Sessoon 8 - Final Work

Question 1

Intangible and tangible non-current assets

Answer 1

DEBITS

Question 2

Dove

Answer 2

Documentation
Ownership
Valuation
Existence

Question 3

Debit balance: testing for overstatements

Answer 3

Documentation:
Checking ownership 
Looking at costs: 
The build-up of it 
Cash 
Where they might’ve sold it in the future? 
Sale leaseback 
Just have to look to see what comes out with depreciation cheque

Question 4

Trade receivables

Answer 4

Something whereby youve produced a sale, sold something to the customer and youve an agreement whereby they will pay you later on

Question 5

Make a sale

Answer 5

Credit

Question 6

Trade receivables

Answer 6

Debit

Question 7

Trade receivables
Risks
Inherent risks

Answer 7

Many new customers? 
- haven’t got history with you - risk of bad debt
New products? 
- claims history: if 5 year guarantee should book in 5th year some provision 
Pattern of high returns during year? 
-seasonality 
New computer system: could loose docs 
New staff: training required

Question 8

Trade receivables
Risks
Inherent risks
Reducing impacts

Answer 8

Creation and clearance of trade receivable balances

Safeguarding the trade receivables balance

Question 9

Creation and clearance of trade receivables balance

Answer 9

Controls in sales systems 
-auth control, validation tests, SOD 
clear policy on transfer of title 
- battle of the forms -contracts back n forth 
- why issue a doc - both know the agreement(clauses known) 
Politicise incl on docs 
-SO & DN invoices 
Obligations clearly stated 
-damages, returns

Question 10

Safeguarding trade receivables

Answer 10

Rapid billing of customers
Regular prep of statements and reminder letters
Offer cash discounts
Approval of entries reducing the stated amount of debtor balances
Aging statement
Credit limits
Paid upfront / deposits

Question 11

Trade receivables

Substantive tests

Answer 11

Write to debtors (circ) - incl must follow up all items - stratified
Check after fate cash receipts
- more reliable than ^^
-where has money came from?
Check movement of inventory/supply
Dispatch and sign when received=documentation

Question 12

Trade receivables

Bad debt provision

Answer 12

• Review previous history %
• Review return tests and test for after date credit notes - evidence
• Write to legal advisors: records and credit control
• Review bad debt files

Question 13

Trade receivables
cut off
Is it in the wrong accounting period

Answer 13

Accurate? Companies may defer/bring forward payments so profits go up therefore better for them - CHECK
Debtors/stock
Test 10 despatch notes pre and post year end
Debtors/bank
Check accounting period
ANALYTICAL REVIEW

Question 14

Main points - trade receivables

Answer 14

Think about process risks 
How to mitigate them 
What substantive work to carry out 
DOVE 
Analytical review - debtors days, current&quick ratio

Question 15

Inventories issues

Answer 15

How is it valued?

What is incl in costs? - labour,overhead?

Question 16

Net realisable value

Answer 16

Selling price - cost to complete

Question 17

Inventory risks

Answer 17

Changes in demand for company’s products 
Changes in production levels 
Complex production process 
Production produces joint products 
-allocation issues 
Variation from std costs 
Competitors produce new products 
Complex calcs of overheads

Question 18

Inventory - reduce control risk

Answer 18

Acquisitions 
-when does title pass? 
Safeguarding inventory 
-sensible, appropriate controls 
Disposal of inventory 
-controls over abnormal disposals 
Determining existence, condition&ownership at period end 
Valuation of inventory

Question 19

Inventory - manipulation

Answer 19

NEED to detect these:

• False sales and cancelled in next period
• Moving inventory between locations
• Add in/amend inventory
• Cut off: Purchase(in stock - internal) & sales (not in stock - external)
• Over-optimistic estimations

Question 20

Inventory - solutions to problems

Answer 20

Restrict movement

Stock-taking instructions

Question 21

Stocktaking instructions

Pre count

Answer 21

Tidy warehouse
Independent teams - employees don’t count own stock - theft,lying etc
Pre-numbered stock sheets - sticker to show counted already

Question 22

Stocktaking instructions

During count

Answer 22

Double count prevention - controls to make sure something hasn’t been counted twice/omitted (missed)
Test checking: electronic scanners
Supervisors

Question 23

Stocktaking instructions

Post count

Answer 23

Additions - added correctly

Audit count to final sheet

Question 24

Inventory - other issues

Answer 24

Is the inventory counted your clients?
Note the condition of inventory
Are there any inventory held elsewhere?
What happens if instructions aren’t followed?
What happens if errors in counting are found?

Question 25

Major issues with subjectivity

Answer 25

Have costs been correctly allocated? 
What is stage of completion? 
How ot profit allocated through contract? 
Have any provisions been identified? 
Adherence with reporting standards

Question 26

Rules

Answer 26

Materiality 
Overstated? 
DOVE 
Inherent risks 
Substantive tests & analytical review

Question 27

Trade payable

Inherent risks

Answer 27

Major supplier in trouble
Many more older creditors - menaing not been paid - will start looking for money
High history returns
Change in terms of trade

Question 28

Controls to reduce inherent risks

Answer 28

Creation of trade payables balances 
-romalpa clauses - reservations of title 
-SOD 
recorded trade payables at year end 
-cut off procedures 
Payment of trade payables 
-matching process by independent persons

Question 29

Trade payables

Answer 29

Discuss with management 
Review post y/e payments 
Review goods/services revived prior to year end 
Reconcile creditor statements 
Circularise creditors 
Ask to give details of transactions 
Also provide evidence for purchases