Table of Contents Substantive Audit Test Program......................................................................................................3 Audit procedure of employee entitlement.......................................................................................6 References........................................................................................................................................8
SUBSTANTIVE AUDIT TEST PROGRAM The financial information of company is reviewed by auditor. The main objective of auditor is to ensure that information present in the financial statement is true and fair. For this, auditor perform substantive test, which includes the examination of financial statement and additional document to identify that they are correct. Table1Analysis of financial information Year2018 ($000) 2017($0 00) %of chan ge in 17 to 18 2016($0 00) %of chan ge in 16 to 17 2015($0 00) %of chang ein 15to 16 2014($0 00) %of chan ge in 14 to 15 Trade and other receiva ble 79758756325.46 %77059 - 1.85 % 721336.83 %72217 - 0.12 % Retail Sale 29945 7129807710.46 %29246821.92 %27704215.57 %26484784.60 % Invento ry 52384 04872747.50 %501713 - 2.88 % 510461 - 1.71 % 4921093.73 % Purchas es 20033 962008859 - 0.27 % 19665102.15 %18546696.03 %17753384.47 % Trade and other payable 27902 82673044.39 %271308 - 1.48 % 2564995.77 %284319 - 9.78 % Fixed Asset 23859 2252175 - 5.39 % 271043 - 6.96 % 355095 - 23.67 % 3368055.43 % (Source – Annual report of The Warehouse Group)
Substantive test for Trade and Other receivable and retail sale On the basis of above information it is observed that, there are discrepancies in trade and other receivables in the year 2018 as compared with its previous year, as it has been increased by 5.46%. However, there is no significant change in retail sale of company. The assertions related with trade and other receivables and revenue are presence and occurrence, completeness, reliability, valuation, and cut off. Out of all these assertion, it has been observed that presence of receivables, occurrence of revenue, and valuation of receivable are most significant. Therefore, it is required by auditor of Warehouse Company to identify that all trade and other receivables reflected in financial information is present, they are properly value, and revenue occurred. With this aspect, auditor should review the process of account receivable by company (Knechel, & Salterio, 2016). For this, it is required to select major accounts from the ledger, and observe the original information that resulted in the present balance. It is very important as company may add fake debtors to accelerate its financial reports. In addition to this, for verifying retail sale, it is required to review the accounting policies followed by company for recognition of revenue. Substantive test for Inventory, purchases and Trade and other payables On the basis of above information, it has been seen that there is significant differences in the inventory as compared with its earlier year. The assertions related to inventory, purchases, and trade payables are whether inventory and trade payable which is recorded in financial statement is actually present, whether the company has right on those goods, and it is actually valued according to accounting standard (Appelbaum, Kogan, & Vasarhelyi, 2018). For this, Auditor should contact with supplier, whether purchase is actually made by company. In addition to this, they can also ask with supplier, and match it with amount present in financial statement.
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Moreover, by visiting inventory on site, auditor can confirm presence of inventory. They should also reconcile the purchase account with inventory sold and in hand (Appelbaum, Kogan, & Vasarhelyi, 2018). Substantive test for payroll Performing test for payroll includes ensures that employees of company paid correct amount. Auditor is required to ensure that transaction of payroll is reflected in financial statement in a proper manner. With the aspect of payroll, the major assertion for auditor is completeness of transaction, cut off, and occurrence (Quick, & Henrizi, 2018). At the end of period, company accrue the payroll liability, therefore, it is required that transaction should be complete and recorded in the actual period. For this, auditor should understand the payroll cycle of company and observe that payment is made at the end of cycle.In addition to this, auditor should ensure that no terminated employee is being paid. For this, it is required to take sample of terminated employee and check them back to register of payroll. Similarly, auditor should also choose sample of new employee and ensures that documentation is take place according to human resource policy of company. Substantive test for fixed asset There is risk that fixed asset that are recorded in financial statement may not actually exist. For addressing this, auditor should perform physicalobservation or join physical observation conducted by entity. Another assertion is that whether all fixed asset is completely recorded in financial statement, as if it is not recorded that it assist in understatement of financial accounts. Valuation of fixed asset is major assertion for auditor, because there may be possibility that
company include ore exclude cost of capitalization by charging it to profit and loss accounts or vice versa. For this, it is required to properly review or read the financial statement for verification of disclosures and classification. By this, conformity with accounting standard can also be determined. For valuation, auditor should check invoice, examine lease agreement, and determine appropriate treatment of accounting, check repair and maintenance account, and depreciation account. Further, they should also perform analytical procedure, examine fixed asset, and observe subsidiary notes, so that completeness can be checked. AUDIT PROCEDURE OF EMPLOYEE ENTITLEMENT In the given case, employee entitlement consists of wages, salaries, compensation based on performance, annual and sick leave, and long service lease entitlement. Wages are directly auto deposited in the bank account of company. Further, there is no comparison made among the record of employee and this system of payment. In this system, there is risk that whether the payment transactions are made to valid employees. Further, auditor should identify whether there is proper internal control system or authorization procedure when dealing with employee entitlement transaction. It is required to ensure that updating of file of employees and time sheets should be conducted by proper authorized authority (Rezaee, Sharbatoghlie, Elam, & McMickle, 2018). For testing of authorization, auditor should choose sample of employees, examine time sheets, inspecting that appropriate level of authority approves working hours for which employee is provided salary or performance based entitlement. Further, auditor should check back to employee file and ensures that payments are made to the person whose name is mentioned in employee register. Moreover, for checking whether the transactions are accurate and it does not contain any mistake or error, it is required to trace the amount paid and classification of account.
