SUBSTANTIVE PROCEDURES FOR NON-CURRENT TANGIBLE ASSETS

Assertion
Audit Procedures
COMPLETENESS
 Summarize tangible assets reconciling gross amount, depreciation, and carrying amount.
 Compare ledger to assets register.
 Verify recording in the asset register.
 Prepare a depreciation schedule if no register exists.
 Reconcile asset schedule with the ledger.
EXISTENCE
 Physically inspect non-current assets confirming existence, condition, usage, and serial
numbers.
VALUATION
 Reconcile vehicle counts and values.
 Verify valuations with certificates.
 Assess valuation reasonableness.
 Reperform surplus calculation.
 Check regular revaluation updates.
 Verify loss recognition in financial statements.
 Review insurance for sufficiency.
VALUATION -
DEPRECIATION
 Review applied depreciation rates.
 Ensure all assets with finite lives are depreciated.
 Reperform depreciation calculation.
 Compare depreciation ratios with policy and previous years.
RIGHTS AND
OBLIGATIONS
 Scrutinize title deeds, land certificates, leases.
 Obtain certification of deeds free from liens.
 Inspect vehicle registration and usage.
 Review other title documents and charges.
ADDITIONS
 Verify additions by inspection and documentation.
 Review capitalization of expenditures and ensure correct ledger recording.
DISPOSALS
 Verify disposals with documentation.
 Recalculate gain or loss on disposal.
 Check the release from security for collateral assets.
33
CLASSIFICATION
 Review non-current asset disclosures to ensure compliance with standards.
 Inspect fully depreciated assets. SUBSTANTIVE PROCEDURES FOR NON-CURRENT

INTANGIBLE ASSETS
Assertion
Audit Procedure
Classification
Review non-current asset disclosures for IAS compliance.
Inspect fully depreciated assets for further charges.
Goodwill
Confirm consideration in sales agreement.
Discuss asset valuation and impairment with management.
Ensure reasonable goodwill valuation.
R&D Costs
Confirm capitalized costs meet IAS 38 criteria.
Inspect budgets and invoices.
Recalculate amortization.
Other Intangibles
Inspect purchase documentation.
Assess specialist valuations.
Recalculate amortization.

Inventory
Assertion
Audit Procedure
COMPLETENESS
 Trace test counts to inventory listing.
 Inspect inventory at third-party locations.
 Match third-party confirmations with ledger.
 Compare current gross profit with historical/industry data.
EXISTENCE
 Observe physical inventory counts.
 Ensure inventory held for third parties is segregated.
RIGHTS AND OBLIGATIONS
 Verify inventory held for third parties is excluded from year-end figures unless segregated.
 Confirm segregation of 'bill and hold' inventory.
ACCURACY, VALUATION
AND ALLOCATION
 Agree inventory listing totals to ledger.
 Cast inventory listing and check calculations.
 Vouch inventory to supplier invoices.
 Verify standard costing and reconcile labor hours.
 Confirm valuation basis like FIFO.
 Inspect work in progress and consider expert valuation.
 Inquire management about obsolete inventory.
VALUATION
 Examine prices for post-year-end sales of finished goods.
 Discuss with management if unsold goods need allowance.
 Compare current standard costs, actual manufacturing overheads with prior years.
 Cast inventory listing and check quantity multiplication.
 Agree physical count adjustments.
 For perpetual systems, agree inventory listing to continuous records.
CUT-OFF
 Note the last shipping and receiving documents before and after year-end.
 Ensure cut-off transactions are recorded in the correct financial period.
CLASSIFICATION
 Review inventory listing for proper classification.
 Read financial statement notes for clarity on inventory accounts.
PRESENTATION
 Complete disclosure checklist for inventory-related disclosures.
 Review financial statements for accurate inventory cost method.
 Confirm notes to financial statements present accurate inventory information.

