Substantive testing Flashcards
1
Q
Audit procedures
A
- enquiry
- observation
- inspection
- reperformance
- confirmation
- recalculation
- analytical procedures
2
Q
Assertions - Balance Sheet
A
- Existence
- Completeness
- Accuracy, Valuation, Allocation
- Classification
- Presentation
- Rights and obligations
3
Q
Receivables
A
- Obtain aged receivables listing, cast and agree to FS
- Request Direct conformation from customers to confirm existence and rights
- inspect GDNs and invoices included in the listing to confirm amounts
- inspect cash received post YE to confirm valuation
- calculate receivables days and compare with credit terms
- enquire with management about any long overdue debt
- inspect correspondence with customers for disputes
- recalculate allowance for irrecoverable debt and compare with level of old debts to assess adequacy
4
Q
Tangible assets procedures
A
- obtain the list of assets, cast and agree to FS
- select sample of assets from the asset register and physically inspect them to confirm existence
- select sample of assets at client premises and inspect asset register to confirm completeness
- recalculate depreciation to ensure accuracy
- note condition of assets when inspecting them and relate to valuation
- review the valuer’s report to confirm valuation
- inspect title deeds and registration documents to confirm rights
5
Q
Bank and cash procedure
A
- obtain listing of bank and cash balances, cast and agree to FS
- obtain bank confirmation letter for all bank accounts held
- obtain bank reconciliations for all bank accounts and cast to confirm accuracy
- agree the balance per the cash book to the ledger
- agree the balance per the bank statement to the letter
- agree unpresented cheques to the post year end bank statement and confirm they have cleared in a reasonable time
- agree outstanding lodgements to the paying in book and post year end bank statement
- perform cash count for any material cash balances or where fraud is suspected
- inspect bank letter for any other details requiring disclosure such as security over assets
6
Q
Bank reconciliations
A
- Obtain bank recon and cast to check arithmetical accuracy
- Agree bank balance in the rec to the bank statement and bank confirmation letter
- Agree cash book balance in the rec to the year end cash book
- Trace outstanding lodgements from pre year end cash book, to paying in book to post year end bank statement
- Trace unpresented cheques from pre year end cash book to post year end bank statements. For unusual amounts or delays obtain explanations from mgmt
- Examine old unpresented cheques to assess if need to be written back to the payables ledger as no longer valid to be presented
8
Q
Prepayments procedures
A
- inspect invoices to confirm expenditure relates to subsequent period
- recalculate prepayment to verify accuracy
- inspect bank statements to confirm t was pod before year end
9
Q
Contingent assets procedures
A
- review correspondence from third pty re amount likely to be received and probabiiity of payment
- review correspondence from third party confirming amount awarded to client. Agree figure to other receivables and other income
- review post year end bank statements to confirm amount received
10
Q
Inventory procedures
A
- raw materials, WIP or finished goods
- assertions: existence/completeness (attend count), valuation
Before count:
- review prior years working papers for issues
- review instructions for adequacy
- identify problem areas to discuss with the client
During count:
- observe that count complies with instructions
- make sample test to ensure accuracy of the count
- make notes of damaged or obsolete inventory
- record document numbers for subsequent test of cut off
- reach a conclusion as to count was carried out satisfactorily
- trace inventory in the warehouse to count sheets for completeness
- grace goods on the count sheets to the warehouse for existence
After count
- inspect inventory listing to ensure damaged items have been written down to NRV
- inspect inventory listing for items on last GDN/GRN to ensure correct cut off
- trace items on the count sheet to inventory listing to ensure quantities were not changed
- calculate inventory days and compare with prior year to identify slow moving inventory
- inspect inventory listing for old items and discuss the need for write down
- inspect purchase invoices to verify cost
- inspect nape the post YE sales invoices to identify NRV
- review calculations of overhead included in WIP to ensure only production overhead is included
11
Q
Trade payables procedures
A
- obtain trade payables listing, cast and agree to FS
- inspect purchase invoices and GRN included in the listing to confirm accuracy of recording
- obtain/perform supplier statement reconciliations to identify discrepancies
- obtain direct confirmation of balances
- inspect post year end bank statements for payments which may indicate unrecorded liabilities
- calculate payables days ratio and compare with credit terms and discuss unusual differences with mgmt
- inspect GRN for before year end purchases and trace back to purchases sub ledger and GL
11
Q
Accruals procedure
A
- obtain the list of accruals, cast and agree to FS
- compare with prior year, discuss variances with mgmt
- agree corporation tax accrual with tax computation
- agree payroll ax accrual to payroll records
- inspect post year end bank statements for payments of accrual to confirm amounts are reasonable
- inspect invoices received post year end to confirm amount of accrual
11
Q
Loans and overdraft procedures
A
- agree balance outstanding to bank confirmation letter
- inspect loan agreements for covenants requiring disclosure
- recalculate the split of current and non- current liabilities and agree to FS
- review FS disclosures are adequate
- recalculate any interest accruals to verify accuracy
- inspect bank statements for loan and interest payments
14
Q
Share capital procedures
A
- agree authorised capital and nominal value disclosures to shareholding agreements and statutory constitution documents
- inspect board minutes to verify the amount of share capital issued this year
- inspect cash book for evidence of cash receipts from share issue and ensure amounts not yet received are disclosed as share cap called up but not paid in in FS
15
Q
Dividends procedures
A
- Inspect board minutes to agree dividends declared this year
- inspect bank statements to agree dividends paid
16
Q
Reserves procedures
A
- agree opening reserves to prior year closing reserve and reconcile movement
- agree movement in reserves to supporting docs
