Week 11 - Seminar Notes

Question 1

What are the procedures for provisions?

Answer 1

• Obtain a breakdown of provisions, cast it and agree the figure to financial statements: accuracy & presentation.
• Enquire with directors or inspect relevant supporting documentation to confirm that a present obligation exists at the year-end: rights & obligations.
• Inspect relevant board minutes to ascertain whether payment is probable: existence.
• Recalculate the liability and agree components of the calculation to supporting documentation: completeness.
• Inspect post year-end bank statements to identify whether any payments have been made, compare actual payments to the amounts provided to assess whether the provision is reasonable: valuation.
• Inspect the financial statement disclosure of provisions and contingent liabilities to ensure compliance with IAS 37: presentation.
• Obtain a written representation from management that they believe the provisions and contingent liabilities are treated appropriately in the financial statements, are valued appropriately and are complete: valuation & completeness.

Question 2

What are the procedures for accruals?

Answer 2

• Obtain list of accruals from client, cast it to confirm mathematical accuracy and agree to general ledger and financial statements: completeness, classification.
• Recalculate a sample of accrued costs by reference to contracts and payment schedules (e.g. loan interest): valuation (accuracy of purchases and other expenses).
• Inspect invoices received post year-end to confirm actual amount and assess whether the accrual is reasonable: valuation.
• Compare accruals this year to last year to identify any missing items or unusual fluctuation in amount discuss this with management: completeness & valuation.

Question 3

What is the main focus of testing for payroll?

Answer 3

Completeness, Accuracy & Occurrence.

Question 4

What are the procedures for payroll?

Answer 4

• Agree total wages and salaries expense per the payroll control account to the general ledger and financial statements: completeness & presentation.
• Cast monthly payroll listings to verify accuracy of payroll expense: accuracy.
• Recalculate gross and net pay for a sample of employees and agree to payroll records: accuracy.
• Select a sample of joiners and leavers, agree their start/leaving date to supporting documentation, recalculate that their first/last pay packet was accurately calculated and recorded: completeness, occurrence, accuracy.
• For salaries, agree the total net pay per the payroll records to the bank transfer listing of payments and to cashbook: occurrence.
• For cash wages, agree that total cash withdrawn for wage payments equates to weekly wages paid plus any surplus cash subsequently banked: completeness, occurrence.
• Agree year-end tax liability to the payroll records and subsequent payment to post year-end cash book: occurrence.
• For a sample of individuals, agree amount per the payroll listing to the personnel records and timesheets if applicable: accuracy.

Question 5

What are the analytical review procedures for payroll?

Answer 5

• Perform a proof in total of total wages and salaries incorporating joiners and leavers and the pay increase. Compare this to the actual wages and salaries in the financial statements and investigate any significant differences: completeness, accuracy.
• Compare payroll figure for this year to last year to identify any unusual fluctuations and discuss them with management: completeness, accuracy.