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. 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

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 REVENUE RECEIVABLES AND RECEIPTS

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.

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 Objective

Common Control Policies and Procedures Cash receipts matched to specific sales invoices in posting to a/r master file Opening of mail and prelisting of cash receipts independently of cashier, a/r master file and general ledger Comparison of deposit slips, prelists and posting from cash receipts journal

Test of Controls Sample entries in cash receipts journal and review evidence that matched to specific sales invoice Select a sample of remittance (payment) advices or items on prelist and trace to deposits on bank statement and recorded cash Review the prelist forms for



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 Tests of Control Examine evidence of approved purchase and service orders Select a sample of order entries in purchases journal. Occurrence Completeness Accuracy Cut off Classification . 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. Take last before balance date and first after balance date ensuring they are recorded in the correct period. examine for evidence that review of purchase amount and verification to supporting documentation undertaken. 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. 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 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 Established procedures for review of purchase amount and verification to supporting documentation Programmed controls to identify any unusual purchase transactions Review by person independent of purchasing to ensure all purchases for period included and purchases for next accounting period not included.Accuracy Prelist forms pre-numbered and sequence accounted for 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 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 Independent check that cash receipts are classified correctly Cut off Classification evidence that numerical sequence accounted for Observe cash handling is independent of accounting (recording functions) Select a sample of remittance advices. Check that procedure aimed at establishing appropriate account for appropriate authorisation for related party transactions undertaken. 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 Objectives Common Control Policies and Procedures Approval of purchase order Goods received are counted. trace back to vouchers and inspect supporting documentation including receiving report ensuring agreement of details I. Test data techniques to verify that programmed controls are working.

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