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Hi,
May I know is it necessary that we must put all the assertions in the substantive procedure?( Eg. Inspect Sales order to ensure cut off.) Besides that, I’m still not clear about how to apply completeness into substantive procedure. Is it about the detail of an item should record completely?
Thanks in advance! 🙂Some tests will address more than one assertion, so you might as well list all those. For example, inspecting non-current assets confirms existence and, to some extent, valuation if the asset appears to be in a reasonable condition. Inspection would not normally tell you anything about ownership.
Completeness is the asseertion that all transactions and amounts have been cindluded in teh FS. For example, how do you know that all liabilities and accruals have been included? How do you know that all closing inventory has been included and that there isn’t a pile of it round the back to the factory that’s been forgotten about?
Thank you very much!
What about audit software? I was revising on Dec 2007 Delphic Co question and it mention one of the problem on using audit software is cost. Does it means that for each company there will be different audit software implemented for their own company?
The auditor’s audit software has to be adapted to read each client’s files (eg the file layouts have to be specified so that the software ‘knows’ what it’s reading) and this can take some initial investment.
In subsequent years there should be a payback – unless the client alters their system.
Okay,
and there is one more problem. Been confuse with these two things and finally comes out with my own conclusion.Test data is a process of entering invalid data or information into client system. Whilst test of control or audit test(if I’m not mistaken) is a process that involved inquiry, observe, inspection, analytical procedure.
Am i right or wrong?
And the answer given by BPP of “select a sample of inventory lines to counts at the year-end inventory count”, is it categorize under Analytical Procedure?
Much thanks!
You are correct about test data.
A test of control tests a CONTROL. For example, there could be a control to prevent goods being despatched to customers over their credit limit. If this control were being exercised by the computer, test data could be used to test it (eg set up a dummy customers account with a credit limit and see which orders are accepted/rejected).
An audit test is any type of test to do with the audit: could be a test of control or could be a substantive test. I don’t know what question you are referring to in the BPP answer, but if they are saying that the auditor would count some items then trace those to inventory sheets, that would be a substantive test. If the auditor inspected inventory sheets to see that they were signed by two counters, that would be a test of control.
Tracing transactions or reperforming counts is not an analytical procedure. Analytical procedures are comparing figures and rations one year to the next. In the context of inventory comparing this year’s inventory days to last years would be an analytical procedure.
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