CA TC Assurance and Reporting C19 Questions & Answers

CA TC Assurance and Reporting C19 Questions & Answers Substantive Testing - ANS-Involves performing audit procedures that are designed to detect material misstatements at the assertion level When is substantive procedures normally performed? - ANS-post YE Do auditors have to perform substantive testing - ANS-Yes Examples of Source Evidence - ANS-Invoices, GD/GRNs, bank statements, calculations of depreciation/accruals/prepayments, board minutes, fixed assets, stock Missing Method - ANS-What is the effect on the financial statement account if the time we're checking is missing - if it's too small it's completeness, if it's too big it's existence/occurence Directional Method - ANS-If we're agreeing source invoices to the ledger it's completeness, if we're agreeing the ledger to the source evidence it's existence/occurence What assertions can be tested through substantive analytical procedures? - ANS-All except rights and obligations and presentation Key Substantive Procedures on Bank Accounts - ANS-Testing bank reconciliation, testing bank confirmation Bank Reconciliation Tasks - ANS-Agree bank balance per the reconciliation to the statements and letter, agree nominal ledger balance per reconciliation to the nominal ledger, cast the reconciliation, obtain supporting evidence for a sample of the reconciling items on the bank reconciliation Bank Confirmation Tasks - ANS-Obtain letters from each of the banks with which the client holds accounts, client gives bank permission to provide this information, auditor provides details of one account and then bank provides details of all accounts held by the client What do bank letters contain? - ANS-Details of all bank accounts and the balances at the requested date, details of bank facilities e.g. overdrafts Which assertions do bank letters cover? - ANS-All balance sheet assertions for cash and bank except presentation Substantive Tests Commonly Used by Auditors - ANS-Bank reconciliation, bank confirmation letter, debtor's circularisation, subsequent cash testing, testing allowance for doubtful debts, stock count follow up, cutoff testing, cost v. NRV testing, creditor's circularisation, supplier statement reconciliations, search for unrecorded laibilities Debtor's Circularisation - ANS-All debtors to a company are asked to confirm the amounts outstanding (positive) or reply if the amount stated is incorrect/disputed (negative) Covers trade debtors, assertions are existence, rights and obligations, and classification Subsequent Cash Testing - ANS-Select a sample of trade debtors and checking for related cash receipts in the post YE bank statements. Tests trade debtors, covers Accuracy/valuation/allocation, existence, rights/obligations Testing Allowance for Doubtful Debts - ANS-Tests trade debtors, covers accuracy/valuation/allocation Stock Count Follow-up - ANS-Tests stock, covers completeness and existence Cut-off testing - ANS-Ascertains whether client has accounted for transactions close to the YE correctly - auditor selects a sample of GRNs and GDNs and checks that each transaction has been accounted for in the correct period. Tests stock, covers completeness and existence Cost v. NRV testing - ANS-Agree that the cost of stock is accurately recorded through agreement to purchase invoices and review NRV and compare to cost. Tests stock, covers Accuracy/valuation/allocation