Assignments for internal audit departments (VR, MR, IF)

1. Value for money review: The IAD could be asked to assess whether Co is obtaining value for
money.
2. Review financial/operational controls: The IAD could undertake reviews of controls at head
offices and another situation….
3. Monitoring assets levels: The IAD could undertake physical verification of property, Plant and
equipment and compare the asset with asset register.
4. Regulatory compliance: The IAD will be subject to a large number of laws and regulations such
as environment legislation.
5. IT System review: The IAD could be asked to perform a review over the computer environment
and controls.
6. Fraud Investigation: The IAD could be asked to investigate any suspected fraud as well as review
the controls to prevent/detect fraud.

Fraud responsibility

1. Accordance with ISA 240, the auditors are responsible for obtaining reasonable assurance that
financial statement taken as a whole are free from material misstatement, whether caused by
fraud and error.
2. The auditors are required to identify and assess the risk of material misstatement of the
financial statement due to fraud or error.
3. The auditor must respond to fraud or suspected fraud identified during the audit.
4. When obtaining reasonable assurance, the auditor is responsible for maintaining professional
skepticism which is effective in detecting error.
5. Whole engagement team is aware of the risk and responsibilities for fraud and error, a
discussion is held within the team.

Safeguards to deal with conflict of interest

1. The client Co. and its competitor rival should be notified that Audit Co. would be acting as
auditors for each company.
2. Advising one or both clients to seek additional independent advice.
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3. The use of difference engagement teams, with difference engagement partners and teams
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members.
4. Clear guideline for members of engagement teams of security and confidentiality which include
in the engagement letters.
5. Potentially the use of confidentiality agreement signed by employees and partners of the firm.
6. Regular monitoring of the above safeguards by a senior individual.
Reliance on the work of an expert (Independent valuer)

1. Company is required to consider whether the expert has necessary completeness, capabilities
including expertise
2. They should consider the nature, scope and objective of inventory or other expert’s work such
as technical knowledge.
3. The expert’s independence should be ascertained, with potential threats such as self-interest.
4. The auditor should meet with the expert and discuss with them their relevant expertise.
5. The expert’s inventory or other quantities should evaluated and careful received it’s to compare
previous inventory or other count.

Difference between interim audit and final audit

Interim audit

1. Interim audit takes place before the year end.

2. The auditor would be difficult to perform at the year end because of time pressure.
3. Interim audit include documenting and testing of internal control, testing of profit or loss
transaction.

Final audit:
1. The final audit will take place after the year end.
2. Concludes with audit forming and expressing an opinion of financial statement for the whole
year.
3. Final audit includes inventory count, analytical review financial statements, substantive
procedures of account balances and transaction and going concern review.
Value for money audit:
1. Economy: Keeping the cost of resources used to a minimum.
2. Efficiency: the relationship between the output from the goods and services.
3. Effectiveness: How the organization objective have been achieved.
Benefit of audit documentation:
1. It provides evidence that auditor was planned and performed in accordance with ISA.
2. It assists the engagement team to plan and perform the audit.
3. It assists the member of engagement team to supervise and review the audit work.
4. It enables the engagement team to be accountable for its work.
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Audit sample:
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1. Audit sampling is the application of audit procedures to less than 100% if item within a
population of audit relevance.
2. Audit sampling can be applied using either a statistical or a non-statistical approach.
3. They provide a reasonable assurance and hence it is not necessary to test every item within
population.
Importance benefit of audit committee:
1. Audit committee will help to improve the quality of financial reporting and also assists by
reviewing the financial statement.
2. The establishment of audit committee can help to improve the internal control environment.
3. If the client has internal audit department, audit committee will also improve the independence.
4. The audit committee also provides on risk management to the executive director.
Internal control components (CRIME)
1. Control environment includes the government and management function and attitudes,
assurance and action of those charges with the government and management concerning.
2. Risk assessment for financial reporting purposes, how management identifies business risks to
the preparation of financial statement with financial reporting framework.
3. Information system includes the accounting system that consists of the procedures and
recording designed to maintain accountability.
4. Control activities are the policies and procedures which help to ensure that management
directives are carried out.
5. Monitoring control is a process to assess the effectiveness of internal control performance over
time.

