Procedures

Front 1

When identifying risks, indicate why it is a risk. Such as:

Back 1

a new agreement/investment

Complex transaction

Why:

Increased likelihood of entity accounting for it incorrectly

Risk that revenue has been inappropriately recorded

Risk that Lease has not been accounted for correctly

Risk that Gain is inappropriately recorded

Risk that the incorrect value has been recorded

Front 2

Procedure adjectives

Back 2

Reperform

Inquiry

Recalculate

Inspect

Observation

Vouch to support

Analytical review

Confirmation

Front 3

Client acceptance situation where auditor needs more information about client

Back 3

Contact prior auditor and determine whether management has shown an irregular or illegal behavior that causes concerns for existing auditor.

(Failure to be truthful, withholding information, questionable accounting policies)

Front 4

Entity uses a payroll service, which may be prone to errors

Back 4

Compare the data submitted with the reports received from the payroll service after the data has been processed.

Recompute a sample of payroll amounts for accuracy and review total payroll for reasonableness.

Front 5

Risk: whether 2022 revenue that is recorded actually occurred.

Occurrence

Back 5

Obtain revenue listing and select sample of entries to agree to shipping documents, invoices, and cash collection to substantiate occurrence of sales.

Front 6

Risk: Whether 2022 revenue that is recorded actually occurred.Cut off

Back 6

Inspect a sample of shipping documents before and after year end and trace to sales invoices and GL. Compare dates of shipping and invoice to determine if sale was recorded in the correct period.

Front 7

Risk: concerns that some sales are fabricated

Back 7

Request permission to contact a sample of customers to confirm sales occurred at stated amounts.

This will also help identify any related party transaction used to boost sales.

Front 8

You need more information on the client/entity

Do what

Back 8

Perform background check on client using relevant databases aka company registries

Review financial/general press comments about management. Whether there's been a change in management.

Front 9

There's uncertainty of information or need more support regarding entity and their documents

Who

Back 9

Communicate with independent third parties such as lawyers and creditors

Front 10

Risk: there may be significant outstanding liabilities that have not been recorded. Accounts payable and loandLiabilities - completeness

Back 10

Ask permission from management to send confirmations to vendors and banks. This will provide information on current outstanding liabilities.

Front 11

Risk: there may be significant outstanding liabilities that have not been recorded. Liabilities - completeness

Back 11

Obtaining listing of expenses during the year. Select invoices with large amounts and review invoices to determine whether the work was performed for expense incurred.

Front 12

Risk: materials are high value subject to volatile fluctuation. Inventory may not be valued correctly.

Valuation/ the cost of inventory

Cost of Raw materials

Back 12

Select a sample of raw materials and compare the unit cost in subledger to a recent purchase invoice. This will verify the most recent cost.

Front 13

Risk: inventory in manufacturing case may not be recorded correctly (capitalization).

Verify cost

Back 13

Review the cost of Work in progress and finished goods to ensure that appropriate costs (directly attributable costs) have been capitalized.

Sample materials and labour costs capitalized, and vouch to supporting documentation such as invoices and time sheets.

Front 14

Risk: there may be significant outstanding liabilities that have not been recorded. Legal scenario

Liabilities - completeness

Back 14

Send legal confirmations to lawyers to ask their opinion on outstanding legal obligations

Front 15

Risk: whether inventory is correctly reported

Existence

Back 15

Visit the site and perform an inventory count. The count would substantiate the inventory recorded on the books to test existence.

Front 16

Risk: whether 2022 revenue that is recorded actually occurred.Returns/cut off

Back 16

Select a sample of returns from shipping return slips in the month prior to year end. To ensure returned items have been deducted from revenue.

Front 17

Remember to state the risk and explain why it is a risk

Back 17

Income: cocca

Completeness

Occurrence

Classification

Cut-off

Accuracy

Balance sheet: cerv

Completeness

Existence

Rights and obligations

Valuation

Front 18

Risk: acquisition of a company was measured at cost but is recommended that the equity method be used,

Why:

which is complex and subject to error

Back 18

Review the valuator report related to the purchase and compare the assets to market valuations to ensure there are no fair value differences on the assets acquired.

Assess the assumptions (discount rate) used in the purchase and compare them to market information to verify that the valuation was performed mathematically correctly.

Obtain the independent appraiser's designations and request for verification from the respective association to confirm the appraiser's qualifications and objectivity.

Front 19

Risk: The convertible debt must have a liability and equity component recorded separately. As this complex, there is an increased likelihood of the accounting team making an error in initially and subsequently recording the debt.

Back 19

Procedure: verify

Front 20

AR

Risk: there may be outstanding amounts beyond 90 days that could be uncollectible, impacting the valuation of AR

Back 20

Select a sample of receivables from the subledger and review the dates on the supporting documentation. Recalculate the days until year end to verify the days outstanding.

Front 21

Risk: There is a risk that the AR balance does not exist due to manage bias to make the FS appear more favourable

Back 21

Select a sample of outstanding AR from the subledger and trace the subsequent payment after year end to the bank statement, to confirm that the AR amount outstanding existed.

Front 22

Risk: valuation of inventory

Back 22

An engagement member with appropriate expertise should evaluate the condition and value of the inventory.

Physically inspect the condition of the inventory and determine if there's any damage. Then adjust inventory down to reflect the condition of damages are found.

