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Assurance > Chapter 13 - Substantive procedures > Flashcards

Chapter 13 - Substantive procedures Flashcards

1
Q

What is valuation assertion?

A

Assets may be overvalued by inflating cost/valuation or by under charging depreciation

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2
Q

What is rights and obligations assertion?

A

Company might not own assets

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3
Q

What is existence assertion?

A

Assets may not exist or may have been sold

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4
Q

What is completeness assertion?

A

Omission of company assets

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5
Q

What is presentation and disclosure assertion?

A

Assets may be incorrectly presented in financial statements

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6
Q

What is existence inventory?

A

Non-existent inventory may be included in financial statements

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7
Q

What is inventory completeness?

A

Some existing inventory may not be included in financial statements

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8
Q

what is inventory valuation?

A
  • Damaged/obsolete inventory included in financial statements at full value
  • Included at wrong value
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9
Q

What is inventory cut off?

A

Sold inventory included in financial statements

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10
Q

What types of controls are there relating to inventory counts?

A
  • Supervision
  • Tidying and marking
  • Damage identification
  • Restriction and control
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11
Q

What is perpetual inventory counting?

A

Assurance providers ensure management is undertaking inventory counts annually

Mainly concerned with cut off

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12
Q

What are the sources of info on receivables?

A
  • Receivables ledger
  • Customer confirmations
  • Cash payments received after year end
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13
Q

What is direct confirmation of receivables covered by?

A

ISA 505

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14
Q

Are external confirmations compulsory for an audit?

A

No, provides evidence in relation to existence and rights and obligations

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15
Q

When should confirmation take place?

A

Immediately after year end

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16
Q

what is confirmation?

A

Act of the client which authorises 3rd parties to divulge info to the auditor

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17
Q

What are the 2 alternative methods used when a client refuses an auditor to send a confirmation request?

A

Positive method

Negative method

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18
Q

What occurs under the positive method?

A

Customer requested to give the balance or to confirm accuracy of balance shown

19
Q

What occurs under the negative method?

A

Customer is requested to reply only if the amount stated is disputed

Method considered less reliable

20
Q

What are the alternative procedures if it’s impossible to get confirmations from individual customers?

A
  • Verify valid POs
  • Examine account
  • Obtain explanations for unpaid invoices
  • Vouch receipt of cash
  • Check balance mvmt
  • Test company’s controls
21
Q

What are the sources of info relating to bank?

A
  • Cash at bank
  • Nominal ledger
  • Bank confirmation
  • Bank statements
  • Reconcilliations
22
Q

What does the testing of bank balances need to cover?

A
  • Completeness
  • Existence
  • Rights and obligations
  • Valuation
23
Q

How can all elements be tested cirectly?

A

Through gaining 3rd party confirmations from client’s banks

24
Q

What is the most commonly requested info?

A
  • Balances due
  • Deposits
  • Loans
  • Nil balances
  • Closed accounts
25
Q

What may window dressing involve?

A

Keeping cash at bank nominal ledger accounts open to take credits for remittances actually received after year end

Enhances balance at bank and reduces receivables

26
Q

What can window dressing also entail?

A

Delaying the recording cheques until after year end

Decreases balance at bank and reduces payables

27
Q

What should assurance providers examine?

A

Paying in slips to ensure the amounts were paid before year end

28
Q

How should all cash balances be counted?

A

At the same time as far as possible

29
Q

What do assurance providers have to determine when counting cash?

A

Locations where cash is held and which of these warrant a count

30
Q

What are the sources of info relating to payables?

A
  • Payables ledger records
  • Supplier confirmation
31
Q

What is the most important test when considering trade payables?

A

Comparison of supplier statements with payables ledger balances

32
Q

What should assurance providers be careful of when taking supplier statements?

A

Not to just select supplier with large year end balances

33
Q

What are assurance providers primarily interested in when reviewing payables?

A

Errors of understatement

34
Q

What should assurance providers have within their sample?

A

Payables with nil or negative payables ledger balances

35
Q

What should assurance providers be wary of?

A

Major suppliers with low balances

36
Q

What should the sample be selected from?

A

Client’s list of suppliers

37
Q

Where may positive supplier statement confirmations be required?

A
  • Statements unavailable/incomplete
  • Weakness in internal control
  • Nature of business
38
Q

what does to audit of accruals primarily focus on?

A

Cut-off and completeness

39
Q

What does cut-off mean?

A

Amount accrued relates to reporting period

40
Q

What are sources of info relating to long term liabilities?

A
  • Schedule of loan
  • Statutory books
  • Cash at bank nominal ledger account
  • Loan agreements
41
Q

What matters need reporting to more senior staff?

A
  • Conclusions
  • Exceptional items discovered
  • Unusual accounting entries
  • Money laundering
42
Q

What is the most appropriate procedure to confirm value of trade receivables?

A

Review of cash paid after date

43
Q

Which financial statement assertion will be supported by a sample check on the numerical sequence of dispatch records and invoices?

A

Completeness

44
Q

What procedure confirms cash at bank exists?

A

Obtaining direct confirmation of the bank balance from the client’s bank

Assurance (16 decks)

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