ADVANCED

Audit procedures
 Audit Procedures (CASH / BANK)
• Obtain the company’s bank reconciliation and cast to ensure
arithmetical accuracy. Agree the cash book figure to the financial
statements: (valuation).
• Obtain a bank confirmation letter from the company’s bankers:
(existence, rights & obligations).
• Agree the reconciliation’s balance per the cash book to the year
end cash book: (valuation).
• Agree the balance per the bank statement to an original year end
bank statement and also to the bank confirmation letter:
(valuation).
• Trace all of the outstanding lodgments to the pre year-end cash
book, post year-end bank statement and also to paying-in-book
pre year-end: (valuation, existence).
 Audit Procedures (CASH / BANK)
• Trace all unpresented cheques through to a pre year end cash
book and post year-end statement. For any unusual amounts or
obtain management explanations: (valuation, completeness).
• Examine any old unpresented cheques to assess if they need to
be written back into the purchase ledger as they are no longer
valid to be presented: (valuation, completeness).
• Examine the bank confirmation letter for details of any security
provided by the company or any legal right of set-off as this may
require disclosure: (presentation).
• Review the cash book and bank statements for any unusual items
or large transfers around the year end, as this could be evidence
of window dressing: (completeness, existence).
• Count the petty cash in the cash tin at the year end and agree the
total to the financial statements: (valuation, existence).
 Audit Procedures (Non-Current Liabilities)
• Obtain a breakdown of all loans outstanding at the year end, cast
(arithmetical accuracy). Agree total to the F/S: (completeness).
• Agree the balance outstanding to the bank confirmation letter:
(valuation, rights & obligations).
• Inspect bank confirmation letters for any loans listed that have not
been included in the financial statements: (completeness).
• Inspect F/S for disclosures of interest rates, and the split of the
loan between current and non-current: (allocation, presentation).
• Inspect the loan agreement for restrictive covenants (terms) and
determine the effect of any loan covenant breaches: (allocation,
presentation). Breach will make loan repayable immediately
• Inspect the cash book for loan repayments: (existence, valuation).
• Recalculate the interest charge and any interest accrual in
accordance with loan terms: (accuracy, completeness).
 Audit Procedures (Non-Current Assets)
Auditing tangible non-current assets requires the auditor to
obtain sufficient appropriate evidence over many areas:
• existing assets
• additions
• disposals and the related profit/loss in the statement of
profit or loss
• depreciation (which of course affects both the statement
of financial position and the statement of profit or loss)
• revaluations
• related disclosures (the property, plant and equipment
note, depreciation policies, useful economic lives,
revaluations and assets held under finance leases).
 Audit Procedures (Non-Current Assets) 2
• Obtain the non-current asset register, cast and agree the
total to the financial statements: verifies (completeness).
• Select a sample of assets from the non-current asset
register and physically inspect them: verifies (existence).
• Select a sample of assets visible at the client's premises
and inspect the asset register to ensure they are
included: (completeness).
• Cast the non-current asset register totals and sub-totals
to ensure arithmetical accuracy: (valuation).
• Inspect assets for condition and usage to identify signs of
impairment: (valuation).
 Audit Procedures (Non-Current Assets) 2
• For revalued assets, inspect the valuer's report and agree the
amount stated to the amount included in the general ledger and
the financial statements: (valuation); and ensure that all assets in
the same class have been revalued.
• Obtain a breakdown of additions, cast the list and agree to the
noncurrent asset register: verifies (completeness).
• Select a sample of additions, agree cost to invoice: (valuation).
• Inspect the list of additions and confirm that they are not repairs
and maintenance: (existence).
• Inspect the repairs and maintenance account in the general
ledger for items of a capital nature: (completeness).
• Inspect supplier invoices (for equipment), title deeds (for
property), and registration documents (for motor vehicles) to
ensure they are in the name of the client: (rights and obligations).
 Audit Procedures (Non-Current Assets) Disposals
• Obtain a breakdown of disposals, cast the list and agree
all assets removed from the non-current asset register:
(existence).
• Select a sample of disposals and agree sale proceeds to
supporting documentation such as sundry sales invoices:
(accuracy of profit on disposal).