Understanding an entity (PP DD RC)

1. Prior year financial statement provides information in relation to the size, accounting policies
and disclosures notes and whether the auditor opinion was modified or not.
2. Prior year report to management can provide information of internal control deficiencies notes
last year.
3. Discuss with prior year auditors provide information on key issues identifies during the prior
year audit.
4. Discuss with the management provides information which have arisen or change to accounting
policies from the prior year.
5. Review of board minutes provides an overview which has arisen during the year.
6. Current year budget and management accounts will help the auditor during the planning stage.

Computer assists audit technique (CAATs)

Advantages:

1. CAATs enable the audit team to test a large volume of inventory data accurately and quickly.
2. CAATs can test program controls within the inventory system as well as general IT controls, such
as password.
3. CAATs reduce the level of human error in testing and hence provide a better quality of audit
evidence.
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4. CAATs result can be compared with traditional audit testing which will increase confidence.
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Disadvantages:

1. The cost of using CAATs in this first year will be high because of significant set up costs.
2. For using CAATs, team may require training.
3. If testing is live inventory system, the data could be corrupted of lost.
4. If testing is copy file rather than live data, then file are not genuine.
Element of assurance engagement

1. An assurance engagement will involve three separate parties:

 The intended user, who requires the assurance report.
 The responsible party, Organization is responsible for preparing the subject matter.
 The practitioner, who is the professional who will review the subject matter and provide
the assurance.
2. The subject matter is data that the responsible party has prepared.
3. Suitable criteria are required in an assurance engagement to compare with the subject matter
and opinion provide.
4. Sufficient appropriate evidence has to be obtained by practitioner.
5. The assurance is opinion that is given by practitioner to the intended user and responsible party.

Fundamental principle

1. Integrity to be straightforward and honest in all professional and business relationships.

2. Objectivity to not allow bias, conflict of interest to override professional or business judgments.
3. Professional competence and due care to maintain professional knowledge and skill to ensure
that a client receives competent professional services, in accordance with applicable technical
and professional standards.
4. Confidentiality to respect the confidentiality of information, not to disclose any information to
third parties without proper authority.
5. Professional behavior to comply with relevant laws and regulations and avoid any action that
discredits the profession.

Importance of reporting to those charged with governance (TCWG)

1. It assists the auditor and those charges with governance in understanding matters related to the
audit and in developing a constructive working relationship.
2. It helps the auditor in obtaining, from those charges with the governance, information relevant
to the audit.
3. It helps those charged with the governance to oversee the financial reporting process.
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Matters to be communicated to TCWG

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1. The auditor’s responsibilities to providing an opinion on the financial statements with

International Standers on Auditing.
2. Any key audit risks identified during the planning stage should be communicated.
3. Any significant difficulties encountered during the audit should be communicated.
 Ethical threats
Self-interest: The threat that a financial or other interest will inappropriately influence the profession
accountant’s judgment or behavior.

1. Close person or business relationship.

2. Direct financial interest in a client
3. Contingent fee arrangements.

Self-Review: the threat that the auditor will not appropriately evaluate the results of the previous
judgment made or service performed by him.

1. Member of the assurance team being or recently have been employed by the client which
subject matter being received.
2. Performing a service for a client that directly affects the subject matter of assurance
engagements.

Familiarity: the threat that due to a long or close relationship with a client, the auditor will be too
sympathetic to their interests or too accepting of their work.

1. Long associate with a client

2. Acceptance of gifts or preferential treatment
3. Close family member who influence business decision.

Advocacy: the threat that the auditor will promote a client’s position to the point that his objective is
compromised.

1. Promoting shares in a listed audit client.

Intimidation: the threat that the auditor will be deterred from acting objectively because of actual or
perceived pressures, including attempts to exercise undue influence over the auditor.

1. Threat of litigation
2. Threat of removal as assurance firm.
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Going concern

1. Management has a responsibility under IAS 1 presentation of financial statements and to make
appropriate disclosures with regards to going concern.
2. In accordance with ISA 570, the auditor responsibility is to obtain sufficient appropriate audit
evidence about the going concern assumption.
3. The auditor should consider whether the period of management’s going concern assessment is
adequate.
Matter to be included in an audit engagement letter

1. The objective and scope of the audit.

2. The responsibility of the auditor.
3. The responsibility of the management.
4. Identification of financial reporting framework for preparation financial statement.
5. The expectation of that management will provide written representation.
6. Any obligation to provide audit working paper.
7. Any restriction on auditor liability.
Engagement letter revised
1. A recent change of senior management or significant change of ownership.
2. A significant change of nature or size of the entity’s business. The approach taken by director.
3. A change in legal or regulatory requirement.
4. A change in financial reporting framework to preparation of the financial statement.

