Specific audit tests

Please note these should only be used to generate ideas, it is important to tailor tests to the specific
scenario

Non-current assets held for sale

 Do assets meet the criteria of IFRS 5 and are they valued appropriately?

 Enquiries of management regarding intentions – check they are committed to sell and byers
actively being sought

 Review minutes of management meetings for evidence of firm plans to sell

 Review of sales information / contracts with estate agents

 Comparison of sales price to sales information / contract

 Enquiry of estate agent as to likelihood of completion within a year

 Subsequent events review, to see if sale has completed and evidence of sales proceeds.

Impairment of non-current assets

Indicators of impairment

- Consider at the risk assessment stage, as to whether there are indicators an asset may be
overstated

- Review management’s impairment review used

Recoverable amount requires estimation and is subjective

- Agree NRV to prices of similar assets – if there is an active market

- If estimation of NRV based on expert valuation consider their independence and
competence
- Audit the calculation of value in use –

o Obtain management’s calculation and reperform

o Consider allocation of shared assets / costs between CGU’s

o Compare cash flow projections to recent budgets to ensure realistic

o Compare to competitors’ published information to compare how much similar

assets are valued at

o Compare to previous calculations of value in use to ensure all costs have been
included
o Ensure proceeds of disposal at end of life included

o Compare discount rate to published market rates

 Intangible assets

 Obtain confirmation of all patents and trademarks held by a patent agent

 Verify payment of annual renewal fees

 Review specialist valuations considering independence, competence, scope to work,

assumptions and methods used

 Inspect purchase agreements for additions

 Verify amounts capitalised of patents developed by the company with supporting costing
records

 Check computation of amortisation and that the rates used are reasonable

Audit of accounting estimates

 Review the management process

 What their assumptions are and whether they are reasonable

 Check mathematically accurate

 Consider management ability to prepare such estimates by reference to past experience

 Consider the use of independent expert opinion

 Review subsequent events

 Review outcome of previous year’s estimates

 Obtain written representations from management

Provisions, Contingent Liabilities and Contingent assets

 Obtain details of all provisions which have been included in the accounts and all
contingencies that have been disclosed

 Obtain a detailed analysis of all provisions showing opening balances, movements and
closing balances

 Determine for each material provision whether the company has a present obligation as a
result of past events by;

o Review of correspondence relating to the item

o Discussion with the directors, have they created a valid expectation in other parties
that they will discharge the obligation

o Checking for post year and payments

Deferred tax

 Obtain a copy of the deferred tax workings and the corporation tax computation

 Check the arithmetical accuracy of the deferred tax working

 Agree the fixtures used to calculate timing differences to those on tax computation and
financial statements

 Consider the assumptions made in the light of your knowledge of the business and any other
evidence gathered during the course of the audit to ensure reasonableness

 Agree the opening position on the deferred tax account to the prior year financial
statements

 Review the basis of the provision to ensure;

o It is line with accounting practice under IAS 12 Income Taxes

o It is suitably comparable to practice in previous years (consider if there are any

temporary differences that are not accounted for this year)

o Any changes in accounting policy have been disclosed

Construction contracts

 Determine whether the outcome of the contract can be measured reliably, in particular the
assessment of the directors that payment will be received under the contract

 Whether this is not the case confirm that revenue is recognised only to the extent that costs
are recoverable

 Check the calculation of the overall expected outcome for the project i.e. profitable / loss
making

 Agree total revenue to sales contract

 Obtain details of costs incurred and agree to supporting documentation

 Review the calculation of costs to complete and assess the validity of any assumptions made
by management. Where possible compare the overall expected profitability with other
similar projects

 Assess the basis on which profit is recognised eg. Stage of completion method. Establish the
way in which the stage of the completion has been measured eg. By surveyor and determine
whether it appears reasonable

 Where the stage of completion is based on costs incurred to date assess whether they fairly
represent the stage of completion

 Confirm any costs accounted for as contract work in progress are recoverable under the
contract

 Assess the likelihood of recovery of revenue recognised but not yet received
Related party transactions

 Ask management whether there could be undisclosed RPT’s

 Review previous years working papers for known RPs

 Review records such as shareholder records, annual return with directors’ interests, bank
loan confirmations, solicitors’ letters

 Look for transactions with unusual features which may indicate RPTs e.g

o Abnormal rates of interest

o No logical business reason

o Non-routine approval / processing

 Obtain written management representations

Investment properties

 Confirm all investment properties are classified in accordance with IAS 40 definition