In addition to this, year-end transaction contain more risk, because for reflecting more positive position of financial statement, company may move accounting activities from one period to another. Therefore, auditor should obtain reasonable assurance whether company recorded all its liability as and when due (Maksymov, Nelson, & Kinney 2018). In addition to the above aspect, auditor should also consider the risk due to fraudwhen planning to apply test for audit of employee entitlement. Since even if company has robust internal control system, then also there is possibility of fraud. For ensuring that employee should be paid only for actual working hours done, auditor should select sample of employee from the register and reconcile it with agrees hours paid to personal clock card. There is also possibility that payment is made to fake employee, for this auditor should select sample of employees and check it with employment contract in human resource department. Several times wages are also paid to employee for overtime work required by company, for examining accurate overtime cost auditor should compare the overtime cost with prior period year and can identify any major differences. In addition to this, wages should be paid at correct rate; auditor should check records of HR and compared it with wages rate of employee. Moreover, it is essential that amount of ages, salary, leave entitlement, performance based payment should be accurately measures, for this auditor should select sample of employee and recheck calculations. In the given case, it has been seen that salary is directly credited to employee’s account and there is no comparison of payment system and record of employee, therefore auditor is required to perform all above procedures to ensure that payment is accurately recorded and made to valid employees.
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REFERENCES Books and Journals Appelbaum, D. A., Kogan, A., & Vasarhelyi, M. A. (2018). Analytical procedures in external auditing:Acomprehensiveliteraturesurveyandframeworkforexternalaudit analytics.Journal of Accounting Literature,40, 83-101. Appelbaum, D., Kogan, A., & Vasarhelyi, M. A. (2017). Big Data and analytics in the modern audit engagement: Research needs.Auditing: A Journal of Practice & Theory,36(4), 1-27. Glover, S. M., Taylor, M. H., & Wu, Y. J. (2016). Current practices and challenges in auditing fair value measurements and complex estimates: Implications for auditing standards and the academy.Auditing: A Journal of Practice & Theory,36(1), 63-84. Knechel, W. R., & Salterio, S. E. (2016).Auditing: Assurance and risk. Routledge. Maksymov, E., Nelson, M. W., & Kinney Jr, W. R. (2018). Budgeting Audit Time: Effects of ProcedureFrameandPerceivedProcedureVerifiability.BehavioralResearchin Accounting,30(1). Quick, R., & Henrizi, P. (2018). Experimental evidence on external auditor reliance on the internal audit.Review of Managerial Science, 1-34. Rezaee, Z., Sharbatoghlie, A., Elam, R., & McMickle, P. L. (2018). Continuous Auditing: BuildingAutomatedAuditingCapability.InContinuousAuditing:Theoryand Application(pp. 169-190). Emerald Publishing Limited.
Online The Warehouse Group, 2015. Retrieved from <2015-Annual-Report.pdf> The Warehouse Group, 2016. Retrieved from <_TheWarehouseGroupAnnualReport2.pdf> The Warehouse Group, 2017. Retrieved from <TheWarehousegroupAnnualReport2.pdf> The Warehouse Group, 2018. Retrieved from <TheWarehouseGroupAnnualReport2.pdf>