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Dear Sir,
I am struggling about audit procedure and substantive procedure. I want to overcome this. how can I overcome and gain maximum marks?I don’t know what aspect you are struggling with.
An audit procedure is anything done by the auditor to collect audit evidence. For example:
Obtaining a letter of representation
Performing a receivables circularisation
Calculating and comparing ratios (analytical procedures)
Tracing payments to invoices
Recalculating wages
Ensuring wage rates have been authorised
Checking that monthly bank reconciliations were performed
Inspecting a selection of invoices to see they had been authorised.Audit procedures fall into two groups:
Substantive procedures. Here the auditor carries out direct appraisal of figures in the FS.
Tests of control. Here the auditor assesses if a control procedure is operating.
In the above list of audit procedures, the last three procedures are tests of control; all the others are substantive procedures.
Besides terms like ”agree” ”cast” ”trace”, what other audit terminologies are we supposed to learn for the exam in the area of audit procedures?
Lots. Eg compare, inspect, recalculate, examine, observe, reperform, reconcile, count, examine, apparise…..
Hello
Is rote learning a good technique to master the approach to questions in the area of audit procedures?Hello
Where Directors are not planning to amend certain disclosures in the financial statements, is it an appropriate audit procedure to convene an EGM so as to bring the issue to members’ attention?
GaryRote learning is not a good technique as it cannot be easily adapted to the specifics of a question. Be aware of the techniques and use as appropriate.
@gary. If the FS do not show a true and fair view, eg wrong or inadequate disclosures, the appropriate auditor’s response to to modify the audit opinion.
When is the term ”schedule” applicable…For instance obtain a schedule of disposed assets annotated to show their carrying values and NRV.
It often just meas a list eg all assets disposed off, their identification number, nrv, proceeds.
It could be on a spreadsheet or word processed document.
How does information concerning the purpose of a non-current asset help the auditor in assessing the appropriateness of the depreciation rates?
Depreciation should write off a non-current asset over its estimated useful life. Some NCAs might be bought for a specific project so the life of the project will determine the life of the asset.
You could even argue that the use of a car will determine its life. Eg a car used by a sales rep, doing 100,000km per year will have probably have a shorter life than one used by the CEO for commuting (though it is rare for a business to get into that level of detail for depreciation).
Hello sir ,
What’s the difference between Schedule vs Breakdown!!
And when we will use –
Obtain a schedule / obtain a breakdown!!
Thank you.There isn’t really a difference:
schedule of non-current asset = breakdown of non-current assets.
Thnx a lot Sir.
Some questions want to describe PPE and inventory general audit procedure.(question 2,Mar/jun-16)
Can we write the substantive audit procedure here.
(i:e) For inventory can I write :
Review the notes and disclosure of the inventory to ensure that it’s compliance with IAS 2 inventory standard.Not sure what question you are asking about. Q2 MJ16 is about bank balances. Q3 is about inventory, but the question had set up a specific problem with inventory and is looking for specific procedures relating to that, not a general one about the notes and disclosures arising from IAS2. Mention IAS2 if you want but you need to focus on the work to ensure compliance with cost v NRV.
When auditing expenses, are the following procedures appropriate?
1) Obtain a breakdown of expenses for the year and compare with budget. Where there are significant differences, discuss with management
2) Reperform posting of expenses to the general ledger and inspect client’s general ledger to ensure they have been correctly posted.
3) For a sample of transactions, review supporting documentation like invoices and agree balances to the general ledger to ensure they have been properly classified.
4) For a sample of pre-year end transactions, review item in the general ledger and match to supporting documentation to ensure they have been recorded in the correct period.What are the audit procedures need to perform if records are lost in computer virus attack and client submitted manual reconstructed figures..And what is its impact on audit report..
Please replyThe procedures would depend on how the records were reconstructed but, in principle, it could become like the audit of a manual system.
If enough evidence was available to reliably reconstruct the records then there is not necessarily any effect on the audit opinion. The section in the audit report dealing with signnificant matters would have to refer to the difficulties.
However, if the computer records lost included, for example, orders placed over the internet and there was no original documentation then the audit opinion could be a disclaimer because of lack of sufficient appropriate audit evidence.
Dec 2014
Question 6. Want to describe WIP substantive procedures.
Will I gain mark ,If I describe before inventory count substantive procedure.
Thank you.Wip requires work in two particular areas:
1 Physically what is there at year end and at what stage of productiin is it?
2 How to value it. NRV is important, but cost can be a problem.Inventory counts will give the physical quantities, but it is nice if these agree with any book records and substantive work on inventory recording will be of some help. However, substantive work prior to the invemtory count will be particularly useful in auditing costs. Are the cost of material, labour and production overheads reliably recorded?
Thanx a looot
But Sir my question is –
they said An inventory count is to be undertaken at the year end and Puffin& Co will attend.
So if I describe before year end inventory counting procedure then is it ok!!
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