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Sep/Dec 2017-the question is referring to the PY Sep/Dec 2017.
Q16(d) substantive procedure for purchase and other expenses:
“Discuss with management whether there have been any changes in the key suppliers used and compare this to the
purchase ledger to assess completeness and accuracy of purchases”why this will confirm the completeness of purchase? the accuracy of purchase it seemed obvious but how it will verify for completeness assertion also for the key supplier used changed?
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Q16(d)(ii)
“Select a sample of GRNs just before and after the year-end; agree to the purchase day book to ensure the expense is recorded in the correct accounting period.”Why it’s different from the revenue substantive procedure from Sep 16 which is comparing the GDN to the sales invoice and the expense/purchase is comparing the GRN to the purchase day book for cut off test?
———————————————————————————————–Q17(c)Audit risk and audit response
“The prior year financial statements recognise work in progress of $1·8m, which was comprised of property construction
in progress as well as ongoing maintenance services for finished properties”the ongoing maintenance services for finished properties is referred to as overhead cost? why its included in the WIP?as the answer provided only consider the material level of WIP.
Is it the maintenance service cost should be expensed rather than capitalised?
———————————————————————————————Q18 receivable
(i)completeness substantive procedure:
– Obtain the prior year aged receivables listing and for significant balances compare to the current year receivables listing
for inclusion and amount due. Discuss with management any missing receivables or significantly lower balances.for inclusion-is it means the amount due from last year to this year? how to identify missing receivable from the above procedure?
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(ii)right and obligations assertion:
For a sample of receivables, agree the balance recorded on the sales ledger to the original name of the customer on a sales order or a contract.
Will it more like for existence assertion rather than the right and obligation?
————————————————————————————————Q17(b)
(i)Main characteristics of the engagement:
The availability of key personnel at Prancer Construction Co.
why this is relevant to the audit strategy?(ii)Preliminary engagement activities and knowledge from previous engagements:
Significant business developments affecting Prancer Construction Co, such as the improvement in building practices and construction qualitywhy the business developments will be relevant? what does its effect? the inventory valuation?
Sorry for too much question asked, and Thanks for your help as always.
Please ask different questions on separate posts – it is harder and time-consuming to have to scroll up/down to answer so many questions on one thread.
Q16(d) substantive procedure for purchase and other expenses:
This alone would not confirm the completeness of purchases, but this would alert you expect a new supplier’s invoices being recorded in the ledger.Q16(d)(ii)
It should say “Select a sample of GRNs just before and after the year-end; agree THE CORRESPONDING PURCHASE INVOICE to the purchase day book to ensure the expense is recorded in the correct accounting period.”As you rightly observe GRNs are not recorded in books of prime entry.
Q17(b)
(i)Main characteristics of the engagement:
I don’t know why it says availability. Changes in key personnel would be relevant as it might affect the control environment or management’s judgement relating to accounting estimates.(ii)Preliminary engagement activities and knowledge from previous engagements:
If you relate this to the question, you will see that it affects the warranty provision.Q17(c)Audit risk and audit response
If Prancer is carrying out maintenance works on a property at the year end but does not complete (and therefore does not invoice for the service) until after the year end, that will be work in progress. This is service (i.e. to customers) – it is not a cost of maintaining the company’s assets.Q18 receivable
(i)completeness substantive procedure:
If last year there were significant balances for customers A, B, C and D and on this year’s list only the balances for A, B and C are significant – then D is much lower or missing.(ii)right and obligations assertion:
A contract primarily confirms rights (and obligations). Documentation from a customer is also relevant to existence, but the primary test for existence is external confirmation (“circularisation”).
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