procedures

Question 1

going concern (more on isa 570 A15)

Answer 1

• Review year end cash receipts to see if in line with budget
• Review FS to ensure appropriate disclosures
• Review cash flow forecast for the last 12 months since year end and consider/confirm whether the assumptions made were reasonable
• Obtain written representation from management on future plans and ability to continue as a going concern
• Inspect minutes of board meetings for evidence of post year end developments
• Discuss with management plans for new funding/new customers/new orders
• Ascertain from management plans for ^
• Evaluate directors assessment of going concern status
• Review correspondence with bank to assess negotiations/outcomes
• Identify subsequent events by discussion with management

Question 2

Unrecorded liabilities/provisions/contingencies/warranty claims
-ISA 501 aras 9-1

Answer 2

• Review correspondence with solicitors regarding legal claim and likely outcome
• Ascertain whether claim is covered by insurance policy -could affect GC but still provide
• Ascertain if any events after the reporting period are likely to give rise to a liability
• Review level of returns occurring after balance sheet date
• Review records of repair costs incurred post year end
• Inspect correspondence to identify customer complaints
• Discuss with management the basis of provisions and how assumptions were made
• Consider the use of an auditors expert to assess extent/likelihood of legal claim
• Obtain written representations of management to confirm that all contingencies/provisions are disclosed in the FS

Question 3

trade receivables and revenue

Answer 3

• Review cash receipts post year end to identify any old outstanding amounts for which an allowance is needed
• Inspect customer correspondence for evidence of disputed balances
• Directly confirm a sample of receivables balances at the year end and investigate any balances
• Recalculate the deferred or accrued revenue and agree to FS
• Ascertain from management the reasons or any overdue balances and the likelihood of collecting the debts
• Reperform the calculation of the allowance
• Reperform translations for a sample of invoices, checking the exchange rate to a reliable source
• Perform cut off tests by checking goods despatch records to invoices in the nominal ledger and vice versa
• Discuss with management the reasons for the increase/decrease in revenue
• Inspect post year end management accounts to ascertain if revenue is abnormally low as this may indicate inflation of pre year end sales – REVENUE OVER RECOGNISED IN PL
• Review level of credit notes issued after year end sale
• Vouch entries in the receivables ledger to original invoices
• Examine bank statement post year end to see if receivables are paid after the year end

Question 4

Intangible assets/development costs

Answer 4

• Obtain schedule of costs capitalised and confirm that they meet the recognition criteria
• Review expense records to confirm that no other costs should be capitalised
• Reperform the amortisation calculation
• Discuss with management the basis of estimated useful life and confirm that it is reasonable
• Vouch amounts to contracts with suppliers/invoices from suppliers/payroll costs

Question 5

Purchases and trade payables

Answer 5

• Evaluate and test controls over recording of invoices and payments to suppliers
• Reconcile payables balances in the purchases ledger with supplier statements and consider direct confirmation where supplier statements are not available
• Trace a sample of good received records to invoices recorded in the purchases and payables record
• Reperform translations for a sample of invoices, checking the exchange rate to a reliable source
• Perform cut off tests by checking goods received records to invoices in the nominal ledger and vice versa
• Review credit notes received post year end to identify any relating to pre year end purchases
• Inspect suppliers invoices/contracts to ascertain whether any there has been any change in suppliers terms of trading

Question 6

Non current assets (including depreciation rates)

Answer 6

• Ascertain from management the basis for the useful economic life attributed to each asset
• Ascertain from management whether assets have been reviewed for impairment and examine the procedures used by management in undertaking such impairment reviews
• Review the statement of profit and loss for inclusion of the correct impairment loss
• Reperform the depreciation calculation
• Verify that the depreciation rates are in accordance with company policy/prior periods
• Agree a sample of additions from the asset register and trace to purchase invoices or payroll records to verify the amounts paid for that asset
• Identify and test controls over the updating of the asset register and posting to the nominal ledger
• Obtain copy of title deeds, vehicle registration documents
• Reperform calculation of profit/loss on disposal
• If profit/loss on disposal of assets discuss with management the need for impairment/provision/review of depreciation rates on other assets
• Obtain a copy of the valuers report and consider the reliability of the valuation e.g. independence/qualifications/ experience of valuer
• Consider the use of an auditors expert valuer
• Confirm that all assets in a class are revalued (no cherry picking)

Question 7

Bank loan

Answer 7

• Obtain a direct confirmation of the amount and terms of the loan from the bank
• Agree the interest payments recorded in the financial statements to the bank statement
• Recalculate any interest accruals and agree that they are included correctly in the FS
• Identify any loan covenants and consider whether there is any risk of them being breached which may result in the loan finance being withdrawn

Question 8

Inventory – ISA 501 paras A2-A16 has some good tests

Answer 8

• Obtain inventory count instructions in advance and evaluate
• Attend the year end inventory count and:

a) Observe procedures
b) Perform two-way test counts
c) Note any slow moving and damaged items
d) Note the stage of completion of any work-in-progress
e) Physically inspect the inventory for evidence of obsolescence

• Review the results of client’s counting procedures and evaluate the level of discrepancies
• For a sample of items compare the cost of raw materials to invoices
• For a sample of items agree the selling price to sales invoices/cash receipts and confirm that above cost
• Review the aged inventory report to identify slow moving items and discuss provision with management
• Ascertain from management what controls are in place to ensure inventory is regularly checked and obsolete inventory is identified
• Ascertain whether any items were sold post year end at a discount

Question 9

WIP

Answer 9

• Evaluate+ test controls over posting of purchases and payroll costs
• Vouch a sample of payroll costs from WIP to payroll+timesheets
• Vouch entries for materials to suppliers invoices
• Compare actual costs to budget to identify cost over runs
• Ascertain basis for overhead allocation and review for reasonableness
• Discuss with mgmt reasons for large increase
• Compare fixed price to total costs to estimate costs to identify loss making contracts
• Inspect aging of WIP to identify unbilled/irrecoverable WIP