Chapters 12-14

Question 1

what is the first step the auditors should do for NCA’s

Answer 1

compare NCA’s in the general ledger to the non current asset register

Question 2

what substansive procedures do auditors need to perform to obtain sufficient and appropriate evidence to the disposal of assets and addition of assets

Answer 2

cast all of the additions together
inspect documents proving the disposal
inspect invoices
physically inspect additions

Question 3

what are common examples of accounting estimates (3)

Answer 3

useful life of a NCA
Accrued revenue
provisions for legal settlements

Question 4

how do you audit an accounting estimate

Answer 4

they need to obtain sufficient evidence as to where the figures have come from

Question 5

can research be capitilised as an intangible asset

Answer 5

never, it is always an expense

Question 6

what is the mnemonic for capitalising development

Answer 6

Probable future economic benefits
Intention to complete
Resources are adequate
Ability to use 
Technical feasiblity
Ependiture can be measured

Question 7

NCA

Audit procedure for Completeness assertion

Answer 7

reconcile the carrying amount and depreciation back to the opening balance
agree a sample of assets youve physically inspected back to the non current asset register

Question 8

NCA

Audit procedure for Existence assertion

Answer 8

confirm the company physically inspects each NCA each year
Inspect high value assets
confirm the items inspected are in good condition and in use

Question 9

NCA

Audit procedure for Valuation assertion

Answer 9

verify valuation to valuation certificate
reperform revaluation calculation
inspect draft accounts include revaluation losses as well as gains

Question 10

NCA

Audit procedure for Depreciation assertion

Answer 10

ensure all NCA’s have been depreciated
ensure the depreciation for revalued assets has been done on the revalued amount
compare ratios of depreciation to previous years

Question 11

NCA

Audit procedure for rights and obligation assertion

Answer 11

inspect deeds, leases and land registry certificates

confirm all vehicles are used for the clients business

obtain a certificate from soliciters stating the purpose of which the deeds are held and that its free from a mortgage

Question 12

NCA

Audit procedure for Goodwill assertion

Answer 12

consider whether it being valued as an asset is reasonable
recalculate
review the impairment and discuss with management

Question 13

5 steps for the counting process of stock counts

Answer 13

evaluate managements instructions and procedures for the count
observe the performance
inspect inventory
perform test counts
perform audit procedures over final figures

Question 14

3 factors to consider when planning attendance at a stock count

Answer 14

internal controls related to inventory
locations at which inventory is held
timing of the count

Question 15

6 procedures to follow during the attendance at the inventory count

Answer 15

observe if the staff are following the instructions
perform test counts
ensure procedures for valuing damaged items are effective
confirm inventory held by a third party is counted seperately
obtain copies of the last GRN in order to confirm cut off

Question 16

why do auditors need to perform test counts

Answer 16

to ensure procedures and internal controls are working properly

Question 17

what 2 test counts should auditors do

Answer 17

test counts from the inventory to the inventory sheet (for completeness)
and
inventory sheets to inventory ( for existence)

Question 18

what can auditors do if test counts are unsatisfactory

Answer 18

request a re count

Question 19

what do auditors need to do after the count

Answer 19

check the final inventory sheets have been properly compiled and the book value has been adjusted

Question 20

key tests for after the count

Answer 20

trace items that were test counted to final inventory records
agree sequence of inventory sheets
review replies from third party

Question 21

what is cut off testing

Answer 21

audit procedure performed after the count to ensure that all of the companys transactions have been included in the correct period

Question 22

should goods recieved after YE be included in the FS

Answer 22

no

Question 23

where should goods received before YE be included

Answer 23

expense, closing inventories, liability

Question 24

where should revenue be included if made before YE

Answer 24

Revenue, recievables but not inventory

Question 25

where should revenue be included if made after YE

Answer 25

only inventorys

Question 26

how should be inventories be valued

Answer 26

at the lower of cost and net realisable value

Question 27

what 3 procedures must external audit do on internal auditors before using there work

Answer 27

wether the work is planned, performed, supervised, reviewed and documented whether there is sufficient apropriate evidence whether conclusions reached are appropriate

Question 28

external auditors must reperform some of the internal auditors work. what might they do ?

Answer 28

examination of items examined by internal audit | observation of procedures

Question 29

what is direct assistance

Answer 29

direct assistance refers to the use of internal auditors to perform procedures, under the direction of external auditors

Question 30

when can external auditors not use direct assistance

Answer 30

when judgement is involved when they are looking into work internal audit have done relates to a higher risk of material misstatement relates to decisions being made on the internal audit function

Question 31

what is an external confirmation

Answer 31

audit evidence obtained as a direct response to the auditor from a third party.

Question 32

what is a positive confirmation

Answer 32

where the third party responds directly to the auditor, indicating if they agree with the info in the request

Question 33

what is a negative confirmation

Answer 33

is where the third party responds directly to the auditor ONLY if they disagree

Question 34

when can you use negative confirmations

Answer 34

if material misstatement is low

Question 35

6 types of balances that should be included in the sample of accounts

Answer 35

``` old unpaid accounts accounts written off accounts with credit balances accounts settled by large sum payments accounts with large balances accounts with nil balances ```

Question 36

what is an exception

Answer 36

when there is a difference in the third partys accounts to yours

Question 37

audit procedures for completeness of trade receivables

Answer 37

compare previous and current years trade receivables breakdowns and discuss differences with management select a sample of GDN's and compare to relevant sales invoices

Question 38

audit procedures for rights and obligations of trade receivables

Answer 38

inspect responses from the confirmation for evidence of customers names and addresses review monies recieved post year end

Question 39

audit procedures for accuracy, valuation and allocation of trade receivables

Answer 39

discuss the recoverability of old overdue amounts | compare TR collection period ratio for today and yesterday

Question 40

audit procedures existence of trade receivables

Answer 40

carry out a direct confirmation for a sample | inspect customer correspondence

Question 41

5 steps of testing revenue

Answer 41

identify contract with customer identify performance obligations determine transaction price allocate transaction price to performance obligations recognise revenue when a performance obligation is complete

Question 42

what should auditors consider when performing analytical procedure on revenue

Answer 42

``` compare this year to last year by month changes in quantity sold changes in products and prices level of goods returned efficiency of labour as expressed in revenue ```

Question 43

how to test completeness of a prepayment

Answer 43

compare level of prepayments to previous year | review BS to ensure all prepayments are recorded

Question 44

how to test accuracy, valuation and allocation of a prepayment

Answer 44

recalculate the amount prepaid

Question 45

how to test existence of a prepayment

Answer 45

verify by reference to invoices, cash book and correspondence