This document provides an overview of the audit procedures for balance sheet items such as accounts receivable, accounts payable, inventory, and fixed assets. It discusses the relevant assertions, audit strategy, test controls, and substantive approach. The document also includes a sample audit team and references for further reading.
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AUDITING
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TABLE OF CONTENTS TABLE OF CONTENTS................................................................................................................2 INTRODUTION..............................................................................................................................1 AUDIT REPORT.............................................................................................................................1 Audit Programs............................................................................................................................1 Relevant assertions for the balance sheet items...........................................................................4 Audit Strategy..............................................................................................................................5 Test Controls................................................................................................................................5 Substantive approach...................................................................................................................6 Audit Team..................................................................................................................................6 CONCLUSION................................................................................................................................8 REFERENCES................................................................................................................................9
INTRODUTION Audit refers to the process of examining the business transactions and records for ensuring that the all the records are made according to the requirements of accounting standards and reporting frameworks provided by the statutory authorities. Audit is conducted for increasing the confidence of users of financial statements that all the information given about the financial performanceandpositionofthecompanyistrueandisfreefromerrorsandmaterial misstatements. Present report based over the Reliable Printers ltd which is a printer of books, magazines and the advertising materials and many more such things. It wants its accounts to be audited for the year 2015 for identifying the errors or mistakes in recording the transactions. Research will involve audit of the financial statements in proper structured format laying a audit program and work schedule. AUDIT REPORT Audit Programs Audit Program for Accounts Receivables Item No.Audit proceduresNature, extents & timings Audit Objective To ensure that the receivables exists. Collections procedures and the outstanding period of the dues. 1.Completeness In accordance with the policy of the company. Tracing the invoices raised and their confirmation procedure. Complete disclosure of the accounts receivables. Markwillbereviewingthe accountsreceivablesonrandom sampling. On the basis of variation further sample size will be decided. 2.Existence Tracing receivables at the year end by circularization. Inspecting the non replies or rejected orders(Christ and et.al., 2019). Date of recording the transactions Existence will be identified of the accounts receivables by verification through the invoices and ensuring that all receivables are represented at year end. 3ValuationValuing the accounts receivable by 1
Comparingtheturnoverof receivables with the previous year. Reviewingtheadequacyofthe allowances for the uncollectable. Examining large customer accounts and their pending durations. makingcomparisonswiththe figuresoflastyear.Adequate inspectionofbiggerduesofthe parties from long time. Audit program for Accounts payable Item No.Audit ProceduresNature, extents & timings Audit objective Ensuring that all the accounts payables actually exits and are represented at year end in financial statements. 1Obtaining the schedule for accounts payable. Steven and Mr Den will look over inspection of payables Examining the invoices of creditors with the dues recorded and making cross checking. Confirmingthebalancein ledgers and invoices before the year end. Inspection of dues outstanding from longtimeandanalysingthe transactionswithlargerparties (Triantopoulou And et.al., 2019). Notesissuedbythepartiesfor cancelled orders. Alltheduesoutstandingfor morethanfourmonthstobe reviewedandrecordingthe reasons. Inspectingabouttheduesor liabilitiesthatarenotrecordedat year end. Examinationoftheaccounts balancesenteredafterthebalance sheet date. Ensuringthatliabilitiesare represented in the balance sheet. Audit Program for Inventory 2
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ItemAudit ProceduresNature, extents & timings Audit Objective To inspect the valuation of inventory and its physical condition and to know the frequency of movement. 1Inspectingtheactualcountsof inventory with the book figures Assessing their conditions whether saleable or not. Testingtheinventorytransaction withtheinventorycountsin invoices. Mr. Robert will visit warehouse forphysicalcheckofthe inventoryanditscondition. Interimphasedatawillbe inspected. 2.Getting external evidence about the existence of inventory. Recordingprocess,consumption, productionandtheclosing inventory valuation to be checked (Sun, 2019). John will inspect the invoices of purchasesandinspectingthe movementsofinventoryin production and outcomes. 3Reviewing the method of costing theinventoryandalsoensuring reviewingthefrequencyof purchases. Ensuring that inventory is valued on the average cost basis at the year end. Audit Program for Fixed Assets Item No.Audit ProceduresNature, extents & timings Audit Objective To inspect the physical condition of the fixed assets and their valuation basis. 1.Reviewingtheacquisition procedures of the fixed assets. Actualexistenceofthefixed assets and its physical inspection. Recording of the fixed assets and valuation. Claire and Mr Daniels will carry out inspection of the fixed assets inspectingthevaluationand expectedlifeofthemachinery from the expert’s report. 3
