Substantive procedures for directors’ bonuses
1. Obtain a schedule of the directors’ bonus and cast the
schedule to ensure its accuracy. Agree the amount to that
disclosed in the financial statements.
2. Review the schedule of current liabilities and confirm the
bonus accrual is included as a year-end liability.
3. Agree the individual bonus payments to the post yearend payroll records.
4. Confirm the amount of each bonus paid by agreeing to
the post year-end cash book and bank statements.
5. Obtain a written representation from management
confirming the completeness of directors’ remuneration
including the bonus.
6. Review the disclosures made regarding the bonus paid to
directors and assess whether these are in compliance with
local legislation.
Substantive procedures for income of a charity
1. Obtain a schedule of all income and cast to confirm
completeness and accuracy of the balance and agree to the
trial balance.
2. Compare the individual categories of income against prior
years and investigate any significant differences.
3. For monthly donations, trace a sample of donations from
sign up documentation to the bank statements, cash book
and income listing to ensure that they are recorded
completely and accurately.
4. For a sample of new donors in the year, agree the
monthly sum and start date from their completed forms
and trace to the monthly donations received account and
agree to the cash book and bank statements.
5. Discuss with the management to ensure that income
received in advance has been included as deferred income
and not included in current year income to confirm the cutoff of income.
6. For donations received in cash, ensure that those
amounts were banked promptly to confirm that there has
not been misappropriation of it.
Substantive procedures for provisions
1. Obtain a breakdown of the items to be provided for and
cast it to confirm arithmetical accuracy and agree the figure
to the financial statements.
2. Enquire with the directors or inspect relevant supporting
documentation to confirm that a present obligation exists
at the year end.
3. Inspect relevant board minutes to ascertain whether
payment is probable.
4. Recalculate the provision and agree components of the
calculation to supporting documentation to verify
completeness.
5. Inspect post yearend bank statements to identify
whether any payments have been made, compare actual
payments to the amounts provided to assess whether the
provision is reasonable to verify valuation.
6. Obtain a written representation from management that
they believe the provision is valued appropriately and is
complete.
7. Inspect the financial statement disclosure of the
provision to ensure compliance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets to verify
classification and understandability.
Substantive procedures for 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. Obtain a breakdown of the reorganisation provision and
confirm that only direct expenditure from restructuring is
included.
3. Inspect the board minutes to confirm that the decision
for restructuring was made prior to the year end.
4. Review the announcement made to shareholders and
employees to confirm that it was made prior to the year
end.
5. Review the expenditure to confirm that there are no
retraining costs included.
6. For the costs included within the provision, agree to
supporting documentation to confirm validity of items
included.
7. Obtain a written representation confirming management
discussions in relation to the announcement of the
restructuring and to confirm the completeness of the
provision.
8. 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.
Substantive procedures for bank loans
1. Obtain a schedule of opening and closing loans detailing
any changes during the year. Cast the schedule to confirm
its accuracy and agree the closing balances to the trial
balance and draft financial statements.
2. Recalculate the interest charged on loan to ensure that
the expense is arithmetically correct and the accuracy of
finance costs in the statement of profit or loss and
completeness of accruals.
3. Review the correspondence with the bank to identify any
additional charges levied. Charges, if any, should be agreed
to the Statement of Profit and Loss as finance cost.
4. Obtain direct confirmation at the year-end from the loan
provider of the outstanding balances and any security
provided. Agree confirmed amounts to the loans
schedule. This will verify the valuation and rights and
obligations.
5. Inspect bank confirmation letters for any loans listed that
have not been included in the financial statements to
ensure completeness.
6. Review all loan agreements for details of covenants and
recalculate all covenants to identify any potential or actual
breaches.
7. Inspect the cash book for loan repayments made to verify
existence and valuation.
8. Review the adequacy of disclosures as well as the split
between current liability and non-current liability and
ensure it is in accordance with accounting standards and
local legislation.
Substantive procedures for the redundancy costs
1. Review the board minutes for evidence of the decision to
make the particular department redundant was taken prior
to the year-end.
2. Review the announcement made to the staff members to
confirm that redundancy was announced to them prior to
the year-end.
3. Obtain details of the redundancy calculated, 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. Review the post year-end period to identify whether any
redundancy payments have been made, compare actual
payments to the amounts provided to assess whether the
provision is reasonable.
6. Obtain a written representation from management
confirming the completeness of the costs.
7. Review the adequacy of the disclosures relating to the
redundancy provision included in the financial statements
and ensure it is in accordance with IAS 37 Provisions,
Contingent Assets and Contingent Liabilities.
Substantive procedures for vehicles additions and disposals
1. Obtain the schedule of additions to vehicles, cast it and
agree the total to the disclosure note for property, plant
and equipment.
2. Inspect the non-current asset register to ensure that the
new additions have been included correctly and the
disposals have been removed from the non-current assets
register.
3. Recalculate the gain or loss on disposal and agree to trial
balance and statement of profit and loss.