Analyze the time outstanding in the warehouse to determine whether the inventory is now obsolete and cannot be sold due to prolonged exposure to less than ideal elements.

Front 23

Risk: it was determined that the lease is an operating lease and should be expensed. There is a risk that the details of the lease are not accurate.

Back 23

Confirm the fair value of the asset at which they can be purchased at the end of the lease by comparing the amount to resale prices from dealerships to verify whether there is in fact a bargain purchase option.

Assess the reasonability of the interest rate used to calculate the present value of the minimum lease payments by comparing it to bank rates for the vehicle financing. This would verify whether it is in fact an operating lease.

Re-perform the calculations of the PV of the minimum lease payments and compare it to the fair value of the leased asset - to assess whether this criterion was satisfied. This will ensure that it is an operating lease, no lease liability is recognized, and Ruby's liabilities are complete.

Front 24

Risk: inventory may not be recorded a the lower of cost and NRV.

To determine net realizable value

Back 24

Select a sample of inventory items, inspect a recent sales invoice and compare the unit cost to determine whether the cost is lower than NRV, trace to the GL to ensure the lower amount is recorded.

Front 25

Risks related to impairment loss on license

(intangible asset)

Back 25

Evaluate Management's projections of the undiscounted future cash flows to be generated by the intangible asset by comparing them with historical net cash flows.

Discuss with management any changes in entity's operations during the period of projections and assess the reasonability of the assumptions used based on predicted industry information from independent source.

Risk: valuation of a intangible asset at risk of impairment may not be accurate.

Re-perform the comparison of the carrying amount of the intangible asset to the total undiscounted future net cash flows to be generated by the intangible asset to verify the valuation.

Front 26

Risk: payroll. Employees don't exist. Overpaid.

Back 26

Select a sample of payments made to employees and vouch the amounts back to timesheets - to ensure occurrence of payroll expense.

Select sample from payroll records and inspect enjoyment contract from HR records to verify that the employee was hired.

Front 27

Trigger: document audit procedures for areas in which errors or control deficiencies have been found

Back 27

Controls indicates account risks = assertions.

Front 28

First time audit and there's a significant Bank loan

Back 28

Issue a bank confirmation and verify whether the outstanding amount on the confirmation matches the loan on the financial statements.

Front 29

Allocation of direct materials/hours

Back 29

*

Front 30

Risk: foreign exchange rate used may be significantly different from actual foreign exchange rate. A difference in rates could result in overstated/understated foreign sales/purchases.

Back 30

Compare the foreign exchange rate used to the rates indicated by independent third party sources to determine the reasonability of assumptions.

Front 31

Audit report on Compliance with an agreement

procedures

General

Back 31

External audit will read the agreement to understand details on key details

Front 32

Risk: there is a risk that the decommissioning liability has not been accounted for properly or that the estimates used are not appropriate.

Back 32

Obtain Management's calculation of the liability and vouch the significant assumptions to supporting documentation such as XYZ - to verify it was correctly calculated mathematically.

Discuss with management the estimated useful life of the asset and evaluate the supporting documentation to determine whether estimated useful life aligns with similar products on the market.

Front 33

Risk: valuation of inventory. Fluctuations in price or cost of inventory.

Back 33

Assess whether the net realizable value exceeds the cost by researching the year end market value - to determine whether any write-down is required.

Front 34

For procedures try to refer/vouch to documemts from external sources

Back 34

*

Front 35

Depreciation

Back 35

*

Front 36

Cut off

Back 36

Perform roll back procedure for inventory and review sample of shipments sent and received to determine accuracy of cut off

Front 37

Net realizable value of finished goods

Back 37

*

Front 38

Completeness of revenues on statements

Back 38

Obtain the general ledger and agree the amounts to the annual statements. Then select a sample of daily sales reports to ensure that each report agrees to an entry in the GL.

Perform analytical procedures: compare the sales to another store in a similar area to determine whether sales are reasonable. Inquire about revenue changes, anomalies, system malfunctions, downtime, or discrepancies.

Select a sample of sales transactions from the cashier and trace them through daily sales reports to sales accounts in the general ledger.

Recalculate revenue amounts on a test basis to ensure returns and discounts are shown separately.

Front 39

Occurrence and accuracy of revenue

Back 39

Test IT systems to ensure they are processing inventory transactions correctly.

Perform analytical procedure: compare sales and gross margins to similar stores, to gain additional assurance that sales are reasonable.

Test any controls to verify that the daily sales reported by the stores were all recorded in the general ledger.

Front 40

Risk: returns and discounts may not be deducted from revenue correctly

Back 40

Review a sample of returns during the year to ensure they are valid and ensure that inventory has increased subsequently.

If there is a risk that returns are overstated, obtain a sample of returns and vouch to supporting documentation such as signed waybills received.

Review a sample of discounts provided throughout the year and vouch the amounts to supporting documentation such as flyer advertising and coupons.

Front 41

Joint arrangement could be either joint venture or joint operation.

As it is a new complex transaction, the accounting treatment may not accurately reflect the details of the arrangement.

Back 41

Obtain the contract agreement of the arrangement and read the terms to gain an understanding of its nature. Confirm that the entity in fact has joint control. Verify whether the control of rights are for assets/liabilities or net assets (equity).

Net assets = joint venture.

Verify the proper treatment of the recognition