PROVISION

(b) Substantive procedures for Canopus Co’s restructuring provision

1 – Cast the breakdown of the restructuring provision to ensure it is correctly calculated and agree the
total to the trial balance.
2 – Review the board minutes where the decision to restructure the production process was taken and
confirm the decision was made in March 20X5.
3 – Review the announcement to shareholders and employees in late March, to confirm that this was
announced before the year end.
4 – Obtain a breakdown of the restructuring provision and confirm that only direct expenditure relating
to the restructuring is included
5 – Review the adequacy of the disclosures of the restructuring provision in the financial statements and
assess whether these are in accordance with IAS® 37 Provisions, Contingent Liabilities and Contingent
Assets
6 – Review the expenditure to confirm that there are no retraining costs of existing staff included.
7 – For the costs included within the provision, including acquisitions of plant and machinery, agree to
supporting documentation, such as purchase invoices, to confirm validity and value of items included.
8 – Review post year end payments/invoices relating to the expenditure and compare the actual costs
incurred to the amounts provided to assess whether the amount of the provision is reasonable.
9 – Obtain a written representation confirming management discussions in relation to the
announcement of the restructuring and to confirm the completeness of the provision.

(d) Substantive procedures for the redundancy costs

1 Review the board minutes for evidence of the decision to discontinue the brand of chemicals prior to
the year-end.
2 Review supporting documentation to confirm that the decision to discontinue the brand was notified
to the four members of staff prior to the year end.
3 Obtain details of the redundancy calculated by employee, cast the schedule and agree to the trial
balance/financial statements.
4 Recalculate the redundancy provision to confirm completeness and agree components of the cost to
supporting documentation such as employee contracts.
5 Agree the redundancy payments made in July 20X5 to the cash book/payroll records and compare
these to the provision in the financial statements.
6 Obtain a written representation from management confirming the completeness of the costs.
7 Review the disclosures included in the financial statements to verify they are in compliance with
requirements of IAS 37 Provisions, Contingent Assets and Contingent Liabilities.

(c) Substantive procedure for Potential breach of transport regulations

1 Review correspondence with the transport authority to establish details of the complaint and the
number of times the breach has allegedly occurred.
2 Enquire of the directors why they are unwilling to provide or make disclosure, whether they accept
that any breaches took place but believe that the effect is immaterial or whether they dispute their
occurrence.
3 Review Encore Co’s policies and procedures to record driving hours and rest periods and compare to
the regulations to determine the likelihood that breaches have occurred and how frequently.
4 Review correspondence with the transport authority to establish if there have been discussions about
other instances of potential non-compliance.
5 Obtain a written representation to the effect that the directors are not aware of any other breaches of
laws or regulations that would require a provision or disclosure in the financial statements.
6 Review correspondence with Encore Co’s legal advisers or, with the client’s permission, contact the
lawyers to establish their assessment of the likelihood of the breach being proven and any fines that
would be payable.
 7 Review the board minutes to ascertain management’s view as to the likelihood of payment to the
transport authority.
8 Obtain a written representation to the effect that the directors are not aware of any other breaches of
laws or regulations that would require a provision or disclosure in the financial statements.
9 Inspect the post year-end cash book and bank statements to identify whether any fines have been
paid.

(c) Substantive procedures to confirm the redundancy provision

1 Discuss with the directors of Dashing Co as to whether they have formally announced their intention to
close the production site and make their employees redundant, to confirm that a present obligation
exists at the year end.
2 If announced before the year end, review supporting documentation to verify that the decision has
been formally announced.
3 Review the board minutes to ascertain whether it is probable that the redundancy payments will be
paid.
4 Obtain a breakdown of the redundancy calculations by employee and cast it to ensure completeness
and agree to trial balance.
5 Recalculate the redundancy provision to confirm completeness and agree components of the
calculation to supporting documentation such as employee contracts.
6 Review the post year-end cash book to identify whether any redundancy payments have been made,
compare actual payments to the amounts provided to assess whether the provision is reasonable.
7
Obtain a written representation from management to confirm the completeness of the provision.
8 Review the disclosure of the redundancy provision to ensure compliance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.

C) Substantive procedure - Contamination – legal claims

1 – Review customer correspondence to establish the details of the claims and the amounts being
claimed.
2 – Review correspondence with Purrfect Co’s lawyers or, with the client’s permission, contact the
lawyers to establish the likely outcome of the customer claims made to date.
3 – Discuss with the lawyers the likelihood and amount of potential future claims.
4 – Inspect board minutes to establish details of the circumstances of the contamination and to
ascertain management’s view as to the likelihood that the existing claims will be successful and the
extent
– Reviewof the
possible
draftfuture claims.
financial statements to establish that the legal claims have been appropriately
5 provided for or disclosed in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent
Assets.
6 – Compare levels of returns and claims to date against sales volumes of the product to assess the
potential level of future claims.
7 – Review post-year end payments for damage settlements and compare with any amounts provided at
the year end to assess the reasonableness of the provision.
8 – Obtain written representations from management that there have been no other contamination
incidents and no other product liability claims of which management are aware and for which
provision may be required.