Summary
SUBSTANTIVE PROCEDURES SUMMARY
- Course
- Auditing (AUDIT388)
- Institution
- Stellenbosch University (SUN)
SUBSTANTIVE PROCEDURES SUMMARY FOR AUDIT 288/388
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General procedures:Obtain a management representation letter confirming the completeness and valuation of debtors.
Inspect the minutes of the directors meetings for any decisions made regarding the liquidation of
debtors.
Compare the opening balance of the debtors to the previous year’s working papers
Scrutinise the general ledger account for any discrepancies and enquire management about these
Obtain the debtors age analysis and compare the amount outstanding to the trial balance, general
ledger and the financial statements
Analytical procedures:
Develop an expectation of debtors by taking into account previous years, the budget and industry
norms.
Calculate the outstanding amount of the debtors and calculate it is a percentage of the total current
assets and compare it to the budget, previous years and the financial statement.
Calculate the current ratio and quick asset ratio and compare the current year to the previous year’s
budget and industry norms.
Scrutinise the above ratios and enquire management about any discrepancies that may exist
Enquire management about debtors that exist in the previous years but no longer exist in the
current year.
Test of detail of transactions:
Obtain a sample of sales orders and inspect them particularly for any abnormalities
Based on this sample, perform the following tests:
Inspect the sales order for the signature of the client and for the signature of the credit manager to
ensure that credit has been granted and to ensure that it is a valid order (occurrence). Also compare
the sales order to the delivery note. Also inspect any correspondence files for any amounts that
were not taken into account (completeness). Compare the amount on the sales order with approved
price lists and catalogues (accuracy).
Ensure that the transaction has been recorded in the sales journal and the debtors ledger
Obtain a sample of credit notes and inspect them particularly for any abnormalities
Based on this sample, perform the following tests:
Inspect the credit note for the signature of the client and the entity to ensure that it is a valid return
(occurrence)
, Further inspect any correspondence files between the two parties to ensure that all amounts have
been taken into account (completeness)
Inspect the debit note created by the client and ensure that the amounts agree (accuracy).
Ensure that the transaction has been recorded in the sales returns journal and the debtors ledger
(completeness)
Obtain a sample of payments received (cheques), and inspect them particularly for any
abnormalities
Based on this sample, perform the following tests:
Inspect for the bank stamped deposit slip and compare it to the cheque (occurrence and accuracy)
Drawer, amount and date
Compare to any bank reconciliations performed (accuracy)
Ensure that such a transaction has been recorded in the bank statement and the cash book.
Inspect the number sequence of the following (completeness):
Invoices recorded in the sales journal
Credit notes recorded in the sales returns journal
Inspect the suspense file for the following (completeness):
Sales orders that are awaiting delivery notes
Deliver notes that are awaiting sales invoices
Enquire management and receive an explanation for any long outstanding
Cut-off:
Obtain the last delivery note recorded in the inventory records and compare it with the last sales
journal entry and ensure that such an entry was recorded in the correct financial period and that no
later amounts were recorded in the financial statements
Obtain a sample of Delivery notes in the 3 days before and after year end and ensure that the
amounts were recorded in the correct financial statements
Extract from the client’s system all transactions where orders have been received but for which no
invoice has been created and ensure that such amounts were recorded as debtors in the financial
period.
Test of detail of balances:
Reconcile the amount of debtors as per the debtors age analysis with the amount of debtors as per
the debtors control account balance (valuation).
If the above reconciliation does not agree, then enquire management and acquire explanations from
management why such amounts don’t agree
It may be necessary to perform further audit procedures to obtain sufficient and appropriate audit
evidence
With the permission of the client, circulate debtor’s circulars by making sure it is a representative
sample to the following debtors as per the age analysis (completeness):
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