Week 11 Part 1

Question 1

audit procedures for accruals?

Answer 1

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

Question 2

provisions = ?

Answer 2

uncertain amount of money put aside allocated to an uncertain future event

provision is made only if payment is deemed probable

Question 3

audit procedures for provisions?

Answer 3

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

Question 4

audit procedures for payroll?

Answer 4

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5) match cash withdrawn for wage payments with weekly wages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

Question 5

what does an analytical review for payroll consist of?

Answer 5

• 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)

Question 6

what must occur after audit tests/procedures are complete?

Answer 6

completion & review stage

Question 7

subsequent events = ?

Answer 7

events that occur after the year end, but before the audit opinion is submitted

Question 8

how long is between the year end and the date the audit opinion is given?

Answer 8

usually 3 months

(busy season)

Question 9

must auditors obtain sufficient evidence about subsequent events?

Answer 9

yes

some subsequent events require amendments of the FSs

other subsequent events impact the current year

Question 10

adjusting event = ?

Answer 10

events that provide additional evidence about conditions relating to the FSs

adjusting events must be adjusted in FSs

Question 11

examples of adjusting events?

Answer 11

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)

Question 12

net realisable value = ?

Answer 12

expected selling price - total costs

Question 13

how must inventory be valued?

Answer 13

the lower out of cost or net realisable value

Question 14

non adjusting events?

Answer 14

events that provide evidence about conditions concerning events after the year end

no relation to previous year

Question 15

examples of non-adjusting events?

Answer 15

fire destroys inventory after year end (impacts current year)

injury resulting in legal action (impacts current year)

takeover

Question 16

if non-adjusting subsequent events are material…

Answer 16

they should be disclosed in FS notes

Question 17

going concern = ?

Answer 17

the business is expected to continue for the foreseeable future (minimum 12 months)

Question 18

if a non-adjusting event impacts the going concern assumption…

Answer 18

it becomes an adjusting event

Question 19

should companies prepare FSs on a going concern basis?

Answer 19

yes

unless management intend to liquidate or cease trading

Question 20

audit procedures for subsequent events?

Answer 20

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)

Question 21

indications of issues with going concern?

Answer 21

• 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