Auditors’ right

1. Right of access at all times to company’s books, accounts and vouchers.

2. Right to receive all communication relating to written resolutions.
3. Right to receive all notices of, any general meeting.
4. Right to attend any general meeting of the company.
5. Right to be heard at any general meeting.

Control activities (SAPPA)

1. Segregation of duties assignment of responsibilities to difference people, thereby reducing the

risk of fraud and error.
2. Authorization: approval of transactions by a responsible official to ensure transactions are
genuine.
3. Physical controls restricting access to physical assets such as cash and inventory, thereby
reducing the risk of theft.
4. Performance reviews comparison of the performance of the business such as budget verses
actual results.
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5. Arithmetical controls which check the arithmetical accuracy.

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Limitation of external audits (SIEAH)

1. Sampling is not practical for auditors to test 100% of transactions.

2. Inherent limitations of the internal control system which is operated by people and hence is
liable to human error.
3. Evidence is persuasive not conclusive.
4. Audit report format: the opinion is determined by international standards an auditing.
5. Historical information the auditor report is issued after the year end so the financial
information can be quit difference to the current position.
Working Paper

1. Name of client- Identifies the client name being audited.

2. Year and date- identified the year end to which the audit working paper relates.
3. Subject- Identified the area of the financial statements the being audited.
4. Preparer- identified the name of audit team member who prepared the working paper.
5. Reviewer- identified the name of audit member who review the working paper.
6. Conclusion- the overall conclusion on the audit work performed, whether the area id true and
fair.
Analytical Procedures
1. During the planning stage analytical procedures must be used as assessment procedures in
order to help the auditor to obtain an understanding of the entity.
2. During the final audit analytical procedures can be used to obtain sufficient appropriate audit
evidence. Substantive procedures can either be tests of detail or substantive analytical
procedures.
3. At the final review stage the auditor must design and perform analytical procedures.
Importance or benefits of audit planning
1. It helps the auditor to devote appropriate attention to the important areas of audit.
2. It helps the auditor to identify and resolve potential problem on the timely basis.
3. It helps the auditor to properly organize and manage the audit engagement.
4. It assists in the selection of the engagement team members with appropriate level of
capabilities.
5. It assists, where applicable, in the coordination of work done by experts.

Sampling methods

1. Random selection ensures each item in a population has an equal chance of selection.
2. Systematic selection involves having constant sampling interval, such as every 40 th item being
selected.
3. Monetary unit sampling is a type of value weighted selection in which sample size, selection
evaluation results in a conclusion in monetary amounts.
4. Haphazard selection here the auditor selects the sample without following a structured
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technique.
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5. Block selection

Modification of opinion in the independent auditor’s report

1. Qualify opinion: Where the auditor calculates, having obtained sufficient evidence that material
BUT not pervasive misstatements are present in the financial statement.
2. Adverse opinion: Where the auditor, having obtained sufficient evidence that misstatement are
BOTH material and pervasive to the financial statement.
3. Disclaimer of opinion: Where the auditor is unable to obtain sufficient appropriate evidence
that undetected misstatement could be BOTH material and pervasive.
Documenting the sales and dispatch system

Narrative Notes

Narrative notes consists written description of the system; they would detail what occurs in the system
and any controls at each stage.

Advantage

 They are simple to record and easy written up as notes.

 They can facilitate understanding by all member of internal audit team.

Disadvantage

 Narrative notes may prove to be too cumbersome.

 It is more difficult to identify missing internal control.

Questionnaires

Internal control questionnaires (ICQ) or internal control evaluation questionnaires (ICEQ) contain a list of
questions. ICQ are used to assess whether control exist and ICEQ test the effectiveness of the controls.

Advantage

 Questionnaires are quick to prepare.

 All control present within the system.

Disadvantage

 A standard list of questions may miss out unusual control.

Flowchart

Flowcharts are a graphic illustration of the internal control system for the sales and dispatch system.

Advantage
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 It is easy to view the sales system.

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Disadvantage

 They are sometimes to be difficult to amend.

 It can be time consuming method.

Reliability of audit evidence

 1. The reliability of audit evidence is increased when it is obtained from independent sources
outside the entity.
2. Audit evidence obtained directly is more reliable than obtained indirectly.
3. Audit evidence in documentary form, paper, electronic or other medium is more reliable than
orally.
4. Audit evidence provided by original copy document is more reliable than photocopy.

