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2 FS AUDIT

The document outlines substantive audit procedures for cash, receivables, and inventories, detailing steps to ensure the existence, completeness, rights and obligations, valuation, and proper presentation of financial statements. It emphasizes the importance of confirming balances, reconciling records, and verifying transactions to ensure accuracy and compliance with GAAP. Additionally, it includes specific procedures for cash collections, cash payments, sales transactions, and inventory management.

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5 views7 pages

2 FS AUDIT

The document outlines substantive audit procedures for cash, receivables, and inventories, detailing steps to ensure the existence, completeness, rights and obligations, valuation, and proper presentation of financial statements. It emphasizes the importance of confirming balances, reconciling records, and verifying transactions to ensure accuracy and compliance with GAAP. Additionally, it includes specific procedures for cash collections, cash payments, sales transactions, and inventory management.

Uploaded by

shello.world.ender
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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AUDITING

FINANCIAL STATEMENT AUDIT

In the audit of financial statements and related transactions the


following audit procedures should be implemented ;

SUBSTANTIVE AUDIT PRODEDURES FOR CASH AND CASH EQUIVALENTS

Cash Balances

Existence ;

Cash on the books exist

- Count cash on hand


- Confirm bank balances
- Examine interbank transfers
- Perform analytical procedures

Completeness ;

All of the entity’s cash is included

- Perform cash cut off test


- Prepare proof of cash

Rights and obligations

Any restrictions on cash have been identified

- Examine standard bank confirmations and read the minutes of the


board of directors’ meetings to determine whether any restrictions
have been placed on cash.

Valuation and allocation ;

Cash is correctly valued

- Obtain bank cutoff statements directly from the bank and use them
to test the bank reconciliation as of the balance sheet date .

Presentation and disclosure

Cash is presented and disclosed properly


- Review financial statements and perform analytical procedures to
determine whether accounts are classified are classified and
disclosed in accordance with GAAP .

Cash collections ;

Completeness

All receipts of cash and checks are recorded

- For a sample of days , verify that all cash receipts are recorded by
reconciling daily listings of cash receipts and validated deposits
ticket to cash receipts journal.

Occurrence

Recorded receipts represent actual collections of cash from customers

- For a sample of entries in cash receipts journal , trace to the


prelisting of cash receipts and to remittance advice. For a sample of
entries , reconcile daily deposit to validated deposit ticket.

Classification

Cash receipts transactions have been recorded in the proper accounts .

- Review account coding for a sample of entries in the cash receipts


journal.

Accuracy /valuation

Debits to cash and credits to accounts receivable are valued at amounts


received

- For a sample of entries in cash receipts journal, examine remittance


advice and verify that discount taken was appropriate . Foot
accounts receivable subsidiary ledger and reconcile to general
ledger .,

CASH PAYMENTS

Completeness

All cash payments made are recorded


- Reconcile cash payments per books with ca s h payments per bank
- Prepare bank reconciliation.

Occurrence

Recorded cash payments occurred

- Examine paid checks for appropriate endorsements . Examine


documents underlying payments .

Classification

Cash payments transactions have been recorded in the proper accounts

- Check accuracy of accounts on invoices by reference to chart of


accounts

Accuracy /valuation

Debits to various accounts and credits to cash are valued at proper


amounts .

- Recalculate invoices paid

AUDIT OF RECEIVABLES

SUBSTANTIVE AUDIT PROCEDURES FOR RECEIVABLES

Sales and accounts receivable balance

Existence or occurrence

Sales and accounts receivable are for shipments made to customers

- Confirm accounts receivable and perform procedures for


confirmation not returned
- Perform analytical procedures to test sales and accounts receivable

Completeness

Sales transactions that occurred and existing receivables are recorded

- Perform a test of sales cutoff

Rights and obligations

Accounts receivable are owned by the client


- Review minutes of the board of directors meetings , inquire of the
client personnel, read contracts and agreements , and confirm with
lenders any indications that accounts have been assigned , sold or
pledged

Valuation and allocation

Accounts receivable are properly valued

- Verify mathematical accuracy of the accounts receivable aging


schedule and trace it to the accounts receivable subsidiary ledger
- Test the adequacy of the allowance for uncollectible accounts

Presentation and disclosure

Sales and accounts receivable are properly presented and disclosed in


accordance with GAAP

- Review financial statements and perform analytical procedures to


determine whether accounts are classified and disclosed in
accordance with GAAP

Sales transactions

Completeness

Sales transactions that occurred are recorded

- For a sample of shipping documents , trace sales invoice and entry


into sales journal and accounts receivable subsidiary ledger. Perform
cutoff tests.

