In: Accounting
You are an audit manager of David and Goliath Accounting Firm (DG) and listed some of substantive procedures you want to perform during the year end audit:
Select a sample of invoices and ensure that they have been properly recorded in the sales ledger.
Perform a debtors’ confirmation (a.k.a. accounts receivable circularisation).
Attend the year-end stocktake and perform test counts on a sample of stock items.
Calculate the accounts receivable turnover and compare with previous year’s turnover.
REQUIRED:
Name the type of substantive audit procedure in EACH of the above
and provide ONE key financial statement assertion to which it
significantly relates.
Substantive procedures:
The audit procedures performed by the auditor to identify the material misstatements in the financial statements are known as substantive procedures. These procedures provide assurance in completeness, accuracy and validity of the financial records of the company. There are 2 types of substantive procedures
1. Test of details
2. Analytical procedures
Financial statement assertions:
Following are the financial statement assertions that relates to financial statements of any entity that should be verified while verifying the financial statement areas.
1. Occurrence
2. Existence
3. Completeness
4. Accuracy
5. Valuation
6. Rights and Obligations
Substantive procedures performed |
Type of substantive procedures |
Financial statement assertion to which it significantly relates to |
Select a sample of invoices and ensure that they have been properly recorded in the sales ledger |
Test of details |
Completeness (Revenue- In statement of Comprehensive income) |
Perform a debtors confirmation (a.k.a accounts receivable circularisation) |
Test of details |
Existence and Valuation (Trade receivables -In Statement of Financial Position) |
Attend year end stocktake and perform test counts on a sample of stock items |
Test of details |
Existence (Inventory -In Statement of Financial Position) |
Calculate accounts receivable turnover and compare with previous year’s turnover |
Analytical procedures |
Completeness (Trade receivables -In Statement of Financial Position) |