trea vs notentino ‘SUBSTANTIVE TEST OF INCOME STATEMENT ACCOUNTS ‘The statement of comprehensive income (SCI) is {the level of earnings of an entity is often given 3 great emphasis as an indicator of the financial performance of an ‘The SC also shows the stewardship of the management on how well they managed the resources provided by investors > some companies, the evel of sales or income is the basis of compensation or bonuses of the management. ‘Sing management may deliberately prepare the financial statement to show favorable financial position and performance, the auditor should place a primary consideration on the following assertion: overt Sagone weil ab nvorne Bo poten walle KE he reated income statement account should be best considered olny ln connection withthe aud of SF ‘:ceounts. For example, the details of repaic and maintenance expenses would be audited while looking for unrecorded ‘pital expenditures which are part ofthe audit procedures for property, plant and equipment. ‘The table below provides some example of SCI account thatthe auditor audits in connection with the examination ofthe related SFP accounts: RIO\P ~ ANALE'= LA f ACCOUNTS wan Ss 4 Camas) ‘Sales (including returns, discounts and allowances); Bad debt expense; Interest a | income on notes reenable; Inoirment lone exle goes etcton reset ‘Current period expenses related to prepaid items such Insurance oF .and depletion; Gains or losses from derecognition of PPE; Iapairment loss including any reversal; Rent expense under operating leases; Repair and Maintenance Expense or Payable | Jncome Tax Expense Provisions, Accrued and Other | Current period expense related to profit sharing and pension plans; | competed absences Tec te than nme; Modul Warranty Rea © tepacement cor ‘The guditor needs to consider the appropriateness of ‘and expenses from an ethical and/or Tegal standpoint, especially wth respect to ‘evel, entertainment and advertising, are subject to (Gein aouses>ANthough there are risks tothe company if abuses go unchecked, the auditor's concer for this type of EXPENSES ts impact to income tax. P “The auctor’ primary substantive procedures fr CI wil typically Include the following: 1 Performing Gverail anaytical review for significant SO) account DPPCAD —_One essential procedure in the audit of SC items Is to perform analytical procedures, especially for significant ‘income stafement accounts. n performing analytical procedure, the auditor should: _2.Dewelop an expectation ofthe amount forthe curent period using appropriate data. For example, using average ‘ay per employee or hour to prior year including employee benefits for payrol, multiplying the average balance of the investment in the period by the average interest rate for interest income. '. Dissestegate both the data used to buld the expectations and the various recorded amounts at level of tail sufficient to enable to identify material misstatements. c. Determine the amount of difference from the expectation that can be accepted without investigation. 4-mpare the account balance form the expected acount tloce. Review and investigate any significant changes orlackof expected changes, f.Determine whether the exlanations received during the reew are consistent with otber explanations or evidence obtained during the course of audit. Scanned with CamScannertf appropriate, vouch sample transactions from the accounting record to the Supporting documents or trace ‘camples form the supporting documents to the accounting record. 2 Procedures ‘After the auditor had gathered information concerning the entitys nature of operations and applicable financial reporting framework, the auditor should evaluate the accounting policies used by the company in recognizing and _measuring its revenues in compliance with the relevant PFRSs. The auditor then will select items for testing to determine ‘revenue was recorded based on the accounting policy adopted. For example, the auditor would select transactions to ‘ensure that revenue should not be recognized not until the contract of sale was signed and delivery wos made. The auditor should also evaluate the propriety and adequacy of disclosure as prescribed by the relevant PFRS. ‘3 Reviewing Contents of Miscefloneous income ond Expenses ‘Miscellaneous income and expense, by their very nature, are miatures of minor items. In auditing miscellaneous items, the auditor should: (eery 2. Understand the contents of the account. b.Obtain an analysis or breakdown ofthe account form the cet. ‘© Check the appropriateness of the items included in the account (a some of the items incuded should be reported in another appropriate classification). .Joestieate any significant unusual transactions, if not already covered by batance sheet testing. 