Chapter 9 Appendix: Audit Procedures

Question 1

What risks surrounding NCA and what audit procedures (4 each)

Answer 1

Doesn’t own or exist, rights excluded, overstated, undervalued

Existence- paper to floor
Rights- deed, docs, certificate, invoice
Completeness- floor to sheet (NCA register)
Valuation- surveyor report or purchase invoice

Question 2

What risks surrounding intangible assets (2)

Answer 2

Misstated due to capitalisation of research expenditure or non-attributable cost, difficulty of valuing due to no active market

Question 3

What risks surrounding inventory and what audit procedures (4, 2) Give sources of info (4)

Answer 3

not existing, missing, obsolete, sold

attendance of count- proof
evidence of valuation- identify items needed to be sold at discount/scrapped

Control over counts, attendance of count, purchase invoice, post year-end sales invoice

after count follow up sample selected at count to see if same quantity included in final FS

Question 4

What source of data can be used for receivables and what audit procedures can be done?

Answer 4

o Receivables ledger data, aged debt schedule, confirmation with customer, board minutes and invoices

Existence/rights-
 Obtain direct confirmation of receivables balance from customer
 Trace receivable balance back to original doc (dispatch note/invoice), confirming amounts
 Obtain explanations for unpaid invoices

Valuation-
 For sample of recs selected from rec ledger, inspect post YE bank statement to see cash received from customers
 Discuss allowance for doubt debts and eval reasonableness

Question 5

What risk is associated with bank and cash balance? Give audit procedures

Answer 5

Not all bank balance disclosed. Material cash balances omitted. Liability not stated correctly (loans)

Valuation- agree reconciling items in bank receivables to post YE bank statement and pre YE account

Rights and obligation- confirm balance with bank

Existence- Count material cash balances held by client and confirm with bank

Question 6

Give risk, procedures and sources of info for payables

Answer 6

Risk- understated (completeness)

Sources of info- records of credit transactions with specific clients, knowledge of key suppliers, purchase ledger records and posted journals

Audit procedure- inspect post YE bank statement and identify payment to supplier then trace to GRN

Question 7

Give risk, procedures and sources of info for NCL

Answer 7

Risks: Non-disclosure or incorrect

Source: Loan schedule, loan agreement, bank letter from lenders, board minutes

Procedures: Completeness- get confirmation from lenders and inspect board mins for new loan
Presentation- recalc split between current and non current
Accuracy- recalc interest charge for amount of accrued interest

Question 8

What are the SPL key assertions

Answer 8

Occurrence (overstatement), accuracy, cut off, completeness (understatement)