Substantive Procedures Flashcards
(23 cards)
Control objectives of TOC
Validity
Accuracy
Completeness
Assertions relating to balances
Occurrence: the transaction that is recorded occurred and in relation to the entity
Completeness: The transaction that is recorded is recorded and disclosed in its entirety
Accuracy: The amounts relating to the transactions have been recorded and disclosed as well as measured and described correctly
Cut off: all transactions are recorded in the correct period
Classification: All the transactions have been recorded in the correct account
Presentation: Transactions and events have been disclosed and aggregated according to the accounting framework
Assertions relating to transactions
Existence: The assest, liability and equity exist
Completeness: All assets, liabilities and equity that should have been recorded have been as well as disclosed
Accuracy, valuation and allocation: All assets, liabilities and equity has been measured and adjusted correctly as weas disclosed correctly
Rights and obligations: The entity holds right to the assets and an obligation to the liabilities
Classification: All assests, liabilities and equity are in the correct account
Presentation: Assets, liabilities and equity interests are appropriately aggregated or disaggregated as well as present in accordance with the framework
General procedures
- Obtain a schedule and recalculate
- Compare the o/b to the prior years audit f/sand work paper c/b
- Agree closing balance
Schedule = ledgers
Financial statement = trial balance
Trial balance= general ledger - Inspect general ledger for unusual entries. Inquire and investigate
- Request a management representation letter for…for which assertions
Ratios,
Current =current assets / current liabilities
Quick ratio = current assets-inventory/ current liabilities
profit margin = Net profit /revenue x100
Receivables turn over = Net credit sales /average receivables
PRINCIPLES: Testing transactions- occurence
Sample accounting records
Inspect the documents to see whether the transaction occurred
Inspect minutes
PRINCIPLES: Testing transactions- Completeness r
Select a sample of source documents
Reperform sequence check then compare to original list
Inspect suspense file as well as any mistakes
Require for completeness
PRINCIPLES: Testing transactions- accuracy
Select a sample
Inspect that all docs agree
Confirm details of docs
Recalculate all schedules and calculations
PRINCIPLES: Testing transactions- cut off
Inspect last documents where ownership transfers (GRN/delivery notes)
Inspect date / firs & last doc number around year-end
Confirm post-balance sheet payments
Recalc estimate for year end
Principles of testing transactions : presentation
Inspection and follow through to account based on description of item of IFRS
PRINCIPLES: Testing balances: existence
Select a sample of accounting records
Inspect items
Confirm existence
PRINCIPLES: Testing balances- completeness
Select a sample of document
Compare list and identify missing items
Inspect suspect files and accounts
Inquire completeness
Re perform reconciliation
PRINCIPLES: Testing balances- Accuracy, valuation and allocation
Reperform impairments
Reperform transfer between ledger and recon
Audit estimates
Check classifications
PRINCIPLES: Testing balances- right and obligations
Inspect transaction documents for transfer of rights
Inspect for third party confirmation
PRINCIPLES: Testing balances- presentation
Inspect disclosure according to IFRS
Audit disclosure requirements
Debtors confirmation
Obtain client permission
Select sample- mix of high and low value items- positive(preferred) or negative confirmation
Follow up on differences and no answers
Analytical procedures
steps
1) Decide which calculations/ratios to use
2) Develop an expectation
3) Decide on an acceptable deviation
4) obtain Data
- Evaluate → Origin of Data → Type of Info
- comparability of Info
- Availability of info
- Internal Controls around Info
5) Execute procedures
6) Compare results to expectations
7) Investigate significant differences
- Investigate reason
- obtain sufficient evidence that corroborate the reason
Techniques
ToC:
- Reperform
- Recalculate
- Inspect
-observe
-Enquire
substantive procedures:
-Inspect- what for what?
- Recalculate
- Confirmation-
- Reperform- what?
- Enquire -from who, about what?
What is the difference between TOC and substantive procedures
ToC: ‘
Used to find evidence that the appropriate design was used to ensure the effectiveness of accounting and internal control systems for the whole period - objective is to support control risk (Cr)
Substantive procedures:
To test itest for material misstatement in fs
Audit evidence (from tests)is obtained through the as sections per account in the FS
Assertions test for the correctuu amounti and the disclosure- objective is to reduce (Dr) to a acceptable level
Developing substantive procedures
1) What account is being asked
Is it a transaction or alone - T account
2) which document and journals are applicable
3) which are assertion and audit objectives are applicable
ISA 315
4) Inspect, re perform, confirmation, re calculation and inquire
5) which procedures must be formulate-
Analytical procedures
General procedures
Test of detail of balance/transaction
Debtors: Balance/transaction- journals
Estimates formula
Identify
• Identify- estimate in the question
• IFRS- which specific IFRS standard is applicable
- Audit the IRS requirements
• Process- Enquire from management about the process reasonable & in accordance with IFRS
• Competence- Evaluate the competence, objectivity and experience of preparer
• Assumptions- Evaluate whether the reasonability of any assumptions
- Audit the evidence (inspection/reperformance/confirmation)
- Do they correspond and agree with other areas in the business
• Past estimates- Enquire about the reliability of assumptions in other department/previous year (inspect if possible)
• Evaluate reasonableness- Evaluate reasonableness of estimate from knowledge of the business
• Own estimate- Perform own estimate or use expert
- Detail procedures expert (Topic 6- Competence, Capabilities &Objectivity; Understand the work, Evaluate the work)
• Approval- Inspect minutes of meetings
- Decision
- Approval
• Subsequent events- If possible, obtain audit evidence
Expenses assertions
Occurrence: One of the main risks of expenses is did the expenses actually occur
Completeness: Are all expenses recorded?
Cut-off: Recorded in the correct accounting period?
Accuracy: Is it expense recorded at the correct amount?
Classification: Accounted for in the correct account?
Presentation: Correctly disclosed? E.g. salaries of directors?
