AUE3702 assignment 2 2021.

AUE3702 assignment 2 2021. Substantive Procedures And Finalising An Audit. Activity 2.1.1 1) Comments on the Junior trainee’s understanding of the assertions Trade receivables Existence the period is not mentioned and readers would not be able to understand which date the junior trainee is referring to 1½ Accuracy She did not include measurement in her statement since the accuracy of an amount needs to be measured to ascertain the amount. She did not also include valuation and allocation1½ Completeness she only mentioned that only debtors who can pay the amount owed should be included in the balance. This is not true as all debtors that exist at reporting date should be included. And she did not also mention the reporting date. Therefore, we do not know which period she is referring to. 1½ Obligation this assertion does not apply to asset balance but liability balances1½ Sales Materiality is not an assertion1½ Cut-off this assertion is correct1½ Validity is not an assertion1½ 2) Correct assertions Trade receivables Existence1½ Rights1½ Valuation, allocation and accuracy1½ Completeness1½ [Type here] Classification1½ Presentation and disclosure1½ Sales Occurrence 1½ Accuracy 1½ Cut-off1½ Classification1½ Completeness1½ Presentation and disclosure1½ Self-refection This activity is enriching as it promotes hard work and understanding Activity 2.2.1 Audit functions to be performed using data CAATs Example of a substantve procedure that can be performed with the use of data CAATs in a payroll and personnel cycle Sorting Use CAAT to sort employee according to grades in the employee Masterfile. Compare the job grades and wage rate in the personnel file Extracting samples Use CAAT to extract a sample gross salary from the employee Masterfile and confrm that the gross salary was authorised in [Type here] terms of the companies remuneration policy Re-perform casts and extensions Use CAATs to re-perform the extensions on the normal rate from the normal rate field in the employees Masterfile and the normal hours worked from the from the normal hours worked field on the employees Masterfile Exception reporting Use CAATs to scan the employee Masterfile for error conditions and produce an exception report File comparison Use CAATs to compare the previous year’s Masterfile to the current years master file to verify if there are any additions of employees Perform analytical procedures Use CAATs to perform analytical reviews on wages by comparing total wages of current year with total wages of previous years Examining records Using CAATs examine the total overtime hours allowed by the company in the employees Masterfile and the overtime worked for a sample of employees to identify inconsistencies Total 21/24 Self-refection The exercise helped me to study this topic properly since I could not do the exercise by studying the learning unit once. [Type here] Activity 2.3.1 Analytical procedures to be performed on the sales value of CompTech Recalculate the gross profit margin for the current year and the previous year and compare them to identify inconsistencies Compare the financial statements for the current year and the previous year Compare the budget for the year and the actual result to see if there are significant deviations from the budget Compare the financial statements of CompTech with the financial statements of enterprises operating in the same sector Compare relevant ratios such as gross profit margins for CompTech and enterprises operating in the same sector Total 5/8 Self-refection I performed poorly in this exercise and I think it’s because I didn’t have enough material to study the learning unit as I didn’t see examples in the textbook Activity 3.1.1 Assertions for sales transactons Occurrence: the sales recorded occurred and relates to the entity Accuracy: the sale is recorded at the correct amount Cut-of: the sales are accounted for in the correct accounting period or financial year Completeness: all the sales that should have been recorded have been recorded Classification: the sales have been recorded or posted in the correct account [Type here] Disclosure: all disclosures have been completely accounted for in terms of the financial reporting framework, classified in the correct account and disclosed in an understandable manner. Assertions relating to receipt transactions Occurrence: recorded receipts were actually received for amounts owed to the entity Accuracy: the receipts are recorded at the correct amount Cut-of: the receipts are allocated to the correct accounting period Completeness: all receipts have been recorded Classification: receipts are recorded in the correct account Disclosure: all disclosures are complete in terms of the international financial reporting framework, the disclosures have been correctly classified and in an understandable manner. Assertions relating to trade and receivables Existence: the trade and receivables actually existed at year end Rights: the company has a right to the amounts owed by the debtor Completeness: all trade and receivables are included at year end Accuracy, valuation and allocation: the balances of debtors are stated at correct amount and any valuation and allocation adjustments have been appropriately recorded Classification: debtors are recorded in the correct account Disclosures: all related disclosures have been completely recorded and appropriately measured and described, the disclosures are relevant and understandable in terms of the requirements of international financial reporting standards. [Type here] Activity 3.1.2 Formulating substantive procedures for revenue (sales) transactons for the year under audit Occurrence Trace a