Week 7: Substantive Tests Of Transactions & Balances

Front 1

Assertions of interest for Cash / Bank balance (3)

Back 1

1. Existence

2. Completeness

3. Valuation & Allocation (if foreign currency balances)

Front 2

Assertions of interest for cash receipts / payments (3)

Back 2

1. Occurrence

2. Completeness

3. Accuracy (if foreign currency transactions)

Front 3

Tests for existence of cash / bank balance (2)

Back 3

Request and examine bank confirmation

Undertake tests of bank reconciliations

Front 4

Tests for Completeness of cash / bank balance

Back 4

Request and examine bank confirmation

Undertake tests of bank reconciliations

Front 5

Test for Rights & Obligations of cash / bank balance

Back 5

Request and examine bank confirmation

Front 6

Test for Valuation of cash / bank balance (2)

Back 6

Request and examine bank confirmation

Test conversion rates for any foreign currency balances

Front 7

Test for occurrence of cash / bank transactions

Back 7

Inspect supporting documentation

Front 8

Test for accuracy of cash / bank transactions

Back 8

Inspect supporting documentation

Front 9

Test for Completeness of cash / bank transactions

Back 9

Undertake sequence check (remittance advices & cheques)

Front 10

Test for cut-off of cash / bank receipts

Back 10

Check last cash receipts and cash payment before bal date and first cash receipts and cash payments aft bal date are recorded in correct period.

Front 11

Test for occurrence of sales transactions

Back 11

Vouch sales entries in sales journals to supporting documentation of sale

Verify prices, quantity and computation on sales invoices, prices verified to master price list, quantity verified to shipping documentation

Front 12

Test for completeness of sales transactions

Back 12

Test from supporting documentation (invoice, delivery note) to sales journal

Front 13

Test for accuracy of sales transactions (2)

Back 13

Test from supporting documentation (invoice, delivery note) to sales journal

Verify prices, quantity and computation on sales invoices

-- prices verified to master price list, quantity verified to shipping documentation

Front 14

Test for cut-off of sales transactions (3)

Back 14

Review shipping docs at year end to ensure sale is recorded in correct period

Check last sales recorded before and after bal date

Check invoices recorded before and aft year date

Front 15

Test for Existence of accounts receivable (2)

Back 15

Undertake debtor's confirmation procedures

Review subsequent receipts

Front 16

Test for Rights of accounts receivable (2)

Back 16

Undertake debtors' confirmation procedures

Review minutes & contracts for evidence of pledging of receivables, factoring or other liens

Front 17

Test for completeness of accounts receivable (2)

Back 17

Review subsequent receipts

*Review minutes & contracts for evidence of pledging of receivables, factoring or other liens (to some extent)

Front 18

Test for Valuation of accounts receivable (3)

Back 18

Review subsequent receipts

Review aged trial bal and undertake follow-up procedures for amts overdue

Test conversion rates for any foreigh currency accounts rec

Front 19

Describe the positive form of external confirmation procedures

Back 19

Once debtor has been selected, auditor must obtain evidence and ask debtor whether they agree with amt owed.

If they do not respond:

- follow-up procedures e.g. 2nd request

- or check invoices to shipping docs, review subseq receipts from that debtor

If they respond with a difference

- check if timing diff

- check if there is an error by reviewing supporting doc

- check if due to disc, good returned, or special terms of sale

Front 20

Describe negative form of external confirmation procedures (3)

Back 20

Requests debtor to respond only if they disagree with amount shown

However, problem if cust doesn't exist - auditor under false presumption that cust is correct

Use if large sample, material clients

Front 21

Why does inventory receive considerable audit attention? (4)

Back 21

1. Significant in the determination of income

2. Involves high volume of activity

3. Involves acctg complexities (obsolete / slow-moving items, lower of cost / net realisable value)

4. Susceptible to manipulation

Front 22

Test for occurrence of purchase transactions (2)

Back 22

Review for any unmatched receiving reports & suppliers' invoices

Select transactions from purchases journal & agree to supporting documentation

Front 23

Test for completeness of purchase transactions (2)

Back 23

Review for any unmatched receiving reports and suppliers' invoices

Test from supporting documentation (purch invoice, good received note) to purch journal

Front 24

Test for accuracy of purchase transactions

Back 24

Check dollar value of purchases to support documentation (purch invoice)

Front 25

Test for cut-off of purchase transactions (2)

Back 25

Check that last purchases recorded before bal date and consider when received by evidence of goods received note

Check that last purchases recorded before bal date and first purchases recorded aft bal date

Front 26

Test for Existence of inventory (3)