2.Verifyingthemethodof depreciationandrevaluationof the fixed assets. Inspecting that recording of the fixed assets. Inspectingthatfixedassetsare depreciatedonthemethod specified in financial statements. Anyadditionsordeductionsin fixed assets. Relevant assertions for the balance sheet items AccountsAssertions 1. Accounts ReceivablesIdentification Existence Occurrence Rights & Accuracy 2. Account payableExistence Completeness Cut-off Occurrence 3. InventoryExistence Rights Completeness Valuation 4. Fixed AssetsExistence Completeness Rights & obligations Valuation Assertions Existence–The assertion is concerned regarding verifying that the transaction has actually taken place by confirming through third parties. Completeness– All the transaction entered during the year should be properly recorded during the accounting year and represented. 4
Rights & obligations– The assertions confirms the rights and obligations of the company associated with the various transaction entered into regarding receivable or payables. Occurrence– Assertion is regarding the time on which the transactions are occurred between the company and third party. Valuation– Recorded balance of the relevant balance sheet items are truly reflecting the actual economic value of the items. Audit Strategy The strategy adopted for the audit of the company is taken on the basis of the size and nature of the business. Audit will be reviewing the balance sheet items are free from errors are material misstatements. Audit is divided into four stages. Stage1 Determining the suitability and reliability of transactions and underlying available data. Stage 2 Inspecting the significant differences and doubtful transactions. Stage 3 Computing all the differences from all the items and errors and misstatements. Stage 4 Discussion with the management for reasons & resolving the queries and corrections of the errors and mistakes. Test Controls The test of controls will be performed by the audit firm as the company is planning to change its policies regarding the valuation of inventory at the year end and the change in estimation of fixed assets. Test of controls will be providing sufficient audience for framing the opinions regarding the items(Iqbal, 2019). Using test of control auditors will be identifying effectiveness of controls as the substantive procedures alone may not provide sufficient audit evidence. Test of control will provide evidence regarding the management procedures regarding the approval of transactions related to inventory and fixed assets. Scrutinizing the register of fixed assets and the valuation method. Standards are followed regarding the recording and valuation of 5
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the fixed assets and misstatements. That change will result in better presentation of the accounting statements Substantive approach Substantive will be used for auditing the balance sheet items of the company. However in depth substantive approach is not required as the internal control system of the company is strong. Substantive approach will be followed in verification of the accounts receivable and accounts payable. This will be confirming transactions in the bank statement and the third party confirmation random basis. Matching the orders with invoices and cash collections are made timely.Substantiveapproachwillprovide accuracyof varioustransactionsand balances. Sufficient appropriate audit evidence will be obtained for confirming the balances of accounts payable. Substantive testing refers to the audit procedures for examining financial statements for supporting the documentations. For auditors to frame their opinion it is essential that they obtain sufficient audit evidence(Rahman, 2019). They are essential for ensuring that the records and the statements are free from errors and material misstatements. Audit Team AuditorsNameAuditEducationExperience Lead AuditorMr DanielsFixed AssetsCPA, Bachelor of Accounting & Business 18 years Senior AuditorMr RobertInventoryCPA,Bachelor of Accounting 12 years Senior AuditorMr DenAccounts PayableCPA,Bachelor of Business 9 years AuditorStevenAccounts PayableCPA, Bachelor of Accounting 3 years AuditorJohnInventoryCPA3 years AuditorMarkAccounts Receivables CPA4 years 6
AuditorClaireFixed AssetsBachelor of Accounting2 years 7
CONCLUSION Conclusion are framed that for initiating the audit of any company it is very essential for planning the audit. Audit is to be framed according to the various items that will be inspecting. Framing proper auditing strategy, audit programs with relevant assertions are required for the balancesheetitems.Substantiveauditproceduresareconductedforsupportingthe documentation of the records and for getting substantive audit evidence for framing the audit opinion. 8
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REFERENCES Books and Journals Sun,T.,2019.Applyingdeeplearningtoauditprocedures:Anillustrative framework.Accounting Horizons.33(3). pp.89-109. Christ, M.H. and et.al., 2019. Prepare for Takeoff: Improving Audit Efficiency and Effectiveness with Drone-enabled Inventory Audit Procedures.Available at SSRN 3335204. Triantopoulou, C. And et.al., 2019. Imaging department accreditation: audit procedures and implementation. Rahman, A., 2019. Audit Procedures of a Chartered Accountant Firm: A Study on Habib Sarwar Bhuiyan& Co. Iqbal, M., 2019. Audit Procedures of a Chartered Accountant Firm: A Study on Mahfel Huq & Co. 9