Sessoon 8 - Final Work Flashcards
Intangible and tangible non-current assets
DEBITS
Dove
Documentation
Ownership
Valuation
Existence
Debit balance: testing for overstatements
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
Trade receivables
Something whereby youve produced a sale, sold something to the customer and youve an agreement whereby they will pay you later on
Make a sale
Credit
Trade receivables
Debit
Trade receivables
Risks
Inherent risks
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
Trade receivables
Risks
Inherent risks
Reducing impacts
Creation and clearance of trade receivable balances
Safeguarding the trade receivables balance
Creation and clearance of trade receivables balance
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
Safeguarding trade receivables
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
Trade receivables
Substantive tests
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
Trade receivables
Bad debt provision
- 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
Trade receivables
cut off
Is it in the wrong accounting period
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
Main points - trade receivables
Think about process risks How to mitigate them What substantive work to carry out DOVE Analytical review - debtors days, current&quick ratio
Inventories issues
How is it valued?
What is incl in costs? - labour,overhead?
Net realisable value
Selling price - cost to complete
Inventory risks
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
Inventory - reduce control risk
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
Inventory - manipulation
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
Inventory - solutions to problems
Restrict movement
Stock-taking instructions
Stocktaking instructions
Pre count
Tidy warehouse
Independent teams - employees don’t count own stock - theft,lying etc
Pre-numbered stock sheets - sticker to show counted already
Stocktaking instructions
During count
Double count prevention - controls to make sure something hasn’t been counted twice/omitted (missed)
Test checking: electronic scanners
Supervisors
Stocktaking instructions
Post count
Additions - added correctly
Audit count to final sheet
Inventory - other issues
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?
Major issues with subjectivity
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
Rules
Materiality Overstated? DOVE Inherent risks Substantive tests & analytical review
Trade payable
Inherent risks
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
Controls to reduce inherent risks
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
Trade payables
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