Back 26

Inspect physical inventory (check from inventory records to physical stock)

Undertake substantive analytical prcoedures

Confirm stock held at other locations

Front 27

Test for completeness of inventory (5)

Back 27

Undertake substantive analytical procedures

Inspect physical inventory (check from physical stock to inventory records)

Enquire abt legal ownership of goods being shipped to entity by inspecting supporting documentation

Review purchase docs for shipping terms for inventory in transit

Confirm stock held at other locations

Front 28

Test for valuation of inventory (4)

Back 28

Undertake substantive analytical procedures

Undertake tests of pricing

Observe physical inventory

Scan inventory records to id any obsolete, excess or slow-moving inventory

Check subsequent sales prices and compare with inventory valuation

Review and ensure that costs assigned to inventory are in accordance with an acceptable accounting method

Front 29

Test for rights of inventory

Back 29

Enquire about legal ownership of goods being shipped to entity and on consignment by inspecting supporting documentation

Front 30

Test for completeness of accounts payable (4)

Back 30

Confirm with suppliers

Review of subsequent payments

Review for any unmatched receiving reports & suppliers' invoices

Undertake substantive analytical procedures

Front 31

Test for existence of accounts payable (2)

Back 31

Confirm with suppliers

Vouch to supporting documentation (e.g. suppliers' invoices & mthly statements)

Front 32

Test for obligations of accounts payable (2)

Back 32

Confirm with suppliers

Vouch to supporting documentation (e.g. suppliers' invoices and mthly statements)

Front 33

Test for Valuation of accounts payable (3)

Back 33

Confirm with suppliers

Agree $ value of accs payable to supporting docs (e.g. suppliers' invoices)

Undertake substantive analytical procedures

Front 34

What is the most likely form of misstatement in accounts payable, and which assertion is of most concern?

Back 34

Understatement

Completeness

Front 35

Describe the procedure 'review of subsequent payments (2)

Back 35

Auditor selects fr cash payments recorded in subsequent period & traces them to sched of accts pay outstanding at bal date, identifying payments that pertain to period under audit

Also reviews & selects fr unmatched inventory receiving reports & suppliers' invoices received by bal date & suppliers' invoices recorded in subseq period

Front 36

Test for completeness of payroll (2)

Back 36

Test from supporting documentation (time sheets, dept records) to payroll journal

Review for unmatched reports & staff records

Front 37

Test for occurrence of payroll (2)

Back 37

Select transactions from payroll listing and agree to supporting documentation (e.g. time sheet)

Review for unmatched reports & staff records

Front 38

Test for cut-off of payroll

Back 38

Check that last payroll recorded before bal date, and first payroll recs aft bal date, are recorded in correct period

Front 39

Test for accuracy of payroll

Back 39

Verify times, amounts and computation on time sheets to payroll & employment records

Front 40

Test for completeness of accruals

Back 40

Review client calculation & ensure correct no of days of wages & salaries worked during year but not paid by year end correctly counted

Front 41

Testing of Non-current assets

Back 41

Balances usually affected by a few relatively large transactions each year

Usually efficient for auditors to verify acc bal by performing tests on indiv transactions

Assertions: existence, r&o, valuation & allocation

Front 42

Key procedures for PPE (4)

Back 42

Vouching: inspecting the supporting docs

for additions, retirements and changes in valuation / allocation methods during the period

Physical examination

Substantive analytical procedures

Recalculating related expense accounts such as depreciation

Front 43

3 principal ways of finding evidence of impairment

Back 43

Observing obsolete, damaged, or under-utilised units during tour of plant

Identifying assets associated with discontinued activities but not yet disposed of

Enquiry of mgmt as to budgets & forecasts in relation to carrying value of assets

Front 44

Revaluing PPE (5)

Back 44

Evaluating data on which est is made by mgmt

Testing mgmt's underlying data

Testing calculation procedures used

Comparing acctg ests made in prior periods

Making / obtaining independent estimate to compare with appropriateness of mgmt's est

Front 45

Investment assertions (2)

Back 45

Valuation

Existence

Front 46

Common procedures to test for investments (5)

Back 46

Physically examine documentation

Seek external confirmation

Review minutes of meetings

Inspect mkt quotations

Test clerical accuracy

Front 47

Assertions for intangible assets (2+ 1)

Back 47

Existence

Valuation

*Auditors may consider use of experts

Front 48

Assertion for Non-current liabilities and owners' equity & procedures (1+4)

Back 48

Completeness

Key procedures:

- External confirmations - banks

- Substantive analytical procedures

- Recalculating & vouching

- Read minutes of meetings, review debt agreements and inspect share register / confirm with share registry