Week 11 Part 1 Flashcards
audit procedures for accruals?
1) get list of accruals from client
2) recalculate sample of accruals from source docs
3) inspect invoices received post y/e (confirm amount)
4) compare accruals amount this yr to previous yr
provisions = ?
uncertain amount of money put aside allocated to an uncertain future event
provision is made only if payment is deemed probable
audit procedures for provisions?
1) get breakdown of provisions & match it to FSs
2) ask director to confirm if provision is probable
3) inspect relevant board minutes to ascertain probability
4) match provision to source docs
5) look at post year bank statement to see if provision was reasonable
6) inspect FS disclosure of provision
7) get written representation from management to confirm provision is reasonable
audit procedures for payroll?
1) match wages on payroll to FS
2) get sample of payroll and recalculate to verify accuracy
3) recalculate gross pay for sample of employees and match with payroll records
4) select sample of leavers/joiners to ensure they’re paid in correct period
5) match cash withdrawn for wage payments with weekly wages
6) match y/e tax liability to payroll records
7) match wage on payroll to personnel records & timesheets
what does an analytical review for payroll consist of?
- perform proof in total of total wages (incorporating joiners, leavers, raises etc) and compare this to wages in FSs
- compare payroll figure for this year to last year (to identify significant changes)
what must occur after audit tests/procedures are complete?
completion & review stage
subsequent events = ?
events that occur after the year end, but before the audit opinion is submitted
how long is between the year end and the date the audit opinion is given?
usually 3 months
(busy season)
must auditors obtain sufficient evidence about subsequent events?
yes
some subsequent events require amendments of the FSs
other subsequent events impact the current year
adjusting event = ?
events that provide additional evidence about conditions relating to the FSs
adjusting events must be adjusted in FSs
examples of adjusting events?
T/R becomes irrecoverable (write off required)
inventory held at year end is sold for much less than cost (inventory needs to be revalued, impacts NRV)
net realisable value = ?
expected selling price - total costs
how must inventory be valued?
the lower out of cost or net realisable value
non adjusting events?
events that provide evidence about conditions concerning events after the year end
no relation to previous year
examples of non-adjusting events?
fire destroys inventory after year end (impacts current year)
injury resulting in legal action (impacts current year)
takeover
if non-adjusting subsequent events are material…
they should be disclosed in FS notes
going concern = ?
the business is expected to continue for the foreseeable future (minimum 12 months)
if a non-adjusting event impacts the going concern assumption…
it becomes an adjusting event
should companies prepare FSs on a going concern basis?
yes
unless management intend to liquidate or cease trading
audit procedures for subsequent events?
1) ask directors if they’re aware of any subsequent events
2) inspect minutes of shareholders & directors meetings
3) review accounting records
4) obtain written representation from management confirming acknowledgement of subsequent events in FS
5) inspect correspondence with legal advisors
6) ask management about provisions
7) inspect after date cash from receivables
8) inspect cash book for payments received after year end
9) inspect sales price of inventory after y/e (impacts NRV)
indications of issues with going concern?
- net current liabilities (more liabilities than assets)
- negative cash flow (paying more than receiving)
- issues with borrowing
- inability to obtain credit (they don’t trust you)
- sale of NCAs to fund operations
- loss of key staff
- overly reliant on small number of customers
- increased competition
