Procedures Flashcards
Revenue Procedures
- Ascertain and test the controls over revenue recognition
- For a sample of contracts completed in the year agree the contract price to revenue recognised.
- Test for deferred income if contracts span the year end. & recalculate.
- Discuss with the management the reason for the increase/decrease in revenue.
- Ascertain and test controls over the collection and recording of cash.
- Evaluate and test controls over system for recording monthly subscriptions.
- Discuss with management the reasons for the variance between actual and budgeted figures
- Compare actual revenue to budgets/forecasts and obtain a breakdown of monthly revenues to identify any anomalies.
- Ascertain whether there have been any price increases in the year.
PPE
- Obtain a schedule of capitalised costs and make sure purchases have been capitalised appropriately.
- Vouch additions to purchase invoices and check they meet capitalisation criteria.
- Ascertain from management the basis for estimating useful lives and consider whether it’s reasonable
- Physically inspect a sample of assets included in the asset register
- Ascertain and test controls in place for recording PPE in the asset register.
- Inspect management impairment review
- Inspect the non-current asset register to check that items disposed of have been removed from the register
- Discuss with management the basis for depreciation and assess the reasonableness of this basis.
- Recalculate depreciation charge.
- Ensure all costs capitalised meet the recognition criteria
Inventory
• Evaluate and test controls over:
o inventory count procedures
o updates to the perpetual inventory records
o updates to component costs
- Attend stock takes
- Undertake “stock to sheet” and “sheet to stock” tests. A “two-way” test.
- Review aged-inventory analysis to identify slow-moving or obsolete items
- If inventory count is performed after the year end vouch key movements in inventory between dates
- Match dispatch and goods received records with entries in the inventory records to test cut off
- Inspect inventory for any damage.
- Evaluate the work of the internal audit function to assess if its work can be relied upon
Payroll
- Evaluate and test controls over payroll processing
- Sample check on calculations
- Obtain a breakdown of salaries by month/office to identify any anomalies
- For a sample of employees, agree salary/bonus per payroll to HR records.
- Re-perform the bonus calculation ensuring it is based on the correct profit figure.
- Inspect employees’ contracts and ascertain if new joiners’ salaries are below the prior year average salary.
- Review the board minutes for details of any annual increases in salaries.
- Perform a month by month analysis of payroll costs to identify outliers.
Trade payables
- Inspect contracts with new suppliers to ascertain whether there are shorter credit terms in respect of new suppliers.
- For payments made in the period after the year end trace to invoice and ascertain if amounts should be included in trade payables at the year end.
- Where supplier statements are not available, perform direct confirmation of trade payable balances and investigate any differences.
Work in progress
• Discuss with management the reasons for large increase/decrease in WIP compared to the prior year.
without customer approval.
• Evaluate and test the controls exercised over the recording of purchases and payroll costs.
• Inspect ageing of WIP to identify any unbilled/irrecoverable WIP.
going concern
- Obtain profit and cash flow forecasts for at least one year from the date of approval of the financial statements.
- Assess the assumptions for reasonableness, in particular the assumptions regarding future revenue.
- Perform sensitivity analysis on key components of the forecast such as revenue and interest rates.
- Review the forecasts to see if the client can pay its debts as they fall due.
- Obtain written representation from management regarding the feasibility of future plans
- Ascertain management’s contingency plans for alternative sources of finance should the bank overdraft be withdrawn
- Review bank covenants and assess Flint’s ability to comply with covenants and other terms and conditions
Provisions
- Ascertain from the directors the reason for including/not including a provision / disclosure in the FS
- Review correspondence with legal advisers to determine the likely outcome of the claim(s)/settlement
- Obtain a written representation from management regarding its intention to settle/fight the claim.
- Discuss with the directors the basis for their estimate of the provision and consider its reasonableness.
- Inspect board minutes and ensure that the basis of the provision is consistent with what directors have authorised
Trade Receivables
• Perform direct confirmation of trade receivables balances
• Review the aged debt analysis for overdue receivables.
• Discuss with management the basis for any allowance against receivables or for any old balances for which an allowance is not included at the year end.
• Recalculate the allowance against receivables
• Inspect post year-end cash receipts for evidence of recoverability of year-end trade receivable balances.
• Inspect post year-end credit notes for evidence of amounts not recoverable at the year end
Recalculate the year-end allowance.
• Ascertain whether credit checks have been done on credit customers
Intangible assets
Procedures:
• Obtain a breakdown of costs and ensure all costs capitalized meet recognition criteria
• Ascertain from management the basis for determining the useful life of projects and consider whether it is reasonable.
• Inspect management’s impairment review.
• Recalculate amortisation charge and check that it has been correctly pro-rated.
General
- Review the prior yr auditor’s working papers.
- Foreign currencies - check the exchange rate to a reliable external source and recalculate the translation.
- Evaluate test of control over…
