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Answers 1 & 2 are similar, and 3 & 4 are similar. In your judgement, are they so similar that they may not receive a full mark each?
I feel that there is only a limited number of points than can be made about completeness of income in this scenario.
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Insects4U Co Completeness of income
Insects4U Co is a not-for-profit organisation which generates income in a number of ways. It receives monthly donations from its many subscribers and these are paid by bank transfer to the charity. In addition, a large number of donations are sent through the post to the charity. Insects4U Co also sells tickets for their three charity events held annually. During the audit planning, completeness of income was flagged as a key risk.
(a) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the matter identified regarding Insects4U Co. (4 marks)
1 Review a monthly breakdown of subscriber donations and compare income trends per month. If any months are significantly lower than others, investigate with management the reasons why.
2 Review prior years financial statements and compare total income figures to the current year. Discuss with management any significant changes.
3 Select a sample of tickets from the charity events and trace them through to inclusion in the income ledger and financial statements.
4 Review records for donations received through the post and for each, trace to inclusion in the income ledger and financial statements.
Short answer – they would most certainly each be awarded a full mark.
1 & 2 are similar in that they are analytical procedures, but they are distinct – 1 is looking specifically at the monthly donations – each donor would sign some sort of bank mandate (standing order or direct debit) – and the auditor would expect this to be the same every month – any increases must mean new subscribers – and any decreases would indicate a subscription cancelled (e.g. if a donor dies, the bank would freeze their a/c so no payments would go out).
2 is looking is comparing prior year total income with the current year. Identifying any significant changes is also a risk assessment procedure, but confirming them is substantive. For example, the directors might say that they had to cancel a charity event due to …. an outbreak of flu/a powercut/inclement weather … and the auditor would have to confirm this.
3 & 4 are both substantive procedures – but again very different as they each consider a different source of income.
3 is looking at income from charity events – tracing from issued tickets to recording in the financial statements. 4 is looking at the one-off donations received through the post.
A good answer should appreciate the different timings of the different sources of income – subscription donations are fixed and monthly/regular, charity events are at 3 points in time during the year and postal donations may be of any amount at any time of the year.
An additional substantive analytical procedure to test for completeness would be “proof in total” on each of the charity events – # of tickets issued x average ticket price compared to recorded income.
Thank you very much for the time you took to answer this thoroughly, Tutor Kim.
I find self-marking AA to be particularly hard because of the degree of subjectivity involved, though AI like ChatGPT certainly can help.
I look forward to getting this paper out of the way and getting back to more calculation-based questions that are either right or wrong!
Oh but it really isn’t subjective! The exam has 30 marks of objective test questions and objectivity is the most fundamental principle of an auditor 🙂
I was hoping I might see you on my AAA forum!
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