Question

You are working on the audit of Birmingham Ltd (Birmingham), a clothing retailer, for the year ending 30 June 2017. You have reviewed the audit plan for the related accounts in the sales and collection cycle. The audit plan documents the relevant assertions and the detailed procedure you are to perform in relation to each of these assertions.

An extract from the audit plan is reproduced below:

ITEM	ASSERTION	DETAILED AUDIT PROCEDURE
1	Accuracy	Select some invoices and trace to sales journal, checking whether the amount has been recorded correctly on the sales journal for each invoice.
2	Cut-off	Select a sample of sales invoices and trace to sales journal, determining whether each invoice has been recorded on the sales journal.
3	Completeness	Review evidence that extensions on invoices have been recalculated by the senior accountant after the invoices have been raised by the invoicing department.
4	Occurrence	Enter a fictitious order with a wrong type of goods (i.e. a type of goods that is not sold by the entity) to see if the order is accepted.

Required

For each of the items 1 to 4 above:

(a) Indicate whether the audit procedure is a test of details (substantive test) or a test of controls.

(b) Indicate whether the audit procedure correctly addresses the given assertion.  

(c)   For those audit procedures that do not address the given assertion, state the appropriate assertion.  

Answer 1

(a)

Further Audit procedures can of 2 types-

1.Test Of Controls-

-An audit procedure designed to evaluate the operating effectiveness of controls in preventing , detecting or correcting the Material misstatement.

2. Substantive procedure or Substantive test-

-An audit procedure designed to detect the material misstatement at assertion level. Sustantive test can be of 2 types-

(i)Test of details of of class of transactions, accounts balances and disclosures

(ii)Substantive analytical procedures

in the given situation the audit procedure is aTest of details of sales and collections.

It is not a test of control as no controls have bee evaluated.

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2.

ITEM	ASSERTION	DETAILED AUDIT PROCEDURE	Whether assertions have been correctly addressed
1	Accuracy	Select some invoices and trace to sales journal, checking whether the amount has been recorded correctly on the sales journal for each invoice.	yes
2	Cut-off	Select a sample of sales invoices and trace to sales journal, determining whether each invoice has been recorded on the sales journal.	No
3	Completeness	Review evidence that extensions on invoices have been recalculated by the senior accountant after the invoices have been raised by the invoicing department.	No
4	Occurrence	Enter a fictitious order with a wrong type of goods (i.e. a type of goods that is not sold by the entity) to see if the order is accepted.	NO

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3.

ITEM	ASSERTION	DETAILED AUDIT PROCEDURE	Whether assertions have been correctly addressed	Appropriate Assertion
1	Accuracy	Select some invoices and trace to sales journal, checking whether the amount has been recorded correctly on the sales journal for each invoice.	yes	-
2	Cut-off	Select a sample of sales invoices and trace to sales journal, determining whether each invoice has been recorded on the sales journal.	No	Completeness
3	Completeness	Review evidence that extensions on invoices have been recalculated by the senior accountant after the invoices have been raised by the invoicing department.	No	Accuracy
4	Occurrence	Enter a fictitious order with a wrong type of goods (i.e. a type of goods that is not sold by the entity) to see if the order is accepted.	NO	Accuracy

Note-

Assertions	Meaning
Occurance	Transactions that have been recorded have actually been occured during the year
Completeness	All Transactions have been recorded completely
Accuracy	Transactions have been recorded accurately without any bias
Cutoff	Transactions have been recorded in correct accounting period