sample of recorded sales transactions from the sales journal and general ledger and; Inspect the customer order for the invoice to confirm that the sales were received from an approved customer Compare the picking slip signed by the picker and the delivery note signed by the delivery clerk and the customer with the invoice to see if the sales recorded match with the above documents Inspect the price list to confirm if the goods invoiced to the customer were of a type sold by the company. Accuracy Select a random sample of invoices and for each invoice; Confirm the mathematical accuracy of the invoice by calculating all extensions, casts, discounts and VAT calculations Confirm that prices and discounts charged and granted are the same as those on the official price lists Match the invoice to the despatch note to confirm that the quantity and description of goods are the same Cut-off select a sample of the despatch notes prior to the year end and inspect the sales journal to confirm that the corresponding sales was raised prior to year end select a sample of invoices entered in the sales journal for the month after year end and trace them to the supporting delivery notes, inspect the dates on the invoice, sales journal and delivery noted to confirm that the goods were not actually delivered prior to year end Classification [Type here] Compare sales ratios to prior periods for example sales commission to sales, cash sales to credit sales Analyse recorded sales by characteristics such as by product and customer by comparison to prior periods Compare sales to prior periods Compare budgeted sales to sales for the period Analyse gross profit fluctuations for the period Disclosures Inspect the financial statements to confrm that disclosures relating to sales are complete, classification of revenue is correct and amounts included are accurate and the accounting policies are clearly expressed and understandable. Activity 3.1.1 Formulating substantive procedures to audit trade receivables at year end Existence Extract a sample of debtors at year end from the debtors list and identify payments received afer year end from the selected debtors from the cash receipts journal and then trace these payments to the debtor’s remittance advice to identify which invoices payments is in respect of These invoices and matched delivery notes are then inspected to confrm that they are dated prior to the year end and they were included at year end in the sales journal and debtor’s ledger Obtain independent confirmation from the debtors, with the consent of management to verify if the debtors are really those of the entity Rights [Type here] Inspect prior year working papers, minutes of director’s meetings, loan agreements, bank confirmations, and by inquiry of management, determine if the receivables in the general journal have been ceded or factored or encumbered in any way Inspect ISO and correspond to the delivery note to that authorisation of credit sales was given to a customer Accuracy, valuation and allocation Review the debtors control account in the general ledger to identify unusual entries and follow up Match the total debtors on the list of individual debtors to the debtors control account in the general ledger to verify if the amounts included are the same If reconciling items are identified, casts, test the reconciling logic and follow up reconciling items to ensure that the amounts are accurately stated The debtor’s list and debtor’s control accounts should be cast to ensure that amounts are accurately calculated Review the debtors list for credit balances and these should be followed up and reversed if necessary Reference should be made to the results of any debtors circularisation and subsequent follow up for evidence of debtor valuation problems, for example, a debtor claiming that he has been charged twice Inquiry should be made of the method and procedures adopted by management to estimate the allowance for bad debt The authorisation procedure to approve credit should be established and evaluated An assessment of whether the basis of calculating the allowance for bad debt is reasonable and consistent with the prior year, should be made Completeness select a sample of despatch notes prior to year-end and inspect the sales journal to confrm that the corresponding sales was raised prior to year end [Type here] Disclosure Inspect the financial statements and consider whether Disclosures are complete in terms of international financial reporting framework Any encumbrances on debtors have been disclosed Disclosures are consistent with evidence gathered on the audit The wordings of the disclosures are clear and understandable Any classifcation of information disclosed is clear and understandable Amounts, facts and details are accurate and agree with the evidence gathered Activity 3.2.1 Assertions for acquisitions (purchase) transactions Occurrence: the purchases recorded occurred and relates to the entity Accuracy: purchases have been recorded at the correct amount Cut-of: the purchases are accounted for in the correct accounting period Completeness: all purchases that should have been recorded have been recorded Classification: the purchases have been posted to the correct account Disclosure: all disclosures have been completely accounted for in terms of the financial reporting framework, classified in the correct account and disclosed in an understandable manner. Assertions for payment transactions Occurrence: payments recorded actually occurred and pertains to the entity Accuracy: the payment has been recorded appropriately and at the correct amount Cut-of: payments have been recorded in the correct accounting period [Type