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Dear professor:
1. how much should I write for the covering letter, I can see most of the letter has the same format, must I write “this letter has been produced for the sole use…” and “We should like to take this opportunity of thanking…”. Can I just not drop these two paragraphs?
2.What should I write about the headings in the covering letter?
3.If the question asks to provide test of control, what should I write if the questions ask about the substantive procedures? What is the difference between these two ways? Do both of them have some fixed sentence pattern that I can use for all scenarios?
4.What is application controls, what is the difference between it and tests of controls and substantive procedures?
5.For all the section B questions, if it asks to list or describe test of controls or substantive procedures, should I think by myself or find what the auditor do in the text? (e.g. if the question asks to talk about the substantive procedures, do I need to just list my own idea or I should find in the text about the actions for the auditor?Thank you so much
AnnikaAgain – please do not write unrelated questions on one post:
1. IF asked for the question will indicate that it is only a few marks (typically 2) – you should include “… sole use…” for a report to management. If you write something like “This report is solely for the use of management and if you have any further questions, please do not hesitate to contact us.” you don’t need “…opportunity of thanking…”.
2. Address it to the board – then Dear Sirs (so Yours faithfully), a heading for the audit in question (e.g. “Audit of X Co for the year ended … [date]”). Then something like: “Please find enclosed/attached our report to management on deficiencies in the sales/purchases/wages system and recommendations to address those deficiencies. Please note that this report only addresses the deficiencies identified during the audit and if further testing had been performed, more deficiencies may have been reported.” Then the sole use statement to finish it off.3.Please download are notes – the pdf is searchable. You will find examples of tests of controls on page 71. You will also find an article here https://opentuition.com/acca/aa/audit-tests-difference-tests-control-substantive-tests/
4. See page 77 of the notes for application controls. Understand that “control activities” are controls in the ENTITY’s system – test of controls are carried out by the auditor. Look at the overview at the beginning of Chapter 8 and READ the explanation of the two audit approaches.
5. You should not try to rote learn procedures – if you understand how they are fundamentally different you should just be able to use “ideas” to generate relevant answers. For example, on page 59 there are 5 procedures AEIOU” – but on page 71 you will see that only 4 can be used in tests of control.Dear professor:
Thank you so much, could you help me some other questions:
1, For equity , inspection, observation and recalculation, they can all be in the tests of control and substantive procedures. However, are there any differences in interpreting these four in tests of control and substantive procedures? (e.g. is the interpretation of equity the same in test of control and substantive procedures?)
2. For section B, there are also many questions about substantive procedures of testing receivables or payables? How should I deal with them? Do I have to memorize the answers given? I am still not sure, can you give me an example?Thank you so much
Annika1. I do not know what you mean – why are you mentioning “equity” here? You mean enquiry? As it says on page 71 enquiry ALONE can never suffice as a test of control. “AEIOU” describe what the auditor is doing. If the auditor inspects a purchase invoice for a signature (e.g. that means it’s authorised for payment) that is a test of the control – if the auditor checks the arithmetic of the invoice/agrees prices to a price list, etc that means to “substantiate” the amount – i.e. a substantive procedure.
2. I do not recommend memorising at all – that means you don’t understand and as any question will be based on a scenario, writing out rote-learnt points may not be relevant. Please read our short chapters, watch the video lectures and attempt the end-of-chapter practice MCQs for trade receivables (Chapter 17) and payables (Chapter 18).
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