audit procedures

Question 1

AP for payables and accruals in terms of existence?

Answer 1

obtain direct info from banks and other lenders of the amounts outstanding, accrued interest and what security they hold

Question 2

AP for payables and accruals in terms of rights and obligations?

Answer 2

review direct confirmation letters from lenders

Question 3

AP for payables and accruals in terms of completeness?

Answer 3

obtain breakdown of liabilities, compare to prior year audit working papers and for any items no longer included agree to: repayment amount in cash book, inclusion as current liability if reclassified.

review board minutes for evidence of any new borrowings which might not be recorded

review cash book to ensure all new loans have been recorded

Question 4

AP for payables and accruals in terms of accuracy, valuation and allocation

Answer 4

perform proof in total of finance charges

agree capital and interest amounts to confirmation letters

recalculate finance charges agreeing interest rates to loan agreements

Question 5

AP for payables and accruals in terms of classification and presentation.

Answer 5

review draft accounts and agree that liabilities are correctly classified as current/non current by reference to the repayment dates in the loan agreements.

ensure disclosures are correct and in line with accounting standards by comparing disclosure to required disclosure per an accounting disclosure checklist

Question 6

AP for inventory in terms of completeness

Answer 6

trace test counts to detailed inventory listing

where inventory held in third-party locations, physically inspect or review confirmations received from third party and match to general ledger.

compare gross profit percentage to previous year or industry data and investigate any unexpected variations

Question 7

AP for inventory in terms of existence

Answer 7

observe the physical inventory count

Question 8

AP for inventory in terms of rights and obligations

Answer 8

verify that any inventory held for third parties is not included in year end inventory fig by being appropriately segregated during inventory count.

for any ‘bill and hold’ inventory, identify such inventory and ensure it is segregated during inventory count so that it is not included in year end fig

confirm that any inventory held at third party locations is included in fig by reviewing inventory listing.

Question 9

AP for inventory in terms of accuracy, valuation and allocation (19 items)

Answer 9

obtain copy of inventory listing and agree totals to general ledger

cast inventory listing to ensure it is mathematically correct

vouch a sample of inventory items to suppliers’ invoices to ensure correctly valued.

where standard costing used, obtain copy of standard cost card, vouch sample of purchases costs to invoices and labour rates to payroll records and discuss amount of labour time taken per unit/batch with production staff to ensure standard cost correctly valued

for materials, agree valuation to invoices and price lists

confirm appropriate basis of valuation is being used by discussing with mgment

for labour costs, agree costs to wage records

review standard labour costs in light of actual costs and production

reconcile labour hours to time summaries

where inventory related to work in progress, discuss stage of completion with production mgment and recalculate inventory values. consider whether expert is required.

compare gross profit percentage, raw material, finished goods, inventory collection period, inventory holding period, and current year standard costs to previous year or industry data

compare actual manufacturing overhead costs with budgeted or standard manufacturing overhead costs

trace test counts back to inventory listing

if entity has adjusted general ledger to agree with physical inventory count amounts, agree two amounts

where perpetual/continuous inventory system maintained, agree total on inventory listing to continuous records using automated tools and techniques.

Question 10

AP for inventory in terms of cut-off

Answer 10

note numbers of last GDNs and GRNs before year end, and the first GDNs and GRNs after year end, check they’ve been included in correct financial year

Question 11

AP for inventory in terms of classification

Answer 11

review inventory listing to ensure inventory has been properly classified between raw materials, WIP and finished goods

read notes to accounts relating to inventory to ensure they’re understandable

Question 12

AP for inventory in terms of presentation

Answer 12

complete disclosure checklist to ensure all the disclosures relevant to inventory have been made

review the financial statements to confirm whether the cost method used to value inventory is accurately disclosed

read the notes to the financial statements to ensure that info is accurate and properly presented at appropriate amounts

Question 13

AP for bank in terms of completeness and existence

Answer 13

obtain standard bank confirmations from each bank with which client conducted business during audit period

trace cheques shown as outstanding from bank reconciliation to cash back prior to year end and to after-date bank statements, and obtain explanations for any large/unusual items not cleared at time of audit

compare cash books and bank statements in detail for last month of year, and match items outstanding at reconciliation date to bank statements

obtain satisfactory explanations for all items in cash book for which there are no corresponding entries in bank statement and vice versa by discussion with finance staff.

