Chapters 15-17

Question 1

whats a bank confirmation letter

Answer 1

when the auditor obtains direct confirmations from the entitys banker of balances

Question 2

what is the 5 step procedure of bank confirmation letters

Answer 2

auditor to choose from which banks to obtain confirmation
audit client provides written authority that the bank ca send to auditor
bank confirmation letter is produced on auditors headed paper one month in advance
auditors receive reply
auditors agree the balance in the letter to the clients records

Question 3

how to prove completeness and existence for bank and cash

Answer 3

obtain bank confirmations
trace cheques that are outstanding at year end to the bank statements by end of the year
compare cash books and bank statements for balances at end of months

Question 4

how to prove valuation for bank and cash

Answer 4

reperform bank reconciliations
verify contra items
inspect bank statements and cash books after year end for exceptional entries that would have a material effect

Question 5

how to prove rights and obligations for bank and cash

Answer 5

determine whether the bank accounts are subject to any restrictions by enquiring with management

Question 6

how to prove classification for bank and cash

Answer 6

identify whether accounts are secured on the assets of the company by discussing with management
review DFS for disclosures for bank

Question 7

what might an auditor do if the client has material cash amounts ( such as a hotel) at year end?

Answer 7

a cash count

Question 8

what are the two primary objectives for auditors to check regarding trade payables

Answer 8

there has been a satisfactory cut off between goods received and invoices received
trade payables accurately reflect what they owe at YE

Question 9

If an audit client has strong audit controls what will auditors check for trade payables

Answer 9

send confirmation letters for large balances

Question 10

If an audit client has weak audit controls what will auditors check for trade payables

Answer 10

confirm all supplier balances including 0 balances

confirm a sample of accounts

Question 11

whats the process for receiving confirmation letters from suppliers

Answer 11

reconcile the balances to the statements sent by suppliers, and investigate any differences

Question 12

audit procedure for checking completeness and existence for trade payables

Answer 12

compare TP and accruals to last year

Question 13

audit procedure for checking rights and obligations for trade payables

Answer 13

vouch selected amounts to supporting documentation

Question 14

audit procedure for checking valuation of trade payables

Answer 14

recalculate the amount of the accruals

Question 15

audit procedure for checking classification of trade payables

Answer 15

review TP for large debits which should be reclassified as a TR

Question 16

audit procedure for checking presentation of trade payables

Answer 16

read the disclosure notes relevant to payables and accruals to ensure the info is accurate

Question 17

audit procedures for purchases and expenses

Answer 17

inspect a sampple of expenses and compare to invoices
review line by line admin expenses and compare to PY
Enquire with management if there are unsettled claims
recalculate prepayments and accruals to gain evidence that expenses are not under or over stated

Question 18

what is a test of existence on a NCL

Answer 18

obtain confirmation on banks and other lenders

Question 19

what is a test of rights and obligations on a NCL

Answer 19

review direct confirmation letters from banks

Question 20

what is a test of completeness on a NCL

Answer 20

Obtain breakdown of liabilities and for anything not included that was last year check repayment of NCL or if included as a liability if it was reclassified
review board minutes for evidence of new NCLs

Question 21

what is a test of accuracy, valuation and allocation on a NCL

Answer 21

perform proof in total of finance charges
agree capital and interest amounts to confirmation letters
recalculate finance charges

Question 22

what is a test of classification and presentation on a NCL

Answer 22

review dfs and agree that liabilitys are correctly classified

Question 23

whats the audit procedure for checking share equity control

Answer 23

agree the authorised share cap with the statutory documents

agree changes to share cap with resolutions

Question 24

whats the audit procedure for issue of shares

Answer 24

verify any issue of share cap with board minutes
confirm directors have appropriate authority to issue shares
confirm that cash has been recieved

Question 25

whats the audit procedure for transfer of shares

Answer 25

verify tranfer to correspondence, cancelled share certificates, minutes of directors meeting
review the balances on shareholders accounts

Question 26

whats the audit procedure for dividends

Answer 26

agree dividends paid and reperform calculation

Question 27

whats the audit procedure for reserves

Answer 27

agree movements on reserves to supporting authority

confirm the company can identify distributable reverse and non distributable