Substantive Procedures
Tangible Non-Current Assets
General Procedures/Balance:
 Agree F/S with records
 Physical Verification.
 Reconciliation.
 Inspect (Title Documents).
 Scan Ledger.
 Disclosure (as per IAS – 16).
For Depreciation/Impairment:
 Review Fixed Assets' Register.
 Recalculate depreciation on sample.
 Check estimates are reasonable
(e.g. rate, life, residual value).
Engage Expert, if necessary.
 Review gain or losses on disposals
 Compare ratio of depreciation.
 Understand management’s process
to identify and record impairment.
For Additions:
 Obtain list and agree with F/S.
 Inspect authorization
 Inspect sale deed etc.
 Inspect supplier’s invoice
 Check date of capitalization.
 Test calculation of depreciation.
 Physically inspect
For Disposal:
 Obtain list and agree with F/S.
 Inspect authorization.
 Inspect sale invoice etc.
 Verify removal from books and
register.
 recalculate profit or loss.
 Inquire management possibility of
unrecorded disposals.
For Revalued Asset:
1. Evaluate Competence, Capability and
Objectivity of Expert.
2. Evaluate Adequacy of work of Expert.
3.Evaluate Accounting/Disclosures:
 Agree with valuer’s report.
 Valuation is up-to-date.
 Entire class revaluated.
 Evaluate
method
to
ensure
consistency.
 Recalculate revaluation surplus.
 Physically inspect condition.
 Appropriate disclosure.
 Written
Representation
(on
reasonableness of assumptions)
For Self-constructed Fixed Asset:
 Inspect permission of authorities
 Physical verification.
 For sample of cost, inspect
Suppliers’ invoice, Payroll records,
and relevant evidence.
 Review list of capital expenditure.
 Discuss capitalization policy.
 Compare budget with actual cost.
 Expert’s assessment of stage of
completion.
 Depreciation starts when asset is
available for use.
 Presentation and Disclosures.
1-Page Summary for Spring 2022 Attempt
Intangible Non-Current Assets
Goodwill:
 Inspect approval.
 Inspect sale agreement.
 Inspect due diligence report.
 Recalculation.
 Adequacy of disclosures.
For Amortization/Impairment:
 Understand management’s process.
 Check annual impairment testing.
 Evaluate
appropriateness
of
assumptions used in impairment
testing.
 Engage expert, if necessary.
 Obtain written representation
(about assumptions)
Development Cost:
 Check
recognition
criteria
(PIRATE).
 Discuss feasibility and obtain
representation.
 Discuss any technical problem/
impairment.
 Review development cost for
classification.
 Select a sample, and inspect
supporting documents.
 Test controls over scientists’
documentation.
Other Intangibles:
 Inspect approval.
 Inspect legal documents.
 Check reasonableness of life.
 Discuss for impairment.
Inventory
 Agree F/S with records.
 Physical Verification. If not visited,
compare inventory level & internal
auditor report.
 Scan Ledger
 Reconciliation
 Test valuation method.
 Inspect supporting documents.
 Subsequent clearance
 Expert
 Cut-off on sales & purchase.
 Presentation and Disclosure
Valuation:
 Aging analysis.
 Check physical condition.
 Discuss increase in inventory.
 Evaluate calculation of NRV.
Trade Receivables
 Agree F/S with records
 External Confirmation
 Reconciliation
 Scan Ledger
 Presentation and Disclosure
Procedures to ensure Provision for
bad debts:
 Evaluate basis of provisioning.
 Aging analysis
 Subsequent clearance and writeoff.
 Evaluate disputed receivable.
 Assess historical accuracy.
Page 1 of 2
Accrual/Prepayments for Expenses
 Obtain list, agree with F/S.
 Compare list with last year.
 Check supporting documents.
 Subsequent clearance.
Bank
 Agree F/S with records
 Scan Ledger
 Inspection of BRS (balances,
unpresented/uncredited items)
 Bank Confirmation Letter
Cash
 Physical Verification
 Reconciliation
 Inquiry about money advanced.
 Cut-off
 Inspect whether real.