SUBSTANTIVE PROCEDURES FOR RECEIVABLES

Assertion
Procedures
COMPLETENESS
 Breakdown of receivables by customer.
 Year-on-year comparison.
 Sample of Goods Dispatched Notes (GDNs) matching to invoices.
 Aged receivables listing accuracy and reconciliation.
RIGHTS AND
OBLIGATIONS
 Review post-year-end receipts.
 Confirming party direct confirmation.
ACCURACY,
VALUATION, AND
ALLOCATION
 Inspect aged receivables for recoverability.
 Compare collection period.
 Post-year-end receipts agreement with the cash book.
 Review credit notes and adequacy of allowance for receivables.
EXISTENCE
 Confirm receivables with direct confirmation.
 Review post-year-end receipts.
 Inspect customer correspondence.
SUBSTANTIVE PROCEDURES FOR REVENUE
Assertion
Procedures
COMPLETENESS
 Breakdown of revenue by month, product, customer.
 Compare gross profit percentage per product line.
ACCURACY
 Sample of sales invoices price and terms check.
 Test discounts recalculations.
CUT-OFF
 Test tax calculation on invoices.
 Inspect dates on a sample of year-end invoices.
 Sample of sales returns documentation and analysis.
OCCURRENCE
 Vouch sales transactions to customer orders and dispatch documentation.

SUBSTANTIVE PROCEDURES FOR CASH AND BANK

Assertion
Audit Procedure
COMPLETENESS & EXISTENCE
 Get bank confirmations for all client banks.
 Trace outstanding checks from reconciliation to cash book.
 Match cash book and bank statements for the last month.
 Discuss unmatched items with finance staff.
 Re-perform bank reconciliation math.
 Review bank reconciliations for cleared items.
 Verify contra items and inspect paying-in slips.
 Examine all lodgements and refused payments.
VALUATION
 Re-perform bank reconciliation arithmetic.
 Review year-end bank reconciliation.
 Verify contra items and inspect paying-in slips.
 Examine refused payment recoveries.
RIGHTS & OBLIGATIONS
 Ensure bank accounts have no restrictions.
 Determine the legality of set-offs.
CLASSIFICATION
 Assess security over accounts.
 Review disclosures for completeness and accuracy.
AUDIT OF CASH BALANCES
 Ensure cash exists, is complete, and correctly valued.
 Plan, conduct, and follow-up on cash counts if material.
SUBSTANTIVE PROCEDURES FOR PAYABLES
Assertion
Audit Procedure
COMPLETENESS & EXISTENCE
Analytical comparison of current to previous year's payables and accruals.
Check payables' aging and compare accruals with previous year.
RIGHTS & OBLIGATIONS
Vouch selected amounts from payables and accruals to documents such as purchase
orders and invoices.
VALUATION
Recalculate sample accruals to verify accuracy.
CLASSIFICATION
Review accounts payables for improper debits.
Identify items needing reclassification as receivables or long-term liabilities.
PRESENTATION
Review disclosure notes on payables and accruals for accuracy and proper financial
statement presentation.
SUBSTANTIVE PROCEDURES FOR PURCHASES AND OTHER EXPENSES
Audit Area
Procedure
Inspection of Invoices
Verify that a sample of purchase invoices corresponds with general ledger amounts.
Comparison of Expenses
Compare administrative expenses year-over-year and against expectations; investigate
anomalies.
Management Inquiry
Inquire about unresolved claims or obligations pre-year-end; ensure they are accounted for.
Accruals and Prepayments
Recalculate accruals and prepayments to validate that expenses are accurately represented.
Gross Profit Margin
Analysis
Analyze gross profit margin against prior year, budget, and expectations; examine any major
fluctuations.
SUBSTANTIVE PROCEDURES FOR PAYROLL
Procedure Step
Description
Reconciliation
Reconcile gross payroll costs with financial statements and wages costs.
Casts of Payroll Records
Perform casts (totals) of payroll records to confirm completeness and accuracy of totals.
Payment Method Confirmation
Confirm payment amounts by matching to cheque or bank transfer summaries.
Unusual Items Inspection
Look for and investigate unusual items in payroll; discuss with management.
Analytical Procedures
Apply proof-in-total procedures on payroll, comparing current figures with last year's, adjusted
for expectations.
Deduction Accuracy
Recheck calculations of statutory deductions to ensure accuracy in payroll expenses.
Employee Sample Testing
Pick a sample of employees to recalculate gross and net pay to verify accuracy.
Payroll Records Agreement
Match employee payroll amounts to personnel records for consistency.
Starter/Leaver Checks
For new or departing employees, confirm contract details and ensure accurate payroll
adjustments.
 Chapter 17 – Non-current liabilities and
38