Question 14

AP for bank in terms of valuation

Answer 14

reperform arithmetic of bank recon

review bank recon previous to year-end bank recon and test whether all items are cleared in last period or taken forward to year-end bank recon

verify contra items appearing in cash book or bank statements with original entry

verify by inspecting paying in slips that uncleared bankings are paid in prior to the year end

examine all lodgements in respect of which payment has been refused by bank, ensure cleared on re-presentation or that other appropriate steps have been taken to effect recovery of amount due.

verify bank balances with reply to standard bank letter and with bank statements

inspect cash book and bank statements before and after year end for exceptional entries or transfers which have material effect on balance shown to be in hand

Question 15

AP for bank in terms of rights and obligations

Answer 15

determine whether bank accounts subject to any restrictions by enquiries with mgment

Question 16

AP for bank in terms of classification

Answer 16

identify whether any accounts are secured on assets of company by discussion with mgment

consider whether there is a legal right of set-off of overdrafts against positive bank balances

review draft accounts to ensure disclosures for bank are complete and accurate and in accordance with accounting standards.

Question 17

AP for receivables in terms of completeness

Answer 17

obtain breakdown of trade receivables fig per customer for both current and previous period and compare level of trade receivables year on year. discuss any obvious emissions unusual trends with mgment

select sample of GDNs issued during year and vouch them to relevant sales invoice. inspect revenue and receivables accounts in the nominal ledger to ensure invoice has been accurately recorded in correct accounting period

obtain copy of aged receivables listing, re-cast total to ensure accurate. agree balance on aged receivables listing to nominal ledger and trace through to the financial statements to ensure all balances recorded

Question 18

AP for receivables in terms of rights and obligations

Answer 18

review monies received part year-end for evidence of balance owed being paid to audit client, therefore confirming debt was due to them.

inspect responses from direct confirmation for evidence of customer’s name and address to verify customer has confirmed outstanding balance is due to audit client

for sample of balances due at year-end, vouch outstanding balance back to sales invoices and GDNs to verify goods were delivered and that amount due to the customer was paid?

Question 19

AP for receivables in terms of accuracy, valuation and allocation

Answer 19

inspect aged receivables listing for old and overdue amounts. discuss recoverability with mgment and consider whether any write offs or allowances are necessary

compare receivables collection period ratio for current and prior year, discuss any significant variations w mgment

agree monies received post year end and determine whether they relate to pre year sales and if so whether an allowance should be made against that balance

review adequacy of allowance for receivables through discussion with mgment and the review of correspondence from customers

Question 20

AP for receivables in terms of existence

Answer 20

for sample of balances owed at year-end, carry out direct confirmation of receivables, investigate any balances which do not agree and vouch explanations to supporting docs

review monies received post year-end to confirm that balance existed at year end

inspect customer correspondence/complaints files to identify any concerns over existence of receivables

Question 21

AP for NCAs in terms of completeness

Answer 21

obtain or prepare summary of tangible NCAs showing how gross carrying amount, accumulated depreciation and carrying amount reconcile with opening position.

compare NCAs in general ledger with NCAs register and obtain explanations for differences

for sample of assets which physically exist, agree they are recorded in NCA register

if an NCA is not kept, obtain schedule showing original costs and present dep value of major NCAs

Question 22

AP for NCAs in terms of completeness

Answer 22

confirm that company physically inspects all items in NCA register each year

inspect assets, concentrating on high value and additions in year. confirm items: exist, are in use, are in good condition and have correct serial numbers

review records of income-yielding assets

reconcile opening and closing vehicles by numbers and amounts

Question 23

AP for NCAs in terms of valuation, general

Answer 23

verify valuation to valuation certificate

consider reasonable of valuation, reviewing: experience of valuer, scope of work, methods and assumptions used, valuation bases are in line with accounting standards

reperform calculation of reval surplus

confirm whether valuations of all assets that have been revalued have been updated regularly so that asset’s carrying amount is not materially different from fair value by asking finance director and inspecting previous financial statements

inspect draft accounts to check client has recognised revaluation losses in statement of profit or loss unless there is credit balance in respect of that asset in equity, in which case it should be debited to equity to cancel the credit. all reval gains should be credited to equity.

review insurance policies in force for all categories of tangible NCAs and consider adequacy of insured values, check expiry dates.