• Recalculate the profit/loss on disposal and agree to the
statement of profit or loss: (accuracy of profit on
disposal).
• Check that disclosure required by CO1984 is provided
(Presentation & Disclosure)
 Audit Procedures (Non-Current Assets) Depreciation
• Inspect the capital expenditure budgets for the next few years to
assess the useful economic lives (in light of plans of replacement)
• Recalculate the depreciation for a sample (Accuracy).
• Inspect the F/S disclosure of the depreciation charges and
policies in the draft financial statements and compare to the prior
year to ensure consistency (Presentation & Disclosure).
• Recalculate the depreciation charge for revalued assets to ensure
the charge is based on the new carrying value.
• Review profits and losses on assets disposed off (if policy is
reasonable – no significant profit or loss).
• Compare depreciation rates to similar companies to find out
reasonableness.
• Perform comparisons and analysis for each category of assets,
discuss fluctuations with management. (Analytical procedure)
 Audit Procedures (Intangible Assets) Development Cost
• Obtain a breakdown of costs capitalized, cast for
mathematical accuracy and agree to the amount included
in the financial statements: (valuation).
• For a sample of costs, agree to invoices or timesheets:
(valuation).
• Inspect board minutes for any discussions relating to the
intended sale or use of the asset: (existence).
• Discuss the details of the project with management, to
evaluate compliance with IAS 38 criteria: (existence).
• Inspect project plans and other documentation, to
evaluate compliance with IAS 38 criteria: (existence).
• Inspect budgets to confirm feasibility: (existence).
 Audit Procedures (Inventory) Before Count
• Contact client to obtain a copy of the inventory count instructions,
to understand how the count will be conducted and assess the
effectiveness of the count process.
• Inspect prior year working papers to understand the inventory
count process and identify any issues that would need to be taken
into account this year.
• Book audit staff to attend the inventory counts.
• Ascertain whether any inventory is held by third parties, and if
applicable determine how to gather sufficient appropriate evidence.
• Consider the need for using an expert to assist in valuing the
inventory being counted.
• Send a letter requesting direct confirmation of inventory balances
held at year end from any third party warehouse providers used
regarding quantities and condition.
 Audit Procedures (Inventory) Test of Controls
• Non-warehouse staff performing and managing the count.
• Sections of inventory being tagged or marked as counted
to prevent double counting.
• Counts sheets written in pen rather than pencil.
• No movements of inventory during the count.
• Sequentially numbered count sheets and a sequence
check performed once the count is complete.
• Teams of two people performing the count.
• Count sheets show the description of the goods but do not
show the quantities expected to be counted.
• Damaged / obsolete items must be separately identified
so they can be valued appropriately.
 Audit Procedures (Inventory) Test of Controls
• Select a sample of items from the inventory count sheets and
physically inspect the items in the warehouse: (existence).
• Select a sample of physical items from the warehouse and trace
to the inventory count sheets to ensure that they are recorded
accurately: (completeness).
• Enquire of management whether goods held on behalf of third
parties are segregated and recorded separately: (R&O).
• Inspect the inventory being counted for evidence of damage or
obsolescence that may affect the net realizable value: (valuation).
• Record details of the last deliveries prior to the year end. Ensure
that no amendments were made: (completeness & existence).
• Obtain copies of inventory count sheets at the end of the
inventory count, ready for checking against final inventory listing
after the inventory count: (completeness and existence).
 Audit Procedures (Inventory) After Count
• Trace the items counted during the inventory count to the final
inventory list to ensure it is the same as the one used at the year-
end and to ensure that any errors identified during counting
procedures have been rectified: (completeness).
• Cast the list (showing finished goods, WIP and raw materials) to
ensure arithmetical accuracy and agree totals to financial
statement disclosures: (completeness).
• Inspect purchase invoices for a sample of inventory items to
agree their cost (valuation).
• Inspect purchase invoices for the name of the client (rights).
• Inspect post year-end sales invoices for a sample of inventory
items to determine if the net realizable value is reasonable. This
will also assist in determining if inventory is held at the lower of
cost and net realizable value: (valuation).