 If cost model adopted check compliance with IAS 16

 If fair value model adopted;

 Check that the FV reflects market conditions at the balance sheet date

 Agree valuation to valuer’s certificate

 Where current prices in an active market are not available, confirm an alternative basis of
valuation is reasonable

 Recalculate gain or loss on change in fair value and agree to balance in P&L a/c

Pension costs

 Scheme assets:

o Obtain confirmation from the investment custodian

o Ask directors to reconcile scheme assets at the end of scheme accounting year, with assets
valuation being used for IAS 19 valuation at the end of entity’s accounting year

 Scheme liabilities:

o IAS 620 Using the work of an expert – normal considerations apply

o Obtain written representations from directors

Financial instruments

 Consider need for specialist staff on the audit

 Review the terms and conditions and confirm it has been classified in accordance with
substance

 Confirm that all financial assets and liabilities have been valued at fair value

 Agree initial fair value to transaction price

 Consider impact of transaction costs

 Enquire of management as to their intention to hold or sell financial instruments.

Corroborate by reviewing subsequent events

 Confirm that held to maturity investments and loans and receivables are measured at
amortised cost

 Confirm that the amount of amortisation has been calculated using the effective interest
method

 Where there is an active market agree fair value to quoted market price

 Where there is no active market assess the valuation technique adopted by management

Assertions and testing

Non-current assets
Rights and obligations

 Inspect title deeds of property

 Inspect registration documents for vehicles

Existence

 Physically verify a sample of non-current assets

Completeness

 Ensure physically inspected assets are included in the asset register

 Review the repairs and maintenance accounts for evidence and unrecorded assets

Valuation

 Perform a proof in total test on the depreciation charge for the year

 Inspect assets for signs of impairment

 Agree a sample of non-current asset additions to invoice

 Review depreciation rates and policies to confirm they are reasonable for the industry and
type of asset

Presentation and disclosure

 Non-current assets are disclosed in a note splitting the assets by class and showing cost,
depreciation charge for the year

 Check bank confirmation letter for evidence of charges over property and ensure this is
disclosed appropriately in the accounts

Inventories

Valuation
 Agree post year end sale prices for a sample inventory lines to ensure cost is greater than
net realisable value

 Review aged inventory listing for indication of obsolescence and impairment

 Agree to invoice the cost of a sample of inventory lines included in the year end balance

 Trace slow moving inventory items to the provision. If not provided for discuss reason with
management

Existence

 At the inventory count conduct some test counts picking the sample from inventory records
and tracing to physical inventory

Completeness

 At the inventory count conduct some test counts picking the sample from physically verified
inventory and tracing to inventory records

Rights and Obligations

 Ensure at the inventory count that third party inventory is identified and excluded from the
counts

 Review contracts regarding third party inventory

Cut-off

 Review pre year-end sales and ensure items not included in the inventory

Receivables

Valuation
 Review the aged receivables listing for indications of overstatement and ensure provisions
are reasonable

 Discuss the basis of provisions with management and recalculate on management

assumptions

 Where overdue receivables have not paid ensure they are included in the allowance for
doubtful debts. Discuss any omissions with management

Existence/rights and obligations

 Circulate a sample of trade receivables to confirm the existence of year end balances

 Review post year end cash receipts from a sample of trade receivables to confirm
recoverability and existence

Bank and cash

Presentation and disclosure

 Ensure all bank loans and overdrafts are not offset against positive cash balances unless the
client has the right of offset

Valuation

 Re-perform bank reconciliations and check reconciling items

 Translate at foreign bank accounts at the year end using independent published rates

 Count petty cash balances

Existence/ completeness

 Obtain bank confirmations of all accounts held for client and the balances on those accounts

Trade payables

Completeness
 Review supplier statement reconciliations for reasonableness and check reconciling items

 Trace to invoice a sample of post year and supplier payments to ensure correctly recorded at
year end

 Investigate key suppliers who were included in the creditor balance last year but not
included this year

Non-current liabilities
Completeness

 Obtain third party confirmation that all non current liabilities have been included eg. Via
bank confirmation

Accuracy

 Recalculate finance cost by reference to rates per loan agreements

Presentation and disclosure

 Recalculate the split of non current liabilities >and <1 year to disclosure in accounts