Topic 8 - Procedures Flashcards
Directional Testing
Source Document to Financial Statements test = Understatement and Completeness
Financial Statements to Source tests = Overstatement and Existence
Exam technique
- Action - 2. Source - 3. Why/Objective
- Select a sample and physically inspect - 2. the NCA register - 3. to confirm existence
NCA Procedures
Valuation: check valuation documents
Additions: Review capital expenditure and plans to replace
Depreciation:
- Review policy, compare to industry standard.
- Recalculation and agree
- Proof of calculation, timing addition and disposals.
Disposals:
-Agree sale procees to invoice
- Recalc to PL
- Review Capital Expenditure -planned and met expectation
Revaluation:
- Reasonableness of valuer
- Agree valuation to report.
- Physically inspect for impairment.
Existence:
-Sample of NCA
Completeness:
- Reconcile PPE schedule
- Sample of assets and physically inspect
- Review nature, repairs and maintenance.
Rights and Obligations
- Verify ownership with deeds
- Sample additions to invoices
- Review lease agreeements
Inventory Procedures
Existence and Completeness:
- Observer inventoy counts
- Sample, test counts
- Copy of sequentially number inventory counts
- Reconcile GRN (In) and GDN (Out)
- Check for inventory held for 3rd parties.
Valuation:
- Method of the warehouse manager & Reperform.
- Dealing with damaged goods
- Reconcile damaged goods
IN FINAL AUDIT
- Sample of goods reconciled to purchase records
- Basis of standard costing
- Variations of standard and actual costs
- Post year sales to confimr NRV
- Sample cost sheets for raw materials, labour and overheads.
Identify slow moving inventory
- Aged analysis/inventory days.
Completeness:
Cast and trace to Financial Statements
Bank Balance Procedures
-Monthly Bank reconcilations
-Confirmation letter from bank
-Trace outstanding lodgements to pre year end. greater than 6months and the cheque is invalid.
Receivable Procedure
-Positive trade receivables circulation
- Review Sales ledger
- Inspect slow moving receivables -bad debt via receivables days
- Post year cash receipts - trace to recievables ledger
- Post year credit notes - relate to current period
- Sample and Rec GDN
Payables Procedures
- Positive trade payables circulation
- Review purchase ledger.
- Inspect slow moving payments - Going Concern
- Post year cash payments - trace to payables ledger
- Post year credit notes - Relate to current period
Sample and Rec GRN
Accruals/Provisions/Contingent Liabilities - ESTIMATIONS
- Enquire with management on basis of estimate
- method of measurement, assess reasonableness
- Test of controls
- Develop expectation of amounts
-Look for management bias - Sufficient and appropriate evidence
- Written representations from Management.
Cash Flow
- Check opening balance agree to closing balance
- Accuracy of forecast, compare to past events
- Re-calculation
- Review board minutes that include forecasts
- Review internal audit
Loan Payables
- Agree interest payments
- Split between CL/NCL
- Recalculation
Share Capital
- Agree authorised share capital and nominal value
- Inspect cash book
- Share certs
- Inspect board minutes - Dividends
Directors Emoluments
-Reconcile to payroll records
- Inspect board minutes - Bonuses
- Rec bonuses to payroll
- Boar minutes approval for party transactions
- written representations from directors
Reserves
-Reconcile to profit reserves
- Opening balance +/- profit - Dividends = closing balance
- Reconcile movements
- Check revaluations report
Accruals
- Similar to payables
- Inspect invoices
- Re-calculate
- agree figure to GL
- Analytical review - compare to prior years
