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BA 122.2 - Substantive Procedures
BA 122.2 - Substantive Procedures
Beginning
Additions
Disposals
Depreciation
Ending
■ Part of the Notes to FS
■ Clients keep this
■ Verify the mathematical accuracy and the soundness of the assumptions
○ Verify the parts
■ Beginning
● @ carrying value
■ Additions
● Verify through vouching - looking for the supporting documents
(1) Quotations
(2) Official receipts of payments
● Physical check
■ Disposals
● Vouching
(1) Permission to dispose the asset
(2) If through a sale, check the official receipt as well
(3) If tinapon, check necessary docs related to disposal
(a) Approval from mgt
(b) From the warehouse
■ Depreciation
● Computation to check the mathematical accuracy
● Verify the reasonableness of the estimates
(1) Dep. method (is it allowed)
(2) Useful life (especially those with contracts)
(3) Salvage value
V. ACCOUNTS PAYABLE (AP)
○ Focus more on verifying completeness instead of existence as opposed to assets
○ Primary SP: Confirmation to Suppliers
○ SL/GL reconciliation
○ Subsequent Disbursements
■ Check disbursements after year-end
■ Steps:
● Ask for the list of the sub. Disb.
● Check the amounts and determine what expenses they pertain to
(because the sub disbursements may pertain to early 2020
expenses or late 2019 expenses)
● If these amounts pertain to 2019 expenses, they should be
included in the AP for 2019
● ADJUSTING ENTRY
(1) Check the SOA
(2) Billing statements
(3) Check when the item arrived (FOB shipping point)
VI. SALES (COCAC)
○ Analytical Procedures
■ Trends and ratios to see if there are red flags in I/S accounts (used in
planning phase and SP and Conclusion phase)
■ Trend analysis
● YEAR ON YEAR ANALYSIS
● MONTH ON MONTH ANALYSIS
(1) Plot level of sales
■ Check for peak periods and or downward fluctuations
■ Ask for explanations
■ Activity last year vs this year
○ Test of Details
■ Vouching - get info from supporting docs (po number etc.)
● Sampling
(1) Verify the occurrence and existence of sales and expenses
■ Check from records to the supporting documents and vice versa to verify
the completeness of the records
VII. EXPENSES
○ Most important: C-classification, check whether expenses are classified in the
correct account
○ Primary SP: Analytical Procedures
○ SPECIFIC EXPENSES AND THEIR AUDITING PROCEDURES
■ Rent Expense
● Analytical procedures should follow the contractual price, straight
line only. If it iss based on sales, should look like the trend line for
sales
● Ask for the contract of lease to recheck
■ Salaries Expense
● Ask for the plantillia (??)
(1) Document containing the list of employees and all the
relevant information about them and their payroll (i.e.
monthly pay, benefits, start of employment)
● Verify that they withhold taxes and fringe benefit taxes
● Auditors should verify that the amount of expense recognized is
correct and to ensure that the client is tax compliant
■ Representation Expense
● Should only be limited to 0.5% of your sales for seller of goods
(a) Seller of services: 1% of sales
● Excess shall not be added to deductible income tax (BIR)
● In the computation of income tax, its a permanent difference
● Can be included in the computation of accounting or financial
income
■ Repairs and Maintenance and PPE
● Ensure that disbursements are indeed expenses and not
capitalizable to PPE and vice versa
● Analytical Procedures
● Vouching