Key audit matters

1. Key audit matters (KAM) are those matters which, in auditor’s professional judgment, were of
most significance in the audit of financial statement of current period.
2. KAM are selected from matters communicated with those charge with governance.
3. The purpose of KAM in the auditor report is to help user in understanding the entity and discuss
with management and those charged with governance about matters.

KAM the auditor should take the following into account:

1. Area of higher significant risks.

2. Significant auditor judgments of area in the financial statement which involved significant
management judgment.
3. The effect on the audit of significant events and transactions.

Audit risk

Auditor expresses an inappropriate audit opinion when financial statements are materially
misstatement.

Audit risk is two components, material misstatement and detection risk.

Risk of material misstatement is a further two component inherent risk and control risk.

1. Inherent risk is the susceptibility of an assertion about a class of transaction that could be
material. This is before consideration of any related control.
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2. Control risk is a misstatement which could occurred in an assertion about a class of transaction,
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which will not prevented or detected and corrected by internal control.

3. Detection risk is the risk that procedures performed by the auditor to reduce the audit risk.
Detection risk is affected by sampling and non-sampling risk.

Substantive Procedures and Test of control

Property Plant and Equipment

Addition

1. Obtain a breakdown of addition, cast the list and agree included in the non-current assets register to
confirm completeness.
2. Select a sample of addition and agree cost of supplier invoice to confirm valuation.
3. Select a sample of addition and agree title deeds in the name of company to verify right and
obligation.
4. Select a sample of addition recorded; physically verify them to confirm existence.
5. Review the board minutes to ensure that significant capital expenditure purchases have been
authorized by the board.

Disposals

1. Obtain a breakdown of disposal, cast the list and agree all disposal assets removed from the non-
current assets register.
2. Select a sample of disposal and agree sales proceeds to supporting documentation.
3. Recalculate the profit/loss on disposal and agree the trial balance and statement of profit or loss
have been correctly recorded.
4. Recalculate the depreciation charge for sample of addition and disposal to confirm the calculation
correctly applied.
5. Review the disclosure of the addition and disposals in the draft financial statements and ensure
accordance with IAS-16.

Revaluation

1. Obtain a schedule of land and building revalued and cast the list, to confirm completeness and
accuracy.
2. Agree the revaluation amounts are included correctly in the non-current assets register.
3. Recalculate the total revaluation adjustment and agree correctly recorded in the revaluation surplus.
4. Recalculate the depreciation charge before and after revaluation to ensure calculation are correctly
applied.
5. Review disclosure of revaluation in the financial statement accordance with IAS-16.
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Equity
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1. Review the board minutes to confirm the issue of additional share capital during the years.
2. Inspect the cash book and bank statements for evidence of cash receipt from the share issue.
3. Recalculate the split of proceeds between the nominal value of shares and premium and agree
correctly recorded in the share capital and share premium account.
4. Review disclosure of the share issue in the draft financial statements are with relevant accounting
standards and local legislation.

Intangible assets, research and development

 1. Obtain a schedule of intangible assets, opening balance, amount capitalized current year,
amortization and closing balances.
2. Agree the opening balances to the prior year financial statements.
3. Agree the closing balances to the general ledger, trial balance and draft financial statements.
4. Discuss with the management the detail of each project with development whether it has been
capitalized of expenditures.
5. For expense as research, agree the cost incurred in invoice and supporting documentation and
to inclusion in profit or loss.
6. For capitalized as development, agree the cost incurred in invoices and confirm technically
feasible by discussion with the management.
7. Review market research reports to confirm probable future economic benefits will arise.
8. Review disclosure for intangible assets in the draft financial statements are in accordance with
IAS-38.

Bank Account

1. Obtain a bank confirmation letter from company banker for all of its bank accounts.
2. For all bank account, obtain company bank account reconciliation and cast to ensure
arithmetical accuracy.
3. Agree the bank reconciliation to an original year-end bank statement and to the bank
confirmation latter.
4. Agree the bank reconciliations balance per the cashbook to the year-end cash book.
5. Examine the bank confirmation letter for detail of any security provided by company.
6. Review disclosures of bank balance in the financial statement to ensure it is complete and
accurate.

