Central Luzon State University

College of Business Administration and Accountancy

Department of Accountancy

ACCTG 4230 – IAR in Auditing and Assurance: Concepts and Applications Janssen Tongco
Lecture - Audit of Expenditure and Disbursement Cycle February 1, 2023

RELEVANT ASSERTIONS
B/S
P& R&
Title Significant Account and Substantive Procedures D
E C
O
V

Inventories
1 Observation of Observe the taking of physical inventories ensuring that Client count instructions are X X X X
physical inventories followed and that inventories owned by others are separated and trace test counts to the
inventory compilation.
2 Confirmation of If significant, confirm inventories held by others at the physical inventory date and trace X X X
inventories held by confirmed quantities to the inventory compilation; consider observing these physical
others inventories as well.
3 Reconciliation of Review the reconciliation of the valued physical inventory compilation with the general X X
inventory compilation ledger account balances and the perpetual inventory records. Investigate large and
with general ledger unusual reconciling items.
4 Roll-forward If inventories are taken at an interim date, review the "roll-forward" documentation in a X X
procedures manner responsive to the combined risk assessment and investigate unusual items.

5 Inventory cutoff Trace the cutoff information obtained during the physical observation to the accounting X X
records of sales and purchases.

6 Valuation in Test the valuation of inventory to ensure that it is performed in accordance with the X X
accordance with client´s accounting policies or applicable financial reporting framework.
accounting policies
7 Net realizable value Test the allowances to reduce the valuation of inventory to net realizable value, e.g., X
testing reserves for slow moving items, obsolescence or lower of cost or market.

Accounts payable, trade

1 Agreement of Agree the accounts payable subledger to the general ledger control account and X X
subledger with investigate large and unusual reconciling items.
general ledger
2 Unusual item review Inquire about or perform a review of accounts payable subledger for unusual items, e.g., X X X X X
significant debit balances in the accounts payable subledger or other unexpected amounts
to verify proper classification and valuation.
3 Accounts payable Perform cutoff tests for goods and services received as well as for supplier credit memos X X X
cutoff to ensure that transactions are completely recorded in the correct period.

4 Search for Perform a search for unrecorded liabilities at the year-end date by selecting subsequent X X
unrecorded liabilities disbursements and unmatched invoices and receiving reports.

5 Analysis of supplier Compare supplier balances post year end to those at year end and investigate unusual or X
balances significant changes.

6 Valuation of accounts Test appropriate valuation of accounts payable in foreign currencies. X

payable

I/S
P&
O C M
D
Cost of Sales
1 Comparison of cost of Obtain detail of Cost of Sales accounts in comparison with the prior period. Investigate X X X X
sales with prior and explain major changes, large or unusual transactions, or the lack of expected
period changes, if not already covered through analytical review of sales accounts including
gross-margin analysis.
2 Large and unusual Review the appropriateness of large and unusual expenses. X
expense review