Risks + Procedures Flashcards
Going concern
Review/inspect profit/cashflow forecasts:
Identify if company can pay debts as they fall due
Consider reasonableness of assumptions (1 - 2 examples)
Perform sensitivity analysis on key variables - interest rates, level of customer receipts, inflation
Written reps on feasibility of future plans
Involve legal teams, customers, to asses likelihood/amount of outflows
Speak to bank - likelihood of reaching loan, how bank will act
Revenue
Calculate: Change in Revenue + Gross profit
Discuss with management reasons for changes - is it reasonable. Corroborate with other evidence
Use data analytics by location to identify outliers
Document controls over revenue system (walkthrough) and test controls
Review credit notes post y/e - check if any relate to pre y/e
Review post y/e management accounts to see if revenue looks high or low
Provisions
Always quantify % of materiality
Inquire with management - discuss basis for assumptions, are they reasonable?
Re-calculate and trace amounts to supporting docs such as XXX
Inspect legal communication for likely outcome, amount, timing etc.
Or inspect similar cases/use auditor expert (legal team) to estimate amount, outcome etc.
Written reps on the valuation and completeness of provision
NCA
Obtain movement listing (Additions/disposals) - cast total and agree sample to invoices
Obtain depn/amortisation schedule - cast and re-calculate based on companies accounting policy to ensure accuracy and valuation assertions met
Are depn policies in line with industry averages
Incorrect capitalisation of expenses? - Enquire of management reasons/assumptions and review register for completeness.
Receivables
Speak to customers - get confirmation on amount of outstanding balances
Calculate receivables days and compare to PY - inquire and investigate diffs
Aged receivables listing - review for unpaid amounts. Discuss recoverability with management
Review post year end credit notes issued to see if any relate to pre year end and should have been adjusted
Agree a sample of receivables balances back to invoices, GDNs and sales orders to confirm completeness.
Inventory
Stock counts:
Attend and observe client controls / procedures in place
Inquire about slow moving/obsolete inventory
Get post-count stock listing - perform 2 way tests on sample (Sheet - floor for existence, Floor - sheet for completeness)
Other:
Basis for inventory write downs - inquire with man - is it reasonable? - Potential to recalculate
Compare purchase invoices for a sample to carrying amount per y/e inventory listing
Aged inventory - inquire of management for slow moving items. Review accounting treatment of them
Payroll costs
Calculate change in salary, employee numbers, salary per employee
Inquire for explanation of movements + consider reasonableness + corroborate with evidence
J/L - test of controls over J/L e.g. authorisation
For sample, agree start date/leave date, salary, right to work to supporting docs
Data analytics - recalculate payroll recs e.g. gross salary/deductions accurate, payroll costs per month/centre/location accurate
Inspect bonuses - recalculate based on bonus policy
Payables
Verify completeness of TP by:
Inspecting y/e bank statements for payments to suppliers + agree to invoice/GRN
Check purchases pre-y/e are included in payables at y/e
Data analytics to perform 3 way matching on orders, GRN, invoices
Inspect contracts for evidence of change in credit terms
Direct 3rd party confirmations from suppliers - focus on confirmation of any overdue amounts
Inspect supplier statement rec’s - ensure all items explained/investigated
Intangibles
Breakdown of costs capitalised - check accounting policies - ensure mathematical accuracy/completeness
Discuss with management rationale over capitalisation, UEL, to ensure reasonable
Recalculate amortisation expenses based on policy - check accuracy + valuation
Inspect any evidence of impairment review - check done properly
Management reps for UEL used, confirming FV - costs to sell and Value in use
