Week 10 Part 2

Question 1

what are the key FS assertions when auditing inventory?

Answer 1

existence
valuation
completeness
rights & obligations

Question 2

sources of evidence when auditing inventory?

Answer 2

• aged inventory listing
• physical inventory check
• count sheet
• sales / purchase invoice
• GRN / GDN

Question 3

two types of tests for inventory?

Answer 3

tests of controls
substantive procedures

Question 4

tests of controls for inventory?

Answer 4

• observe inventory count sheets
• check damaged/obsolete items are valued correctly
• inspect inventory count sheet
• make sure staff are segregated

Question 5

substantive procedures for inventory?

Answer 5

1) select sample of items from inventory count sheet & physically inspect (existence)
2) trace physical items to count sheet
3) inspect inventory for damage impacting NRV
4) match inventory count sheet to inventory figure in FSs
5) match inventory sample to invoices
6) inspect post year-end sales to check if NRV is reasonable
7) inspect ageing inventory for valuation
8) match goods received before year end to year end payable/inventory balances
9) trace goods dispatched to year end nominal ledger
10) calculate gross profit margin & compare with previous year

Question 6

key assertions when auditing receivables?

Answer 6

existence
valuation

Question 7

sources of evidence when auditing receivables?

Answer 7

• aged receivables listing
• sales invoices
• GDN
• receivables circularisation letter
• post year end bank statement
• policy for allowance for doubtful debts

Question 8

receivables circularisation letter = ?

Answer 8

when a 3rd party is contacted to confirm the client is owed a receivable

Question 9

audit procedures for receivables?

Answer 9

1) obtain aged receivables listing & match it to FSs
2) match receivables ledger control account with receivables ledger list of balances
3) select sample of y/e receivables and match it to source docs
4) inspect post y/e cash receipts w/ pre y/e receivables balances
5) select sample of GDN before & after y/e & match with invoices
6) inspect aged receivables listing to see if write down is required
7) inspect board minutes to assess material write offs required
8) inspect credit notes to identify fictitious pre y/e transactions (window-dressing)
9) calculate avg receivables period & compare with last year

Question 10

which key assertion links to auditing payables?

Answer 10

completeness

Question 11

sources of evidence for auditing payables?

Answer 11

• aged payables listing
• purchase invoices
• GRNs
• post y/e bank statement
• supplier statements

Question 12

GRNs?

Answer 12

proof that goods have been received

Question 13

supplier statements?

Answer 13

document detailing goods imported from suppliers

provided periodically

Question 14

audit procedures when auditing payables?

Answer 14

1) obtain list of payables
2) match payables with control account
3) match supplier statement to payables balance
4) inspect invoices received after y/e linked to goods received before y/e
5) enquire management about process for identifying payables
6) match sample of goods received before y/e to see if it’s in payables
7) compare list of payables with prior year to identify omissions
8) compare payables payment period with prior year