Test of controls –audit procedure performed to obtain audit evidence about suitability of design and effective

operation of ICs in present or detecting and correcting material misstatements at the assertion level.
Substantive procedures – audit procedures performed to obtain audit evidence to detect material
misstatement at the assertion level in the financial report and consist of:
- Tests of detail
- Substantive analytical procedures.
P&L
Occurrence
 Concerned with overstatement, and aims to
make sure nothing aimed to inflate account.
Looking at accounts and checking for
supporting documents
Completeness
 Identifies evidence indicating items that
should be included in the class of
transactions and investigates whether they
are in fact included. Trace evidence of
origination of the transactions to the
recording of the transactions in the
accounting records – usually test for
understatement of recording transactions
and events
Accuracy – cash flow
 Appropriate dollar value. This will require
tracing the specific details of the transactions
or recalculating the amount associated with
events such as a depreciation expense and
ensure that these details are correctly
recorded in the accounting records.
Cut off – cash flow recorded in correct period
 Involves selecting transactions around the
end of the accounting period and tracing
their details to the accounting records to
verify that the last transactions for the
period are in the correct period.
Classification – cash flows recorded in proper a/c
Balance Sheet
Existence
 Selects from items contained in the
accounting records and obtains evidence
that supports them. Logically a physical
examination, external confirm and vouching.
(usually testing overstatement of assets)
Completeness
 Trace documentary evidence of origination
to the account balance
Valuation and allocation – valuing asset
 The auditor needs to consider the basis of
valuation of the asset or liability in terms of
approved accounting standards and the basis
of any allocation of this valuation across
accounting periods. E.g. historical data,
market data, price less depreciation.
Rights and obligation – to an asset
Whether assets are owned/controlled by client, and
that the liabilities are those of the client.
Inquire/inspect contracts, agreements minutes and
similar documentation.


REVENUE RECEIVABLES AND RECEIPTS

 High volume rather than complex, revenue is typically recognised when goods are shipped and
recording of sales and receivables is routine and does not involve complicated issues of revenue
recognition.
Control policies and procedures and tests of controls for cash receipts transactions.
Specific Controls Common Control Policies and Procedures Test of Controls
Objective
Occurrence Cash receipts matched to specific sales invoices in Sample entries in cash receipts
posting to a/r master file journal and review evidence that
matched to specific sales invoice
Completeness Opening of mail and prelisting of cash receipts Select a sample of remittance
independently of cashier, a/r master file and general (payment) advices or items on
ledger prelist and trace to deposits on
Comparison of deposit slips, prelists and posting from bank statement and recorded cash
cash receipts journal Review the prelist forms for
 Prelist forms pre-numbered and sequence accounted
for
Accuracy Cash handling independent of accounting function and
authorised cheque signing
Supervise
Monthly statements emailed to customer
All bank accounts reconciled promptly with cash
records and general ledger
Cut off Review by person independent of bank to ensure all
cash receipts for period recorded and associated sales
recognised or debtors balance reduced and cash
receipts for next period not included in current period
Classification Independent check that cash receipts are classified
correctly
EXPENDITURE PAYABLES AND DISBURSEMENTS
 Auditors concerned with testing understated ap and overstated ar
Control policies and procedures and audit tests for purchases of inventory transactions
Specific Control Common Control Policies and Procedures
Objectives
Occurrence Approval of purchase order
Goods received are counted, inspected and
compared to purchase order before acceptance
Services are received are acknowledged in
writing
Comparison of purchase order receiving report
and suppliers invoice before recording liability
Completeness Suppliers invoices are numbered using an
invoice register or pre numbered vouchers and
the sequence accounted for
Suppliers invoices matched to receiving reports
and unmatched items investigated
Receiving reports pre numbered and the
sequence accounted for
Accuracy Established procedures for review of purchase
amount and verification to supporting
documentation
Programmed controls to identify any unusual
purchase transactions
Cut off Review by person independent of purchasing to
ensure all purchases for period included and
purchases for next accounting period not
included.
Classification Procedures to ensure appropriate account
coding on purchase documents
Separate accounts in charts of accounts
purchased from related parties and possibly
additional authorisation for related party
transactions
evidence that numerical sequence
accounted for
Observe cash handling is
independent of accounting
(recording functions)
Select a sample of remittance
advices, ensure discounts are
appropriately authorised and trace
a/r subsidiary ledger
Selecting last cash receipt
transaction before balance date and
first after balance date and ensuring
they are recorded in the correct
period.
Examine evidence that independent
check of cash receipt classification
carried out.
Tests of Control
Examine evidence of approved purchase
and service orders
Select a sample of order entries in
purchases journal, trace back to vouchers
and inspect supporting documentation
including receiving report ensuring
agreement of details I, indication of
approval
Review the evidence of the accounting for
numerical sequence of invoices
Review reports of unmatched items for
evidence of investigation and inquire about
disposition
Review the accounting for numerical
sequence of receiving report
For the same of vouches selected, examine
for evidence that review of purchase
amount and verification to supporting
documentation undertaken.
Test data techniques to verify that
programmed controls are working.
Take last before balance date and first
after balance date ensuring they are
recorded in the correct period.
Check that procedure aimed at establishing
appropriate account for appropriate
authorisation for related party transactions
undertaken.