Occurrence

Recorded sales are for shipments actually made to customers

- For a sample of entries in the sales journal, compare sales invoice


copy, customer order and sales invoice

Classification

Sales and accounts receivable transactions have been recorded in the


proper accounts

For a sample of entries in the sales journal , verify the accuracy of account
coding .

Accuracy / valuation
Sales are correctly billed and recorded

- For a sample of entries in the sales journal


a. Examine sales invoice , shipping document, and customer for
consistency descriptions and quantities
b. Examine sales orders for credit approval
c. Check prices and extensions
d. Foot sales journal and general ledger

AUDIT OF INVENTORIES

SUBSTANTIVE AUDIT PROCEDURES FOR INVENTORIES

Inventory balances

Existence

Recorded inventory exist

- Before the client takes the physical inventory, review and approve
the client’s written plan for taking it
- Observe the client’s personnel physically counting inventory
- Confirm inventories on consignment and held in public warehouses

Completeness

All inventory of the entity recorded

- Obtain a copy of prenumbered inventory tags used by the client in


taking inventory and reconcile the tags to the listing
- For selected items, trace from tags to listing
- Perform cutoff procedures . Obtain the receiving report number for
the last shipment received prior to year end and determine that the
item is included in the inventory . also, identify the last shipping
document and determine , based on shipping terms , whether the
item was properly recorded in sales or inventory
- Perform analytical procedures

Rights and obligations

Inventory is owned by the entity

- Determine that consigned inventory has been excluded from


inventory and the inventory pledged has been properly disclosed .
Examine confirmations from financial institutions and read minutes
of the board of directors’ meetings.

Valuation and allocation

Recorded inventory is valued in accordance with GAAP

- Considering the method the client uses for inventory valuation,


examine invoices for inventory on hand or trace prior years
inventory listing to verify costs
- For selected items, determine net realizable value NRV of the
inventory and apply the lower of cost or NRV
- Verify computations in the inventory listing
- Review the obsolescence of the inventory by
a. Being alert while observing inventory being taken for damaged, slow
moving or scrap inventory
b. Scanning perpetual records for slow moving items and discussing
their valuation with client

Presentation and disclosure

Inventory is classified and disclosed in accordance with GAAP

- Determine whether accounts are classified and disclosed in the


financial statements in accordance with GAAP

Purchases

Completeness

Purchases that occurred are recorded

- Trace a sequence of receiving reports to entries in the voucher


register. Test cut off. Account for a sequence of entries in the
voucher register

Occurrence

Recorded purchases are for items that were acquired

- Examine underlying documents for authenticity and reasonableness.


Scan voucher register for large or unusual items . Trace inventory
purchased to perpetual records . Scan voucher register for duplicate
payments .

Classification

Purchase transactions have been recorded in the proper accounts .


- For a sample of entries in the purchase journal, verify the accuracy
of account coding .

Accuracy/ valuation

Purchases are recorded at proper amounts

- Recompute invoices and compare invoice price to purchase order .

Production

Completeness

All production transactions that occurred are recorded

- Account for a sequence for production reports

Occurrence

Recorded production transactions occurred

- For selected transactions, examine signed materials requisitions,


approved labor tickets , and allocation of overhead

Classification

Production transactions have been recorded in the proper accounts

- For a sample of entries , verify the accuracy of account coding

Accuracy / valuation

Production transactions are recorded at proper amounts

- Test cost records by tracing to underlying documents , such as bill of


materials, labor tickets , authorized labor rates, and standard
overhead rates. Review variances .

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