Trade Payables
 Agree F/S with records
 External Confirmation
 Subsequent clearance
 Reconciliation
 Scan Ledger
 Review aging report.
 Presentation and Disclosure
Procedures to ensure Completeness:
 Cut-off on purchases.
 Inspect pending GRN.
 Subsequent clearance.
 Compare list of suppliers with last
year.
Provisions and Contingencies
Provisions:
 Obtain list and agree with F/S
 Review list to ensure completeness.
 Compare list with last year.
 Evaluate recognition and
measurement criteria
 Written
representation
(on
adequacy).
Contingencies:
 Obtain list and inquire approach.
 Follow up last year.
 Effect of subsequent events.
 Letter of Inquiry to lawyer.
 Identify undisclosed contingencies
(BOD minutes, Legal expenses,
business press, Representation,
correspondence with lawyer)
Non-current Liabilities/Borrowings
 Obtain list and agree with F/S.
 Inspect loan agreement.
 New borrowings (approval, legal
requirements).
 Inspect repayments (recalculation
and payment).
 Interest expense (calculation and
presentation)
 External Confirmation
 Presentation and Disclosure
Substantive Procedures
Equity
Share Capital:
 Agree F/S with records
Share capital issued:
 Inspect Authorization
 Check compliance with legal
requirements.
 Check Cash received
 Check Treatment of
premium/discount on issue
 Review disclosures
Reserves:
 Obtain list and agree with F/S.
 Inspect Authorization of movement.
 Check compliance with legal
requirements.
 Presentation and Disclosure
(revenue & capital reserves)
For Dividend distributed:
 Inspect Authorization.
 Recalculate
 Ensure payment out of
distributable profit, within legal
time, deduction of zakat & tax,
 Unpaid/unclaimed dividend
(accounted for and disclosed).
1-Page Summary for Spring 2022 Attempt
Sales
 Select sample from GL and check
supporting documents.
 Select sample of GDN and check
recording in GL.
 Select invoices and check
mathematical accuracy.
 Cut-off
 Scan Ledger
 Classification, Presentation &
Disclosures
Purchases
 Select sample from GL and check
supporting documents.
 Select sample of GRN and check
recording in GL.
 Select invoices and check
mathematical accuracy.
 Cut-off
 Scan Ledger
 Classification, Presentation &
Disclosures.
Payroll
 Agree F/S with records
 Compare total with prior year.
 Compare month to month.
 Check
reasonableness
by
calculating expected value.
 Payroll sheet (cast, recalculate).
 Physical verification
 Authorization of new staff.
Expenses
 Compare with last year.
 Check adjustment for accrual and
prepayment.
 Scan Ledger.
 Select sample of transactions and
inspect (supporting documents,
mathematical accuracy, evidence
and acknowledgment of payment,
purpose)
Interest Expense & Income
 Inspect agreement
 Check reasonableness by
calculating expected value.
 Inspection receipts/payments.
Other Specific Areas:
Insurance Receivable
 Read Insurance Policy.
 Inspect correspondence.
 Record only if virtually certain.
Litigations
 Inspect correspondence.
 Written representation (on likely settlement).
 Effect of Subsequent events
 Possibility/Impact of regulatory action.
Loss by Fire/Flood
 Physically inspect location.
 Assess reasonableness of inventory/assets balance at
location.
 Appropriate accounting and disclosures (e.g.
Impairment, NRV, Loss). Use Expert, if needed.
Warranty
 Inspect sales agreement.
 Check reasonableness of cost of warranty repair.
 Discuss nature of defect in inventory, and impact on
other areas.
 Subsequent events, and their impact on recognition.
 Written representation.
Inventory count at other than B/S date
 Inventory count at other date.
 Prepare reconciliation.
 Inspect documents for intervening transactions.
Physical Verification not possible
Perform alternative procedures i.e.
 Inspect documents (e.g. GRN).
 Use technology (e.g. drone cameras, video calls)
Remember that you have to memorize procedures in Key Words, but have to write in Complete Sentence Form.
Prepared by: Muhammad Asif, FCA
Assisted by: Atif Farooq
Page 2 of 2