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respected sire,
can we write the substantive procedures in bullet points in exam or do we have to write in any other way?what is the best way to understand the deficiencies?learn the systems by heart?
Sir,
When we write substantive procedures relevant to a particular scenario, is it necessary to mention the assertion which it helps to test.? (Like selecting a sample of items from inventory records and trace them to phsycial inventories to confirm the EXISTENCE of inventory assets).
Thank you in advance.
1 – It’s not the ‘bullet’ that is a problem, but you must describe the procedure fully. So something like:
Check invoices are authorised
is not great. The following is more what you need:
Inspect a sample of invoices to ensure that all have been properly authorised by the appropriate person
2 No. There is no single perfect system of internal control and sufficient control can be establishes in a number of ways.e one likely to be described in the exam will have its own problems. Instead, try to concentrate on what could go wrong. Practising internal control questions and looking at our lectures on systems is the best way forward.
3 Yes, say what assertion you are trying to test. Sometimes it’s not easy – like my authorisation example above. I’m never too sure what assertion authorisation does help with: existence of a proper transaction, I suppose.
Sir,
In my kaplan study text, under substantive procedures for non current assets, the following procedures are given:
1. Obtain a list of additions and inspect the description to confirm that they relate to capital expenditure items rather than repairs and maintenance: verifies existence
2. Inspect a breakdown of repairs and maintenance expenditure for the year to identify items of a capital nature: verifies completeness
It would be of great help if you just help me understand how the above substantive procedures relate to the respective assertions given.
A common error with non-current assets is to confuse repair and maintenance expenditure (an expense) with capital expenditure (an addition to NCAs)..
You need evidence that NCAs are not overstated (existence) nor understated (complete)
Test 1 inspect NCA additions and make sure they are capital not revenue items, not expenses ie the NCA addition exists and is not repairs.
Test 2 look at R&M to make sure no items should be NCA additions. This gives some evidence that NCA are complete.
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