A step in undertaking a positive receivable circularization for company (Dec 17-18.a)

1. Obtain consent from the financial director of co. in advance of undertaking the circularization.
2. Obtain a list of receivable at the year end, cast this and agree it to the sales ledger control
account.
3. Select a sample from receivable ensuring that a number of nil, old, credit and large balance of
selected.
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4. The financial director should be requested to sign all letter prior to send out by member of audit
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tear.
5. Where no response is received, a phone call or where necessary alternative procedures should
be perform.
6. When replies are received, they should be reconciled to co. receivable record, any difference.

Receivable substantive procedures

Accuracy, valuation and allocation

1. Review after the cash receipts and follow through to prior year end receivable balances.
2. Inspect the receivable reports to identify any slow moving balances, discuss with the credit
control manager to assess whether an allowance is necessary.
3. For any slow moving balances review customer correspondence to assess whether there are any
invoice in dispute.

Completeness

1. Select a sample of goods dispatch notes from before the yearend; agree to the sales invoices
and inclusion in the sales ledger.
2. Agree the total individual sales ledger account to the receivables listing and to the trial balance.

Bank loan

1. Agree the opening balance of bank loan to the prior year audit file and financial statement.
2. Agree the closing balance of the bank loan to the trial balance and draft financial statement and
the loan is disclosed as current liability.
3. For any loan payment made during the year agree cash flow to the cash book and bank
statement.
4. Obtain direct confirmation from loan provider and any security provided agree confirmed
amount.
5. Review the disclosure of bank loan to ensure accordance with accounting stander and local
legislation.

Accruals for income tax payable

1. Compare the accruals for income tax payable to the prior year, investigate any significant
differences.
2. Agree the year-end income tax payable accrual to the general ledger and payroll records to
confirm accuracy.
3. Agree the subsequent payment to post year-end cash book and bank statements to confirm
completeness.
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4. Review any correspondence with tax authorities to assess whether there are any additional
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outstanding payments due; if so, agree there included in year-end accrual.

5. Review disclosure of the income tax accrual and whether there are in compliance with
accounting standards and legislation.
6. Re-perform the calculation of the accrual for a sample of employee to confirm the accuracy.
Trade payable and accruals

1. Compare the total trade payable and list of accruals against prior year and investigate any
significant difference. (analytical procedure)
2. Select a sample of post year-end payment from cashbook, follow through (agree) to the
purchase ledger or accruals listing, they are recorded in the correct period. (cut off)
3. Obtain supplier statement and reconcile with the purchase ledger balances, investigate any
significant difference.
4. Review after date invoices and credit notes to ensure no further items need to be accrued.

Revenue

1. Compare the overall level of revenue against prior years and budget and investigate any
significant fluctuation.
2. Calculate the gross margin and compare to the prior year and investigate any significant
difference.
3. Select a sample of invoices and recalculate sales tax to correctly apply to the sales invoice.
4. Select a sample of invoices and recalculate discount allowed to ensure there are accurate.
5. Select a sample of customer orders and agree the dispatched notes and sales invoices in
inclusion sales ledger to ensure completeness.
6. Select a sample of dispatches notes both prior and post year and agree the sales invoices in
correct account period to ensure cut-off.
7. Select a sample of credit notes, trace original invoice and ensure invoice correctly removed from
sales.
Payroll record

1. Compare the total payroll expanse to the prior year and investigate any significant difference.
2. For a sample of employees, recalculate gross and net pay and agree to the payroll records to
confirm accuracy.
3. Review monthly payroll charge, compare to the prior year and budget and discuss with the
management for any significant difference.
4. Agree the total wages and salaries expanse per the payroll system to the trial balance,
investigate any significant difference.
5. Select a sample of joiners and leavers, agree their start/leaving date to supporting
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documentation, recalculate that their first and last pay.

6. Select a sample of weekly overtime sheets and trace to overtime payment in payroll records to
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confirm completeness.
7. Agree the total net pay per the payroll records to the bank transfer and to the cashbook.

Directors’ remuneration
 1. Obtain a schedule of director remuneration, split by salary and bonus and cast the schedule to
ensure accuracy.
2. Agree a sample of individual monthly salary and bonus payments in the payroll records to confirm
the amount paid by cash and bank statements.
3. Confirm the amount of each bonus paid by agreeing to the cash book and bank statements.
4. Agree the amount paid per director to board minutes to ensure the sums included are genuine.
5. Review the board minutes to identify whether any additional payment have been agreed for any
directors at this year.
6. Obtain a written representation confirming from management view the completeness of directors’
remuneration including bonus.
7. Review disclosure of directors’ remuneration whether those are compliance/accordance with local
legislation.

