Module 19 - Audit Process: Substantice Testing - Part One

Question 1

The detailed assertions for balances are:

Answer 1

Completeness

Rights and obligations

Accuracy, valuation and allocation

Classification

Existence

Presentation

Question 2

Examples of elements of Balance sheet / statement of financial position

What assertions are used for these?

Answer 2

Cash and bank
Fixed assets / PPE
Trade debtors/trade receivables
Stock/inventories
Trade creditors/trade payables 

CRACE P

Question 3

Examples of elements of Profit and loss / statement of profit or loss

What assertions are used for these?

Answer 3

Sales / revenue
Purchases and other expenses
Payroll expense

OCCCA P

Question 4

What financial statement is the existence assertion being tested on?

Answer 4

Balance sheet

Question 5

What financial statement is the occurrence assertion being tested on?

Answer 5

Profit / Loss

Question 6

When would you flip the arrows in the directional method?

Answer 6

Credit notes

Fixed asset disposals

Payment and receipts when testing debtors and creditors

Question 7

With the directional method:

Source -> financial statement = ?

(Apart from in several cases)

Answer 7

Completeness

Question 8

With the directional method:

financial statement -> source = ?

Answer 8

Existence / occurrence

Question 9

Assertions tested by Substantive Analytical Procedures for Balances

Answer 9

Completeness

Existence

Accuracy, Valuation and Allocation

Classification

Question 10

Assertions tested by Substantive Analytical Procedures for Transactions?

Answer 10

Completeness

Occurrence

Cut-off

Accuracy

Classification

Question 11

Two key substantive procedures performed on all bank accounts

Answer 11

Bank reconciliation

Bank confirmation letter

Question 12

Should bank reconciliations be prepared by the client regularly?

Answer 12

Yes (I.e. weekly or monthly)

Question 13

The bank letter will confirm (for substantive procedures)

Answer 13

Details of all bank accounts and the balances in the accounts at the requested date (completeness)

Details of any bank facilities such as overdrafts or bank loans along with details of any security the bank holds over client assets for these facilities

Question 14

Is a bank letter third party confirmation?

Answer 14

Yes

Question 15

Does a bank letter give assurances over all balance sheet assertions for cash and bank except presentation?

Answer 15

Yes

Question 16

Details of fixed assets held by a company should be contained where?

Answer 16

The Fixed Assets Register (‘FAR’)

Question 17

What is a key risk with trade debtors balance?

Answer 17

Overstatement

Question 18

Three key substantive procedures performed on trade debtors:

Answer 18

Debtors circularisation

Subsequent cash testing

Allowance for doubtful debts

Question 19

What is one of the most common ways to obtain assurance over the debtors ledger?

Answer 19

Perform a debtors circularisation

Question 20

Debtors circularisation requests will require either what?

Answer 20

Positive or negative confirmation

Question 21

How does positive confirmation work for trade debtors circularisation

Answer 21

A request for debtors to reply to confirm the balance

“Is it correct?”

Question 22

How does negative confirmation work for trade debtors circularisation

Answer 22

A request for debtors to reply only if they disagree with the balance