Tutor HuntResources Accountancy Resources

Auditing

external auditors procedure to verify assets, objectives for substantive tests

Date : 05/04/2017

Author Information

Mataga

Uploaded by : Mataga
Uploaded on : 05/04/2017
Subject : Accountancy


1a) Existence means that assets, assets, and equity interests (capital and reserves) are physically present or belong to the entity on the reporting date.


b) Ownership means that whether the company has lawful claim to the fixed assets to its balance sheet, done by examining the documents or deeds for proof of ownership, also review lease agreement to make sure that any capitalised leases are included on the balance sheet and any operating leases are not.


c) Valuation means that all items have been included in the financial statements at appropriate amounts according to company policy and relevant financial reporting (like impairments) have been and financial and other information is disclosed fairly and at appropriate amounts.


2. Procedures external auditor may adopt to verify assets and liabilities.


For assets examine the title deeds of immovable properties for example buildings.

Ensure that immovable property have been properly classified and disclosed.

Where documents of tittle relating to assets held are available for inspection, a certificate should be obtained from the agent the agent or any other part holding the document.

Ascertain the certificate has been obtained unequivocally that they are free from any charge or encumbrance.

For example building check that the building have been valued at cost less depreciation if any revaluation has taken place see the basis of revaluation and ensure that the disclosure has been made. See that the relevant particulars of buildings have been entered in the fixed assets record maintained by client.

For liabilities the auditor can review internal control on liabilities as regards its generation, storage and disposal and see whether it was properly followed at every stage.

Ascertain whether the organisation is maintaining reasonable records for sale of disposable materials.

See that all material sold have been billed and check the calculations of the invoices.

Ensure that there exists a proper procedure to identify the material and good quality material is not mixed up with junk material.

Make an overall assessment of the value of realisation from the sale of junk material as to its reasonableness. Ensure that proper accounting has been done for it.


3. Objectives for carrying out substantive procedures on the following


Sales and receipts,


To ensure the completeness of revenue, to ensure cut-off have been correctly applied.

Another objective is check existence of accounts receivable which are authentic obligations owed by customers at the balance date through confirmation, test from debtors subsidiary ledger to supporting documentation of sale (invoice, delivery note) and subsequent receipts review.

To check valuation of accounts receivable is presented at a reliable estimate of the net realisable amount through review of aged trial balance, analytical procedures and subsequent receipts review.


b) Purchases and payments, the objective for the substantive procedures is to test for bank reconciliation, to test decrial accuracy of bank reconciliation and scanning of cash receipts and cash payment journal.


c) Payroll, the main objectives for carrying out substantive procedures are as follows


To ensure that employees are only paid for work done.

To ensure that wages are only paid to valid employees.

To ensure that wages are paid at the correct rates of pay.

To ensure that wages are correctly calculated.

To ensure all wages transactions are correctly recorded in the books of accounts.

To ensure that all payroll deductions are paid over to appropriate third parties.


d) Fixed assets, the main objective for carrying out substantive procedures are as follows


To ensure that the reported fixed assets is free of material accounting errors.

To uncover invalid asset transactions, to uncover non-compliant assets valuation.

To uncover incorrect assets classification.

Use the understanding of client and its environment to consider inherent risk including fraud risks related to property, plant and equipment.

Obtain an internal understanding of internal control over property and equipment

Determine that the client has rights to recorded property, to establish proper valuation or allocation of property.

To determine that the disclosure and presentation of property is correct.

To assess the risk of material misstatement and design tests of control and substantive procedures that establishes the completeness of recorded property and substantiates the existence of property, plant and equipment.





This resource was uploaded by: Mataga