Depreciation charge

1. Obtain a breakdown of depreciation, compare to prior year, where significant changes have occurred.
Discuss with the management whether this change is reasonable.
2. Select a sample of PPE and recalculate the depreciation charges to ensure new depreciation rates have
been appropriately applied.
3. Discuss with the management for the charge of property, plant and equipment depreciation rates,
useful life, residual values and depreciation methods and how this charges were arrived at.
4. Review the non-current assets register to assess if the revised depreciation rates have been applied.
5. Review disclosure of depreciation charges in draft financial statements and ensure it is in
line/accordance with IAS 16.

Purchases and other expenses

1. Calculate the operating profit and gross profit margins and compare to last year and budget and
investigate any significant differences.
2. Review the monthly purchases and other expenses to identify any significant fluctuation and discuss
with the management.
3. Discuss with the management whether any changes in the key suppliers and compare this to the
purchase ledger to assess completeness and accuracy.
4. Recalculate a sample of purchases invoice and related taxed and ensure the expense has been
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included in the correct nominal code.

5. Recalculate prepayment and accruals charge at the year end to ensure the charged have been
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included in the statement of profit or loss.

6. Select a sample of payments from cash book and bank and trace to original purchases invoice and
ensure the expanses have been classified correctly.
7. Select a sample of goods receives notes from throughout year and agree purchase invoice and
purchase day book to ensure completeness.
8. Select a sample of GRN just before and after the year end and agree purchase day book to ensure
the correct accounting period.

Before the count:

 1. Review prior year audit files to identify whether there were any particular warehouse where
inventory arose last year.
2. Discuss with the management whether any of the warehouses this year are new or have
significant control.
3. Decide which of the warehouses the audit team member will attend, basic of materiality and
risk of each site.
4. Obtain a copy of inventory count instructions, review to identify any control deficiencies, discuss
with the management prior to the counts.

During the inventory count:

1. Observe the counting teams whether the inventory counting structures are being followed
correctly.
2. Observe the movement of inventory during the inventory count, to confirm that no raw material
or finish goods have been omitted or counted twice.
3. Select a sample and perform test counts from inventory sheets to warehouse aisle and from
warehouse aisle to inventory sheets.
4. Select a sample of damage items as noted on the inventory sheets, to confirm whether the
damage are correctly noted.
5. Identify and make a note of the last goods receive notes and goods dispatched notes to perform
cut-off.
6. Identify and record any inventory held for third party and confirm that it is excluded from the
count.

Procedures to obtain evidence and to test relevant to…

1. Inspection- Inspection involves examining records, documents or a physical examination of an

asset.
2. Observation- observation consists of looking at a process or procedure being performance by
others.
3. Analytical procedures- Analytical procedures consist of evaluation of financial information
through analysis both financial and non-financial data.
4. Inquiry- Inquiry consists of seeking information from knowledgeable person, financial and non-
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financial, within entity of outside of entity.

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5. Recalculation- Recalculation consists of checking the mathematical accuracy of documents of record.

6. External Confirmation- An external confirmation represents audit evidence obtained by the
auditor from third party.

Audit software procedure using

Computer assisted audit technique (CAAT)

1. The audit team can use audit software to calculate payable/receivable days… for the year to
compare prior year to identify any significant difference.
2. Audit software can be used to cast payable/receivable days ….to confirm the completeness and
accuracy of the ….days.
3. Audit software can be used to select a representative sample for further testing of
payable/receivable balance.
4. Audit software can be used to undertake cut-off testing by assessing whether the date on last
GRN/GDN’s recoded relate prior year end.

Going concern

1. Obtain company cash flow forecast and review the cash in and out flow discuss with the
management to understand will have sufficient cash flows.
2. Discuss with the finance director whether any new customer has been obtained to replace any
lost.
3. Discuss with the finance director whether they have contacted any banks for finance to help
with new product development.
4. Review any bank correspondence to assess the bank renewing the overdraft facility.
5. Review the post year end board minutes to identify any financial difficulties for the company.
6. Review post year end management accounts to assess if in line with cash flow forecast.
7. Obtain a written representation confirming the director view that the company is a going
concern.

