Substantive Procedures

Question 1

PP&E-Reconcile subsidiary ledgers to control accounts.

Answer 1

Completeness, Accuracy

Question 2

PP&E-Verify legal ownership.

Answer 2

Rights and obligations

Question 3

PP&E-Verify additions.

Answer 3

Valuation

Question 4

PP&E-Verify disposals.

Answer 4

Valuation

Question 5

PP&E-Review scrap sales for unrecorded disposals.

Answer 5

Valuation

Question 6

PP&E-Recalculate gains and losses.

Answer 6

Valuation, Accuracy

Question 7

PP&E-Make physical inspections of additions.

Answer 7

Existence, Completeness

Question 8

PP&E-Perform analysis of repairs and maintenance.

Answer 8

Completeness

Question 9

PP&E-Recalculate depreciation and depletion.

Answer 9

Valuation

Question 10

PP&E-Perform analytical review.

Answer 10

Valuation

Question 11

PP&E-Review lease agreements.

Answer 11

Rights and obligations–disclosure

Accuracy and valuation–disclosure

Question 12

PP&E-Determine financial statement presentation (major classes, depreciation methods, basis of valuation, estimated lines restrictions, leases).

Answer 12

Completeness

Question 13

Cash-Test cash transactions as follows:
a. Foot cash journals.
b. Trace postings to ledger accounts.
c. Agree details of bank deposits to client records.
d. Reconcile bank activity for one or two months with cash account activity.
e. Verify cash transactions in one or more
expense accounts.

Answer 13

Accuracy, Occurrence, Completeness

Question 14

Cash-Count all cash on hand with custodian present.

Answer 14

Existence

Question 15

Cash-Verify cutoff of cash receipts and cash disbursements.

Answer 15

Cutoff

Question 16

Cash-Confirm amounts on deposit with banks

Answer 16

Existence, Rights and obligations, Completeness, Valuation

Question 17

Cash-Prepare four‐column bank reconciliation as follows:

a. Trace checks to cash disbursement.
b. Account for all checks.
c. Review deposits.
d. Review outstanding checks beginning and end.
e. Investigate NSF checks and other unusual items.

Answer 17

Completeness, Occurrence, Cutoff

Question 18

Cash-Obtain bank cutoff statements 10 to 15 days after year‐end.

Answer 18

Existence

Question 19

Cash-Trace all bank transfers—be alert for kiting.*

Answer 19

Valuation

Question 20

Cash-Determine balance sheet presentation (restrictions, cash in foreign or closed
banks).

Answer 20

Valuation‐disclosures

Question 21

Marketable Securities & Investment Revenue-Examine securities on hand with custodian present (simultaneously with cash, compare serial numbers with records).

Answer 21

Existence

Question 22

Marketable Securities and Investment Revenue-Confirm securities in possession of others.

Answer 22

Existence, Rights and obligations, Completeness

Question 23

Marketable Securities and Investment Revenue-Verify purchases and sales of securities
during the year.

Answer 23

Occurrence

Question 24

Marketable Securities and Investment Revenue-Perform cutoff review.

Answer 24

Cutoff

Question 25

Marketable Securities and Investment Revenue-Verify gain or loss on security transactions.

Answer 25

Occurrence, Accuracy, Valuation

Question 26

Marketable Securities and Investment Revenue-Recalculate dividend and interest income.

Answer 26

Valuation

Question 27

Marketable Securities and Investment Revenue-Determine proper accounting methods.

Answer 27

Valuation, Classification

Question 28

Marketable Securities and Investment Revenue-Investigate investments in related parties.

Answer 28

Completeness—disclosure

Question 29

Marketable Securities and Investment Revenue-Determine market value.

Answer 29

Valuation

Question 30

Marketable Securities and Investment Revenue-Determine financial statement presentation (at fair value, pledged).

Answer 30

Valuation—disclosure, Classification—disclosure

Question 31

A/R & Revenues-Test revenue and receivables transactions as follows: a. Examine a sample of sales transactions. b. Compare a sample of sales invoices and shipping documents. c. Test a sample of sales invoices for clerical accuracy. d. Examine a sample of credit memoranda. e. Examine a sample of cash discounts. f. Vouch a sample of cash register tapes and sales invoices to the sales journal. g. Foot the sales journal. h. Trace a sample of postings from the sales journal to the accounts receivable ledger.

Answer 31

Accuracy, Rights and obligations, Occurrence, Completeness

Question 32

A/R & Revenues-Prepare aging of accounts receivable.

Answer 32

Valuation, Occurrence

Question 33

A/R & Revenues-Review adequacy of allowance for bad debts and bad debt expense.

Answer 33

Valuation

Question 34

A/R & Revenues-Reconcile subsidiary ledger to control accounts.