Question 24

AP for NCAs in terms of valuation, depreciation

Answer 24

review depreciation rates applied in relation to: asset lives, residual values, replacement policy, past experience of gains and losses on disposal, consistency with prior years and accounting policy, possible obsolescence

review NCA register to ensure depreciation has been charged on all assets with finite useful life.

for revalued assets, ensure that charge for depreciation based on revalued amount by recalculating for sample of revalued assets.

reperform calculation of depreciation rates to ensure its accurate

compare ratios of depreciation to NCAs with previous years and dep policy rates

scrutinise draft accounts to ensure that depreciation policies and rates are disclosed in the accounts

Question 25

AP for NCAs in terms of rights and obligations

Answer 25

verify title to land and buildings by inspection of title deeds, land registry certificates, leases

obtain certificate from solicitors/bankers stating: purpose for which deeds are being held, deeds are free from mortgage or lien.

inspect registration documents for vehicles held, confirming that they are in client’s name

confirm all vehicles are used for client’s business

examine documents of title for other assets

review for evidence of charges in statutory books and by company search

review leases of leasehold properties to ensure company has fulfilled covenants therein

examine invoices received after year end, orders and minutes for evidence of capital commitments

Question 26

AP for intangible NCAs - goodwill

Answer 26

agree consideration to the sales agreement by inspection

consider whether asset valuation is reasonable

agree that the calculation is correct by recalculation

review the impairment review and discuss w management

ensure valuation of goodwill is reasonable/there has been no impairment not adjusted through discussion w management

Question 27

AP for intangible NCAs - R&D costs

Answer 27

confirm capitalised development costs conform to IAS 38 criteria by inspecting details of projects and discussions with technical managers

confirm feasibility and viability by inspection of budgets

recalculate amortisation calculation to ensure it commences with production/is reasonable

inspect invoices to verify expenditure incurred on R&D projects

Question 28

AP for intangible NCAs - other intangibles

Answer 28

agree purchased intangibles to purchase documentation agreement by inspection

inspect specialist valuation of intangibles and ensure reasonable

review amortisation calculations and ensure they are correct by recalculation.

Question 29

AP for director’s emoluments in terms of existence

Answer 29

agree directors emoluments disclosed in financial statements to a schedule for the year for each director. schedule should show separately the individual components: salary, bonuses, benefits, pension contributions and any other amounts.

vouch salary and pension contribution amounts to monthly payroll records and bank statements

vouch bonuses and any one off payments to board meeting minutes and payroll records and bank statements

Question 30

AP for directors’ emoluments in terms of rights and obligations

Answer 30

verify emoluments paid to directors during year to contracts of employment to ensure the directors’ entitlements to these amounts

Question 31

AP for directors’ emoluments in terms of completeness

Answer 31

review board eeting/remuneration committee minutes to verify amounts of any directors’ bonuses and any other amounts, and also check payments have been appropriately authorised

review cash book during year and in past year end period and ensure any significant sums have been appropriately accounted for

ask directors to confirm in writing that emoluments disclosed in financial statements are complete and accurately recorded

analytically review the directors’ emoluments for each director in comparison to both prior year and expected given business’ activities during year

Question 32

AP for directors’ emoluments in terms of accuracy, valuation and allocation

Answer 32

re-cast addition of schedule of directors’ emoluments

verify that amounts disclosed in financial statements agree to this schedule

Question 33

AP for directors’ emoluments in terms of classification and presentation

Answer 33

obtain copy of returns made to tax authorities in respect of each director and verify that all benefits have been properly disclosed in the financial statements

review the adequacy of the disclosure in the directors’ emoluments note to ensure it is in accordance with applicable accounting standard and local law.