Cause and actions

Threats and Safeguards

Self- review threat – having a cooling-off period before partner can be employed in senior role

Self-interest threat - policies and procedures

Advocacy threat - prohibit business relationships with clients – rotating staff

Familiarity threat – staff rotation – education regarding socialising with client personnel

Intimidation threat - avoidance of fee dependence , appropriate corporate governance

Assertions and Solutions

*** payables – understated – completeness

Receivables – overstated - existence

Revenue

i. Invoices
ii. Enquire management
iii. Test for credit notes

Payables

1. Enquire management
2. Test cash payments – occurrence
3. Test purchasing – completeness
4. Test purchase/cash payments – accuracy & cutoff
5. Subsequent payments testing
6. Reviewing payables ledger and cash payments ledger
7. Search for unrecorded liabilities
8. Compare list of payables with prior periods
9. Compare payables in subledger with general ledger account
10. Review board minutes for discussions of major suppliers

Inventory

1. Enquire management if goods are shipped

2. Enquire if amounts is in inventory listing
3. Test inventory list from floor to sheet
4. Inspect shipping document after year end – link back
5. Inspect documents after year end

Audit Evidences

1. Invoices
2. Supplier’s statements
 3. Bank statements
4. Minutes of meetings
5. Legal agreements
6. Physical evidence
a. Credit history
7. Internally generated evidence:
a. Records of cheques
b. Copy of invoices sent to customers
c. Purchase orders
d. Policies and procedures documents
e. Contracts
f. Minutes of meetings
g. Journals
h. Ledgers
i. Trial balances
j. Spreadsheets
k. Worksheets
l. Reconcilations
8. Externally generated evidence:
a. Supplier invoice /statements
b. Customer orders
c. Bank statements
d. Contracts
e. Lease agreements
f. Tax assessments
g. Shipping documents
h. Subsequent Payments
9. Externally generated evidence sent directly to auditor:
a. Bank confirmations
b. Debto’rs confirmation
c. Legal representations
d. Expert valuations

Generap Audit Procedures-

Inventory

2. Recalculate
3. Reperformance
4. Observation
5. External Confirmation
6. Inquiry
7. Inspections
8. Analysis

Receivables

a. Recalculate
b. Reperformance
c. Observation
d. External Confirmation
a. Recei
e. Inquiry
f. Inspections
g. Analysis

Asset / cash (Balance Sheet) / Receivables

a. Recalculate
a. Recalculate petty cash / balances in another currency
b. Reperformance
a. Allowance for doubtful accounts – reperform ageing of receivables
c. Observation
d. External Confirmation
 Bank confirmation : request for info about amount of cash held in bank / overdraft-
confirm via bank reconciliation – asset/ cash recorded at appropriate amount –
Valuation Assertion
 Bank Confirmation – loans – Completeness
 Bank Confirmation - Are in client’s name – Rights and obligations
 Legal Confirmation – property title deeds, patents - Rights and obligations -
 Receivable Confirmation – existence
 Inventory confirmation - verify description and quantity of inventory held – existence ,
completeness, rights and oblgiations

e. Inquiry
a. Ask management to give list of all accounts - completeness
f. Inspections
a. Inventory/ Fixed assets – Client’s tangible assets – Existence
b. Inventory/ Fixed assets - check for impairment / written down – Valuation
c. Cash receipts -
g. Analysis – appraise relationships between financial and non-financial info
a.

Liability

a. Recalculate
b. Reperformance
c. Observation
d. External Confirmation
a. Payable confirmation – confirm details of amounts owed to creditors and significant
loans- details of amounts outstanding at year-end ( Completeness and Valuation)
e. Inquiry
f. Inspections
g. Analysis
Expense

a. Recalculate
b. Reperformance
c. Observation
d. External Confirmation
a. Bank Confirmation – Interest expense items – requests details of interest pates paid on
cash deposits/ term deposits/ bank overdrafts and loans - Accuracy
e. Inquiry
f. Inspections
g. Analysis

Assertions and explanation :

Balance Sheet: VERC

Valuation and allocation – ALE recorded at appropriate amounts

 Risk of over-valuation /under-valuation

 Inventory - LCNRV
 Adequacy of ADA ( risk of understatement) – Bad debts written off
 Research and Development expenditure ( understatement of expense account)
 No adding-up errors that could affect total
 Different currency

Existence – ALE recorded at year-end exist

 Debtors included do exist

Rights and obligation – Controls right to assets

 Inventory held on consignment

 Debts belong to entity

Completeness – all ALE have been recorded

 Understatement – expenses to overstate profit

 No debtors omitted

Transaction: COCAC

Completeness – All transactions for period recorded

Occurrence – all transactions occurred – pertain to entity

 Overstatement – revenue and profit

Cut-off- transactions recorded in correct accounting period

 Record sale before year-end that occurred after year-end

 Record expense after year-end that incurred before year-end
 Next period are not included
Accuracy – transactions recorded in correct amounts

 Complex discounting systems

 Foreign exchange calculations

Classification- transactions recorded in correct accounts

Presentation: COCARVU

Completeness – all disclosure recorded

Occurrence – all disclosure occured

Classification – recorded in proper amounts

Accuracy – recorded in correct amounts

Rights and Obligations

Valuation

Understandability – info is appropriately presented