Capital
SUBSTANTIVE PROCEDURES FOR NON-CURRENT LIABILITIES
Audit Objective
Audit Tests
EXISTENCE
 Obtain direct confirmations from banks/lenders on outstanding amounts and securities.
RIGHTS AND
OBLIGATIONS
 Review confirmation letters from lenders to verify rights and obligations.
COMPLETENESS
 Get liability breakdowns, compare to prior audits, ensure cash book agreement and current
liability classification.
 Review board minutes and cash book for new borrowings.
ACCURACY,
VALUATION, AND
ALLOCATION
 Proof total of finance charges.
 Match capital and interest with confirmations.
 Recalculate finance charges based on loan agreements.
CLASSIFICATION AND
PRESENTATION
 Review draft accounts for proper liability classification.
 Check disclosures against standards and disclosure checklist.
SUBSTANTIVE PROCEDURES FOR EQUITY
Capital Aspect
Audit Procedures
Share Equity Capital
Agree authorized capital with statutory documents.
Approve changes to authorized capital with authorized resolutions.
Issue of Shares
Check any share issues or changes against general and board minutes.
Ensure terms are within the constitution and directors have the authority.
Confirm receipt of cash or other considerations for shares.
Transfer of Shares
Verify transfers via correspondence, completed transfer forms, canceled share certificates, and
minutes of directors' meetings.
Dividends
Review ledger balances and agree with the register of members.
Confirm dividends with minute books and documentary evidence.
Test for contravention of distribution provisions.
Reserves
Match movements on reserves with supporting authority.
Verify compliance with legislation and the constitution.
Confirm ability to distinguish distributable reserves.
Inspect financial statement disclosures.
SUBSTANTIVE PROCEDURES FOR DIRECTOR’S EMOLUMENTS
Assertion
Audit Procedures
EXISTENCE
 Match emoluments in financial statements to a detailed schedule.
 Vouch salary and contributions to records and statements.
 Confirm bonuses and one-off payments with minutes and payroll records.
RIGHTS AND
OBLIGATIONS
 Verify payments to directors against employment contracts to confirm entitlements.
COMPLETENESS
 Review board and remuneration committee minutes for payment authorization.
 Check cash book for significant sums and proper recording.
ACCURACY, VALUATION,
AND ALLOCATION
 Request written confirmation from directors on completeness and accuracy.
 Analytically review and compare emoluments year-over-year.
 Re-cast totals of directors' emoluments.
 Confirm financial statement amounts agree with the schedule.
CLASSIFICATION AND
PRESENTATION
 Verify tax return information for proper disclosure.
 Review financial statement disclosures for adequacy and compliance with standards and
laws.

Chapter 18 – Non-for-profit Organizations

Objective of NPO
Not-for-profit organizations prioritize their core mission and efficient use of funds. They include:
• Charities: Aim for their cause, involve in fundraising and fund management.
• Schools: Focus on education, manage tight budgets from fees or government support.
• Clubs/Unions: Work towards club goals, handle membership fees and control expenses.
• Housing Associations: Oversee properties, focus on rent collection and maintenance.
• Local Councils: Deliver public services, aim for cost efficiency and budget adherence.
Planning the Audit and Audit Evidence
STATUTORY REQUIREMENTS: Determine if a statutory audit is mandated or if an alternative
assurance engagement is
necessary.
AUDIT OBJECTIVES AND REPORTING: Clarify the objectives, what the audit will report on, to whom
the report is addressed,
and the format of the report.
PLANNING THE AUDIT: The planning process is similar to profit-oriented entities but must consider
specific regulations
affecting the entity.
RISK ASSESSMENT: Pay special attention to risks unique to not-for-profits, such as internal control
deficiencies due to
unqualified staff or lack of segr egation of duties.
AUDIT EVIDENCE: Be aware that collecting audit evidence might be challenging due to informal
arrangements within not-for-
profits.
AUDIT REPORTING: Follow ISA 700 guidelines, unless specific member or trustee requirements
dictate otherwise, and make
sure the auditor's report includes addresses, scope, responsibilities, work done, and the audit opinion.

1. Completeness

Definition: Ensures that all transactions, balances, and disclosures that should be recorded in
the financial statements have been included.

