Chapters 12-14 Flashcards
what is the first step the auditors should do for NCA’s
compare NCA’s in the general ledger to the non current asset register
what substansive procedures do auditors need to perform to obtain sufficient and appropriate evidence to the disposal of assets and addition of assets
cast all of the additions together
inspect documents proving the disposal
inspect invoices
physically inspect additions
what are common examples of accounting estimates (3)
useful life of a NCA
Accrued revenue
provisions for legal settlements
how do you audit an accounting estimate
they need to obtain sufficient evidence as to where the figures have come from
can research be capitilised as an intangible asset
never, it is always an expense
what is the mnemonic for capitalising development
Probable future economic benefits Intention to complete Resources are adequate Ability to use Technical feasiblity Ependiture can be measured
NCA
Audit procedure for Completeness assertion
reconcile the carrying amount and depreciation back to the opening balance
agree a sample of assets youve physically inspected back to the non current asset register
NCA
Audit procedure for Existence assertion
confirm the company physically inspects each NCA each year
Inspect high value assets
confirm the items inspected are in good condition and in use
NCA
Audit procedure for Valuation assertion
verify valuation to valuation certificate
reperform revaluation calculation
inspect draft accounts include revaluation losses as well as gains
NCA
Audit procedure for Depreciation assertion
ensure all NCA’s have been depreciated
ensure the depreciation for revalued assets has been done on the revalued amount
compare ratios of depreciation to previous years
NCA
Audit procedure for rights and obligation assertion
inspect deeds, leases and land registry certificates
confirm all vehicles are used for the clients business
obtain a certificate from soliciters stating the purpose of which the deeds are held and that its free from a mortgage
NCA
Audit procedure for Goodwill assertion
consider whether it being valued as an asset is reasonable
recalculate
review the impairment and discuss with management
5 steps for the counting process of stock counts
evaluate managements instructions and procedures for the count
observe the performance
inspect inventory
perform test counts
perform audit procedures over final figures
3 factors to consider when planning attendance at a stock count
internal controls related to inventory
locations at which inventory is held
timing of the count
6 procedures to follow during the attendance at the inventory count
observe if the staff are following the instructions
perform test counts
ensure procedures for valuing damaged items are effective
confirm inventory held by a third party is counted seperately
obtain copies of the last GRN in order to confirm cut off
why do auditors need to perform test counts
to ensure procedures and internal controls are working properly
what 2 test counts should auditors do
test counts from the inventory to the inventory sheet (for completeness)
and
inventory sheets to inventory ( for existence)
what can auditors do if test counts are unsatisfactory
request a re count
what do auditors need to do after the count
check the final inventory sheets have been properly compiled and the book value has been adjusted
key tests for after the count
trace items that were test counted to final inventory records
agree sequence of inventory sheets
review replies from third party
what is cut off testing
audit procedure performed after the count to ensure that all of the companys transactions have been included in the correct period
should goods recieved after YE be included in the FS
no
where should goods received before YE be included
expense, closing inventories, liability
where should revenue be included if made before YE
Revenue, recievables but not inventory
where should revenue be included if made after YE
only inventorys
how should be inventories be valued
at the lower of cost and net realisable value
what 3 procedures must external audit do on internal auditors before using there work
wether the work is planned, performed, supervised, reviewed and documented
whether there is sufficient apropriate evidence
whether conclusions reached are appropriate
external auditors must reperform some of the internal auditors work. what might they do ?
examination of items examined by internal audit
observation of procedures
what is direct assistance
direct assistance refers to the use of internal auditors to perform procedures, under the direction of external auditors
when can external auditors not use direct assistance
when judgement is involved
when they are looking into work internal audit have done
relates to a higher risk of material misstatement
relates to decisions being made on the internal audit function
what is an external confirmation
audit evidence obtained as a direct response to the auditor from a third party.
what is a positive confirmation
where the third party responds directly to the auditor, indicating if they agree with the info in the request
what is a negative confirmation
is where the third party responds directly to the auditor ONLY if they disagree
when can you use negative confirmations
if material misstatement is low
6 types of balances that should be included in the sample of accounts
old unpaid accounts accounts written off accounts with credit balances accounts settled by large sum payments accounts with large balances accounts with nil balances
what is an exception
when there is a difference in the third partys accounts to yours
audit procedures for completeness of trade receivables
compare previous and current years trade receivables breakdowns and discuss differences with management
select a sample of GDN’s and compare to relevant sales invoices
audit procedures for rights and obligations of trade receivables
inspect responses from the confirmation for evidence of customers names and addresses
review monies recieved post year end
audit procedures for accuracy, valuation and allocation of trade receivables
discuss the recoverability of old overdue amounts
compare TR collection period ratio for today and yesterday
audit procedures existence of trade receivables
carry out a direct confirmation for a sample
inspect customer correspondence
5 steps of testing revenue
identify contract with customer
identify performance obligations
determine transaction price
allocate transaction price to performance obligations
recognise revenue when a performance obligation is complete
what should auditors consider when performing analytical procedure on revenue
compare this year to last year by month changes in quantity sold changes in products and prices level of goods returned efficiency of labour as expressed in revenue
how to test completeness of a prepayment
compare level of prepayments to previous year
review BS to ensure all prepayments are recorded
how to test accuracy, valuation and allocation of a prepayment
recalculate the amount prepaid
how to test existence of a prepayment
verify by reference to invoices, cash book and correspondence