New and additional for the revision

Substantive procedures for trade payable

1. Calculate the trade payables days and compare to the prior year and investigate any significant difference.
2. Compare the total trade payables and list of accruals against prior year and investigate any significant
differences.
3. Obtain supplier statements and reconcile these to the purchase ledger balances, and investigate any
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reconciling items.
4. Select a sample of purchase invoices received, review goods received notes and follow through to the
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correctly journal entry.

5. Select a sample of the GRNs before and after the year end and follow through the correct accounting
period’s to ensure cut-off.
6. Review after date payments then follow through to the purchase ledger to ensure they are recorded in
the correct period.
7. Review after date invoices and credit notes to ensure no further items need to be accrued.

Trade Receivable
 1. Obtain the aged receivables listing and agree to the balance on sales ledger control account and
trial balance.
2.  Review trade receivables ledger to identify any slow moving ro old balances, discuss with the
credit controller to assess whether they are likely to pay.
3. Review customer correspondence to identify any balances which are in dispute or unlikely to be
paid and discuss with the management.
4. Review board minutes to identify whether there are any significant concerns in relation to
payments by customers.
5. Calculate the average receivable collection period and compare this to the prior year and
investigate any significant fluctuation.
6. Inspect post year-end sales returns/credit notes and consider whether an additional allowance
is required.
7. Obtain a breakdown of allowance for trade receivables and recalculate and compare
irrecoverable balances to assess if the allowance is adequate.
8. Select a sample of goods dispatch notes before and after the year end and follow through to the
receivable to ensure cut-off.
9. Select a sample of year end receivable balances and agree to sales invoices, GDNs and sales
orders to ensure existence. 

Substantive procedures for the Faulty or Damage inventory

1. Obtain a breakdown of the damaged goods held in inventory and returned from customers and
cast to confirm its accuracy.
2. Agree on a sample basis the returns as per breakdown back to sales returns documentation to
confirm existence.
3. Discuss with the management whether they are able to rectify the damage and then sell the
goods on. If so, agree the costs of rectification to supporting documentation.
4. It the damaged inventory has been rectified and sold post year end, agree to the sales invoice to
access NRB with the new cost.
5. Agree the cost of damaged goods to supporting documentation to confirm the raw material
cost, labor cost and any overheads attributed to the cost.
6. Inspect monthly board meeting minutes to obtain further information of faulty and its possible
resale value.
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Substantive procedures for the Sales tax liabilities

 1. Agree the year-end sales tax liabilities in the trial balances to the tax return submitted to the
sales authorities and cast return.
2. Agree the subsequent payment to the post year end cash book and bank statements to confirm
completeness.
3. Recalculate the sales tax incurred as per reconciliation is equal to 15% and expense as per the
purchases day book.
4. Recalculate the amount of payable to the tax authorities as being sales tax charged less sales tax
incurred.
5. Compare the year-end sales tax liabilities to the prior year balances or budget and investigate
any significant differences.
6. Review any current and post year end correspondence with the sales authorities to assess
whether there are any additional outstanding payment due. If so, confirm they are included in
the year end liabilities.
7. Review disclosures of the sales tax liabilities to assess whether they are in accordance with
accounting standards and local legislation.

Procedure which could be undertaken during the interim audit include:

1. Review and updating of documentation of accounting system at Milla Co.

2. Discuss with the management on the recent growth and any other change in the business which
have occurred during the year to date at Co to update the auditor’s understanding of the
company.
3. Assessment of risks which will impact in the final audit at Milla Co.
4. Undertake test of control on Milla Co’s key transaction cycle of the sales, purchase and
inventory and credit control.
5. Perform substantive procedures on profit and loss transactions for the year to date and any
other complete material transactions.

Control objective- Cash receive system (D-16. 19.c)

 To ensure that all valid cash receipts are received and deposited promptly in the bank.
 To ensure that all cash receipts are recorded in the cash book.
 To ensure that all cash receipts are recorded at the correct amounts in the cash book.
 To ensure that cash receipts are correctly posted to the general ledger.
 To ensure that cash receipts are recorded in the correct accounting period.

Importance of communicating with those charged with governance

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1. It assists the auditor and those charged with governance in understanding matters related to the
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audit and in developing a constructive working relationship.

2. It helps the auditor to obtaining, those charged with governance, information relevant to the
audit.
3. It helps those charged with governance to oversee the financial reporting process.
4. It promotes effective two-way communication between the auditor and those charged with
governance.