Applies to:

 Non-Current Assets (Tangible & Intangible)

 Inventory
  Receivables
 Revenue
 Cash and Bank
 Payables
 Purchases and Other Expenses
 Payroll
 Non-Current Liabilities
 Equity
 Director’s Emoluments

2. Existence

Definition: Ensures that recorded assets, liabilities, and transactions actually exist as of the
reporting date.

Applies to:

 Non-Current Assets (Tangible & Intangible)

 Inventory
 Receivables
 Cash and Bank
 Non-Current Liabilities
 Director’s Emoluments

3. Valuation & Allocation

Definition: Ensures that assets, liabilities, and financial statement elements are recorded at
appropriate amounts and adjustments have been made where necessary.

Applies to:

 Non-Current Assets (Tangible & Intangible)

 Inventory
 Receivables
 Cash and Bank
 Payables
 Non-Current Liabilities
 Director’s Emoluments

4. Rights & Obligations

Definition: Ensures that the entity has ownership rights to assets and that liabilities are the
entity’s obligations.
Applies to:

 Non-Current Assets (Tangible & Intangible)

 Inventory
 Receivables
 Cash and Bank
 Payables
 Non-Current Liabilities
 Director’s Emoluments

5. Classification & Presentation

Definition: Ensures that transactions and balances are properly classified and disclosed in the
financial statements per applicable accounting standards.

Applies to:

 Non-Current Assets (Tangible & Intangible)

 Inventory
 Payables
 Non-Current Liabilities
 Equity
 Director’s Emoluments

6. Accuracy

Definition: Ensures that financial information is recorded correctly, with accurate

calculations, correct amounts, and proper financial statement presentation.

Applies to:

 Revenue
 Receivables
 Cash and Bank
 Payables
 Purchases and Other Expenses
 Payroll
 Non-Current Liabilities
 Director’s Emoluments

7. Cut-Off

Definition: Ensures that transactions are recorded in the correct accounting period.
Applies to:

 Inventory
 Revenue

8. Occurrence

Definition: Ensures that recorded transactions actually took place and relate to the entity.

Applies to:

 Revenue

1. Completeness
Ensures that all transactions, balances, and disclosures that should be recorded in the
financial statements have been included.

Applies to:

🔹 Non-Current Assets (Tangible & Intangible)

 Summarize tangible assets, reconciling gross amount, depreciation, and carrying

amount.
 Compare the ledger to the asset register.
 Verify that all assets are recorded in the asset register.
 Prepare a depreciation schedule if no register exists.
 Reconcile the asset schedule with the ledger.

🔹 Inventory
  Trace test counts to inventory listing.
 Inspect inventory at third-party locations.
 Match third-party confirmations with ledger balances.
 Compare current gross profit with historical and industry data to detect missing
inventory items.

🔹 Receivables

 Breakdown of receivables by customer to confirm completeness.

 Year-on-year comparison of receivable balances.
 Sample testing of Goods Dispatched Notes (GDNs) to invoices to verify that all sales
transactions are recorded.
 Ensure accuracy and reconciliation of aged receivables listings.

🔹 Revenue

 Breakdown of revenue by month, product, and customer.

 Compare gross profit percentages per product line to detect missing sales.

🔹 Cash and Bank

 Obtain bank confirmations for all client banks.

 Trace outstanding checks from reconciliation to cash book.
 Match cash book and bank statements for the last month to detect missing cash
transactions.

🔹 Payables

 Compare current year payables with previous year’s payables and accruals.
 Check payables’ aging reports and compare accruals with prior years.

🔹 Purchases and Other Expenses

 Verify that a sample of purchase invoices corresponds with general ledger amounts.
 Compare administrative expenses year-over-year to identify missing expenses.

🔹 Payroll

 Reconcile gross payroll costs with financial statements and wage costs.
 Perform casts (totals) of payroll records to confirm completeness.

🔹 Non-Current Liabilities

 Get liability breakdowns and compare to prior audits.

 Ensure agreement with the cash book and correct classification of liabilities.
 Review board minutes and cash books for new borrowings to ensure all liabilities are
recorded.

🔹 Equity
  Agree authorized capital with statutory documents to verify completeness.
 Confirm receipt of cash or other considerations for issued shares.