here] Completeness: all payments to creditors have been recorded Classification: payments have been posted to the proper account Disclosure: all disclosures have been completely accounted for in terms of the financial reporting framework, classified in the correct account and disclosed in an understandable manner. Assertions for trade payables Existence: creditors balance existed at reporting date Obligations: all creditors included in the creditor’s balance are the obligations of the company Completeness: all creditors that should have been recorded have been recorded Accuracy, valuation and allocation: creditor’s balances have been stated at correct amount and any valuation and allocation adjustments have been appropriately recorded Classification: creditors are recorded in the correct account Disclosures: all related disclosures have been completely recorded and appropriately measured and described, the disclosures are relevant and understandable in terms of the requirements of international financial reporting standards. Activity 3.2.2 Formulating substantive procedures to audit the acquisition or purchase transaction Occurrence Select a sample of purchases from the purchases journal and Inspect the delivery note to confirm that they were made out to ExWhy (Pty) Ltd and are from and approved supplier Inspect the purchase order, supplier delivery note and goods received note to ensure that they are crossed referenced to each other [Type here] Inspect the purchase order to ensure that it is signed by the chief buyer for approval of the purchase of goods and the goods received note to ensure that5 it is signed by the receiving clerk Inspect the requisition form to ensure that the goods purchased were from a department that requires the goods that is the goods are used by the company Inspect the cash payment records for example EFT schedule, bank statements to confrm that the goods were appropriately paid for, payments were authorised, correct payee and correct amount. Accuracy Confirm the mathematical accuracy of the invoice by recalculating all extensions, casts and discounts Agree the quantity of items charged on the invoice against the quantity on the goods received note Confirm prices and trade discounts used on the invoice by inspection of the purchase order Recalculate VAT, and by inspection of the invoice, confirm that discounts are taken into account prior to calculation of VAT By inspecting the invoice, confirm that the VAT number and details of the supplier as well the supplier’s VAT number are clearly presented on the supplier tax invoice to ensure that the recorded credit is from a valid supplier. Cut-off Inspect the dates on the supplier delivery note, goods received note and invoice to confirm that the goods were received during the accounting period under audit. The dates on these documents should also coincide with the month in which the purchase is recorded in the purchases journal Classification [Type here] Inspect the purchase order to determine the expense or asset account to which the purchase should be allocated and posted and trace the posting from the purchase journal to the designated expense or asset account in the general ledger Inspect the purchase order, goods received note and delivery note to establish the description of goods purchased so as to confirm that the classification of purchase is appropriate Inspect the purchase journal and the invoice to confirm that VAT has been correctly allocated Insect the supplier’s account in the creditor’s ledger to confrm that the purchase was correctly posted from the purchase journal Completeness Select a random sample of goods received not from the sequence of good received note and trace them through to the corresponding invoice to verify if the purchases were completely recorded. Disclosure Inspect the financial statements and consider whether Disclosures are complete in terms of international financial reporting framework Activity 3.2.3 Formulating substantive procedures to audit trade payables balance of R at year end Existence Record the number and of the last goods received note for the year end Select from the purchase journal, material purchases entered during the last two weeks of the year and trace to the relevant goods received note and supplier delivery note through the invoice [Type here] Inspect the purchase journal, GRN, supplier delivery notes and invoice to confirm that the GRN number is lower than the number at the year end and that these documents are dated prior to the year-end date This will determine whether the liability of R exists at year end. Obligation Inspect the invoice, creditor’s statement, supplier’s delivery notes to confirm that they are made out in respect of ExWhy (pty) Ltd, in respect of goods (or services) which are used by the company Valuation Re-perform casts of the creditor’s account and the creditors lists obtain a list of accruals from the client Cast the list Agree the total on the list to the account in the general ledger, trial balance and statement of financial position to verify if they are the same Agree amounts recorded on the accrued list to the invoice, creditors statement and reperform any calculations Select a sample of creditors which includes the company’s major suppliers from the creditor’s list and obtain the year end creditors reconciliations performed by the creditors clerk Re-perform the casts of these reconciliations Agree balance on these reconciliations to the creditors statement and the creditors listing Test the logic of the reconciliations By inspection of the of the creditors statement and the creditors listing and by inquiry and confirmation, confrm the validity of reconciling items