Answer 34

Completeness, Accuracy, Existence

Question 35

A/R & Revenues-Confirm accounts receivable—positive and negative.

Answer 35

Existence, Rights and obligations, Completeness, Valuation

Question 36

A/R & Revenues-Review collections subsequent to year‐end.

Answer 36

Existence, Valuation

Question 37

A/R & Revenues-Perform cutoff review—vouch sales transactions before and after year‐end and examine sales returns.

Answer 37

Cutoff

Question 38

A/R & Revenues-Review receivables from related parties.

Answer 38

Completeness—disclosure

Question 39

A/R & Revenues-Inquire as to restrictions.

Answer 39

Completeness—disclosure

Question 40

A/R & Revenues-Review write‐offs of accounts receivable.

Answer 40

Valuation

Question 41

A/R & Revenues-Perform analytical review—gross profit.

Answer 41

Valuation

Question 42

A/R & Revenues-Determine financial statement presentation (current, nontrade, pledged, or assigned, repaid loans to insiders, installment).

Answer 42

Completeness and Accuracy—disclosure, Classification—disclosure

Question 43

Notes Receivable & Interest Income-Perform account analysis.

Answer 43

Valuation

Question 44

Notes Receivable & Interest Income-Confirm notes receivable.

Answer 44

Existence, Rights and obligations, Valuation

Question 45

Notes Receivable & Interest Income-Inspect notes.

Answer 45

Existence, Rights and obligations, Valuation

Question 46

Notes Receivable & Interest Income-Evaluate collectability.

Answer 46

Valuation

Question 47

Notes Receivable & Interest Income-Review subsequent collections.

Answer 47

Existence, Valuation

Question 48

Notes Receivable & Interest Income-Inquire as to discounted notes and other restrictions leading to contingent liabilities.

Answer 48

Completeness—disclosure

Question 49

Notes Receivable & Interest Income-Recalculate interest income.

Answer 49

Valuation

Question 50

Notes Receivable & Interest Income-Determine financial statement presentation (restrictions, insiders, contingent liabilities).

Answer 50

Completeness and Accuracy—disclosure

Question 51

Inventories and Cost of Goods Sold-Test a sample of transactions as follows: a. Compare a sample of purchase requisitions, purchase orders, receiving reports, and vendors’ invoices. b. Test and evaluate cost accounting system.

Answer 51

Completeness, Rights and obligations, Valuation and allocation

Question 52

Inventories and Cost of Goods Sold-Participate in planning of physical inventory.

Answer 52

Existence

Question 53

Inventories and Cost of Goods Sold-Observe the taking of physical inventory as follows: a. Make test counts. b. Trace test counts to inventory sheets. c. Trace test counts to perpetual inventory records. d. Verify all inventory tagged. e. Test clerical accuracy of inventory sheets and perpetual records.

Answer 53

Existence

Question 54

Inventories and Cost of Goods Sold-Review cutoff receiving reports and invoices, look for F.O.B. shipping point.

Answer 54

Completeness, Cutoff

Question 55

Inventories and Cost of Goods Sold-Determine quality and condition.

Answer 55

Valuation

Question 56

Inventories and Cost of Goods Sold-Inquire about goods held on consignment.

Answer 56

Rights and obligations

Question 57

Inventories and Cost of Goods Sold-Confirm goods held in public warehouses.

Answer 57

Completeness

Question 58

Inventories and Cost of Goods Sold-Review basis and methods for inventory pricing.

Answer 58

Valuation

Question 59

Inventories and Cost of Goods Sold-Review analysis of cost of sales.

Answer 59

Valuation

Question 60

Inventories and Cost of Goods Sold-Determine financial statement presentation (classification, pledged).

Answer 60

Rights and obligations—disclosure, Completeness—disclosure, Understandability—disclosure, Accuracy and valuation—disclosure

Question 61

Long‐Term Investments-Verify all transactions by reference to authorization and documentary evidence.

Answer 61

Existence, Occurrence, Accuracy

Question 62

Inspect and count securities and records.

Answer 62

Existence, Completeness and valuation

Question 63

Confirm securities with independent custodian.

Answer 63

Existence, Rights and obligations, Completeness

Question 64

Obtain evidence for carrying value and earnings therefrom: a. Obtain audited statements, if available. b. If audited statements are not available, extend unit tests depending on materiality of investment. May rely on investee’s auditor. c. Use market quotations when based on broad and active market. d. Use personal valuations only if available and reasonable. e. If collateral is important with regard to collectability, ascertain existence, market value, and transferability.

Answer 64

Valuation

Question 65

Inquire of management with regard to status of long‐term investments.*

Answer 65

Rights and obligations, Valuation

Question 66

Verify income related to investments.

Answer 66

Valuation

Question 67

Determine financial statement presentation (cost or equity methods).

Answer 67

Valuation—disclosure, Classification—disclosure