🔹 Director’s Emoluments

 Match emoluments in financial statements to a detailed schedule.

 Review board and remuneration committee minutes for payment authorization.
 Check the cash book for significant sums and ensure proper recording.

2. Existence
Ensures that recorded assets, liabilities, and transactions actually exist as of the reporting
date.

🔹 Non-Current Assets (Tangible & Intangible)

 Physically inspect non-current assets to confirm existence, condition, usage, and serial
numbers.

🔹 Inventory

 Observe physical inventory counts.

 Ensure inventory held for third parties is segregated.

🔹 Receivables

 Confirm receivables with direct confirmation.

 Review post-year-end receipts.
 Inspect customer correspondence.

🔹 Cash and Bank

 Get bank confirmations for all client banks.

 Trace outstanding checks to ensure they exist.

🔹 Non-Current Liabilities

 Obtain direct confirmations from banks/lenders on outstanding amounts and

securities.

🔹 Director’s Emoluments

 Match emoluments in financial statements to a detailed schedule.

3. Valuation & Allocation
Ensures that financial statement elements are recorded at appropriate amounts, including
adjustments for impairment, depreciation, and allowances.

🔹 Non-Current Assets (Tangible & Intangible)

 Reconcile asset values and depreciation schedules.

 Verify valuations with certificates and perform reasonableness assessments.
 Ensure impairment losses are recorded properly.

🔹 Inventory

 Agree inventory listing totals to ledger.

 Verify standard costing and reconcile labor hours.
 Inspect management’s assessment of obsolete inventory.

🔹 Receivables

 Inspect aged receivables for recoverability.

 Compare collection period with past years.
 Verify adequacy of allowance for doubtful receivables.

🔹 Cash and Bank

 Verify year-end bank reconciliation calculations.

 Inspect rejected payments for proper valuation.

🔹 Payables

 Recalculate sample accruals to verify accuracy.

🔹 Non-Current Liabilities

 Proof total finance charges.

 Recalculate interest and finance charges based on loan agreements.

🔹 Director’s Emoluments

 Analytically review emoluments for consistency with prior years.

4. Rights & Obligations

Ensures that the entity has ownership rights to assets and that liabilities are obligations of the
entity.
🔹 Non-Current Assets (Tangible & Intangible)

 Scrutinize title deeds, land certificates, and leases.

 Inspect vehicle registration and usage.

🔹 Inventory

 Verify that inventory held for third parties is excluded from year-end figures unless
segregated.

🔹 Receivables

 Review post-year-end receipts to confirm collection rights.

🔹 Cash and Bank

 Ensure bank accounts have no restrictions.

🔹 Payables

 Confirm payables against purchase orders and invoices.

🔹 Non-Current Liabilities

 Review confirmation letters from lenders.

🔹 Director’s Emoluments

 Verify payments to directors against employment contracts.

5. Classification & Presentation

Ensures that transactions and balances are properly classified and disclosed in the financial
statements.

🔹 Non-Current Assets (Tangible & Intangible)

 Review disclosures for compliance with accounting standards.

🔹 Inventory

 Review financial statement notes for accuracy.

🔹 Payables

 Identify items needing reclassification.

🔹 Non-Current Liabilities

 Review financial statements for correct liability classification.

🔹 Equity

 Ensure share transactions comply with company constitution.

🔹 Director’s Emoluments

 Review financial statement disclosures for adequacy.

6. Accuracy
Ensures that financial information is recorded correctly and calculations are accurate.

🔹 Revenue

 Sample test sales invoices for correct pricing.

 Recalculate discounts on invoices.

🔹 Receivables

 Inspect aged receivables for accuracy in valuation.

🔹 Cash and Bank

 Verify bank reconciliation math.

🔹 Payables

 Recalculate sample accruals.

🔹 Payroll

 Verify payroll deductions and net pay calculations.

7. Cut-Off
Ensures that transactions are recorded in the correct accounting period.

🔹 Inventory
  Check shipping and receiving documents before and after year-end.

🔹 Revenue

 Inspect invoice dates to ensure proper period recognition.

8. Occurrence
Ensures that recorded transactions actually took place.

🔹 Revenue

 Match sales transactions to customer orders and dispatch records.