listing of bank and cash balances, cast and agree to financial statements.
2. Obtain a bank confirmation letter for all bank accounts held.
3. Obtain bank reconciliations for all bank accounts and cast to confirm accuracy.
4. Agree the balance per the bank ledger to the general ledger.
5. Agree the balance per the bank statement to bank audit letter.
6. Agree unpresented cheques to the post-year end bank statements to confirm they have cleared in a reasonable time.
7. Agree outstanding lodgments to the pre-year end paying in book and post year end bank statements.
8. Perform a cash count for any material cash balances or where fraud may be suspected.
Describe substantive procedures the auditor should perform to confirm the directors’ remuneration included in the financial statements at the year end?
1.Obtain and cast a schedule of directors remuneration split between wages, bonuses, benefits, pension contributions and other remuneration. These will then need to be agreed and casted against the financial statements.
2. Inspect payroll records and agree the figures disclosed for wages, bonuses, and pension contributions.
3. Inspect bank statements to verify the amounts actually paid to directors.
4. Inspect bank statements to verify the amounts actually paid to directors.
5. Inspect board minutes for discussion and approval of directors bonus announcements or other additional remuneration.
Substantive procedures relating to revenue?
- Compare overall level of revenue against prior year and budget for the year and investigate any significant fluctuations.
- Obtain a schedule of sales for the year and compare this to the prior year. Discuss with management any unusual movements from the previous year.
- For a sample of invoices, recalculate invoices totals including discount sales tax.
- Calculate the final gross profit margin for the client and compare this to the prior year to investigate significant fluctuations.
Substantive procedures relating to fraud?
- Discuss with management and those charged with governance as to whether they are aware of any other payroll frauds.
- Review board minutes for evidence of management discussion relating to the fraud.
- Review and test the internal controls surrounding set up of payments and new joiners.
- Consider whether other information obtained by the audit team indicates risk of additional misstatement.
- Obtain a written representation from management.