4. Verifying interest ond Dividend incame (FR ~ OWS ‘The auctor should test interes, dividend and investment income for significant investments by: a ‘interest and dividend income with the prior period and obtaining explanations for any significant unexpected varstions. ». reasonableness check on interest income by multiplying the average balance of the investment a ‘the period by the average interest rate received. Agreeing dividend income to the dividend statement, published records of dhidends paid and/or bank statement. Testing accrued interest and interest eared during the period on recehables. el interest preparing an amortiration table. f Verifying an investment income form an associate form the associate audited financial statement. ‘&. Determining the adequacy of the disclosures in accordance with the relevant PERSS. ‘5: Testing eccurocy of Other Expense and Income Tronsactons. After defining the population, the auditor will select samples and obtain supporting documentation and perform the following: Test the computation of recorded amounts ifthe expense was recorded with a corresponding credit to payables {or paid directly with cash) based on contract, invoice and/or other document(s). 'b. Test the computation of recorded amounts if the expense was recorded with a corresponding credit to an accrued 3. Testthe computation of recorded amounts ifthe income was recorded with corresponding debit to receivable (or received directly with eash) based on contract, invoice and/or other document(s). '. Test the computation of recorded amounts if the income was recorded with a corresponding debit to an accrued income account. 6 of income and Expense “The auditor should make an audit sample of recorded income and expense before and after the reporting date and: a. Trace the selected expenses to involces, receiving reports, purchase orders or other support evidencing when ‘p00ds were received or services were rendered. . Determine that the expenses were recorded in the correct period by tracing the selection to the general ledger. ‘3 Trace the Tncome oF revenue to sales invoices, shipping documents or other support evidencing when ‘goods were provided or services were rendered 'b Determine whether the Income or revenue was recorded in the correct period by tracing the selection to the general ledger. Scanned with CamScanner/ ‘AUDIT REPORTS / ee renee ee ene users. PSA requires that audit reports shall be in waiting. tsi AN AUDIT OPINION ON THE EINANGIAL STATEMENTS g ofthe auditor are: 1. opinion on the financial statements based on an evaluation of the conclusions drawn from the audit (ence obtained and {1 TORSBIRSS eat that opinion through a written {hard copy oF using an electronic medium). The auditor shall form an opinion on whether the financial statements are prepared in all atria respects, in accordance with the applicable financial reporting framework. In order to form that opinion, the auditor shall conclude a to whether the auditor has obtained reasonable "assurance about whether the financial statements as a whole are free from material misstatement, whether due to {fraud or error. Such opinion should be clearly expressed in the auditor's report. In addition, the conclusions shail take into account: L whether sufcent appropriate audit evidence has been obtained; 2 whether uncorrected misstatements are material, individually orn agpregae: and 3. The evaluations of below requirements: aS TORENT re rsd teas ease ‘Sap WNT nf erence pln ping fone: ¥ the financial statements adequately disclose the significant accounting plies selected and ‘pled; Y the accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate; ‘the accounting estimates made by management are reasonable; theinformation presented in the financial statements i relevant, reliable, comparable and ‘understandable; the financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events onthe information conveyed in the ‘nancial statements and the terminology used inthe financial statement, including the tte of each financial statement, ds appropriate. «The auditor's evaluation as to whether the financial statements achieve fir presentation shall include the consideration of: \"¥ Theovera presentation, structure and content ofthe financial statements and Whether the financial statements including the rested notes, represent the undertving tronsactions and events in a manner that achieves fale presentation “The following tems represent the diferent pats of the revised auditor's report: TW 2iAddressee 3. Auditor's Opinion 4. Basis for Condusion S. Going Concer if applicable) - PSAS70- PSA 702. 6. Key ava matters (required for listed entities) 7. Responatbties forthe financial statements 8. Auditor's responsibities forthe audit of financial statements ‘9 Other reporting responsibilities 10, Name of the engagement partner area acorn Unmodified Opinian . 2. Madifiad Opinion (Dsdaksot Opin Gaen8 Pin Gai Donon) DC Scanned with CamScanner