Chapter 10: Expenses

Question 1

SP for Provisions (10)

Answer 1

1. Obtain schedule of provisions and agree with the F/S
2. Review list of provisions and ensure it is complete (compare it with LY, investigate for omissions)
3. Ensure assumptions are reasonable
4. Compare list with last year and check if any balance has significantly declined.
5. Determine whether it meets recognition criteria as per iAS 37 and has been measured at adequate amount
6. Send confirmation to lawyers for recognition and adequacy
7. Review whether provisions have been adjusted in accordance with subsequent events (e.g. decision of a legal case)
8. Engaging expert if necessary
9. review for historical accuracy
10. Obtain written representation about completeness and adequacy of provisions

Question 2

SP for Contingencies (4)

Answer 2

1. Follow up contingencies reported in last year
2. Inquire approach to identify contingencies
3. Check status of contingencies subsequent to reporting period
4. Directly communicate letter of inquiry (confirmation) with entity’s external legal counsel

Question 3

To identify undisclosed contingencies (5)

Answer 3

1. inquire management + in-house legal counsel
2. review minutes of meetings with TCWG communicating with external legal counsel
3. review legal expense account
4. review business press and journals for possible industry-wide contingencies
5. obtain written representation about completeness of contingencies

Question 4

SP for accrued wages and salaries

Answer 4

1. Analytical procedures to test reasonableness of accrual balance (comparing with payroll of other months)
2. check amount of accrued wages/salaries by comparing with payroll sheet
3. check payment of accrued wages/salaries after year end
4. consider what additional items should be accrued at year end e.g. employer’s contribution, overtime, bonuses

Question 5

Prepaid/Accrued expenses

Answer 5

1. Agree list with f/s
2. review list ensure completeness
3. recalculate sample
4. select a sample and vouch with payments at the year end
5. subsequent payments/adjustments