4. Inspect supporting documentation to ensure that the
company owns the new vehicles. This will test for rights and
obligations.
5. Recalculate the depreciation expense and ensure that
depreciation is charged on disposals only till the date of
disposal and on additions only from the date it was made
functional.
6. Review the notes to the financial statements to ensure
that disclosure of the additions and disposals is in
accordance with IAS 16 Property, Plant and Equipment.
Substantive procedures for additions of non-current assets
1. Obtain a breakdown of additions, cast the list and agree
to the non-current asset register to verify completeness.
2. Select a sample of additions and agree cost to supplier
invoice to confirm valuation.
3. Inspect the list of additions and confirm that they relate
to capital expenditure items rather than repairs and
maintenance to verify existence.
4. Inspect the repairs and maintenance account in the
general ledger for items of a capital nature to verify
completeness.
5. 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 to verify rights
and obligations.
6. If assets have been constructed by the client, obtain an
analysis of the costs incurred, cast for arithmetical accuracy
and agree a sample of costs to supporting documentation
(e.g., payroll, material invoices) to verify valuation.
Substantive procedures for valuation of trade receivables
1. Review the aged receivables listing to identify slow
moving or old balances. Discuss the status of these balances
with the credit controller to assess whether the customers
are likely to pay or if an allowance for receivables is
required.
2. Review whether there are any after-date cash receipts
for slow moving/old receivable balances.
3. Review correspondence with customers in order to
identify any balances which are in dispute or unlikely to be
paid and discuss with management whether any allowance
is required.
4. Review board minutes to identify whether there are any
significant concerns in relation to outstanding receivables
balances and assess whether the allowance is reasonable.
5. Inspect post year-end sales returns/credit notes and
consider whether an additional allowance against
receivables is required.
6. Obtain a breakdown of the allowance for trade
receivables. Recalculate it and compare it to any potentially
irrecoverable balances to assess if the allowance is
adequate.
Substantive procedures for potential breach of regulations
1. Review the correspondence with the relevant authority
to establish details of the complaint and the number of
times the breach has allegedly occurred.
2. Review correspondence with the relevant authority to
establish if there have been discussions about other
instances of potential non-compliance.
3. Review correspondence with 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.
4. Review the board minutes to ascertain management’s
view as to the likelihood of an outflow of funds.
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. Inspect the post year-end cash book and bank
statements to identify whether any fines have been paid.
Substantive procedures for revaluation of land and
buildings
1. Obtain a schedule of land and buildings revalued and cast
it to confirm the accuracy and completeness of the
revaluation adjustment.
2. Recalculate the depreciation charge for the year to
ensure that depreciation has been provided on the correct
valuation of the revalued assets.
3. On a sample basis, agree the revalued amounts to the
amounts written in the valuation report provided by the
valuer.
4. Agree that the revalued amounts are adjusted in the noncurrent assets register.
5. Recalculate the total revaluation adjustment and agree it
to the revaluation surplus.
6. Review the adequacy of disclosures in respect to the
revaluation of land and buildings and ensure it is in
accordance with IAS 16 Property, Plant and Equipment.
Substantive procedures for valuation of work in progress
1. Discuss with the management how percentage of
completion is determined and assess its reasonableness.
2. For a sample of WIP, agree that the percentage of
completion determined is in accordance with the
company’s policies communicated prior to the count.
3. Review the difference between standard cost and actual
cost and discuss with the management how it is dealt with.
4. Obtain a breakdown of the standard costs and agree it to
supporting documentation like payroll costs to confirm its
reasonableness.
5. Obtain a list of total WIP, cast it and agree to the trial
balance and the financial statements.
6. For a sample of WIP, recalculate the value to ensure
correctness of inventory valuation.
Substantive procedures for year-end accrual for
employment tax payable
1. Compare the accrual for employment tax payable to the
prior year, investigate any significant differences.
2. Recalculate the accrual for a sample of employees to
confirm the accuracy.
3. Agree the subsequent payment to the post year-end cash
book and bank statements to confirm completeness.
4. Agree the year-end employment tax payable accrual to
the payroll records to confirm accuracy.
5. Review any correspondence with tax authorities to assess
whether there are any additional outstanding payments
due. If so, confirm they are included in the year-end
accrual.
6. Review any disclosures made of the employment tax
accrual and assess whether these are in compliance with
accounting standards and legislation.
Substantive procedures for valuation of inventory
1. Obtain the breakdown of WIP and agree a sample of WIP
assessed during the inventory count to the WIP schedule,
agreeing the percentage completion to that recorded at the
inventory count.
2. Select a sample of items included in WIP at the year end
and ascertain the final unit cost price by verifying costs to
be incurred to completion to relevant supporting
documentation. Compare to the unit sales price included in
sales invoices post year-end to assess NRV.
3. For a sample of inventory items (finished goods and
WIP), obtain the relevant cost sheets and agree raw
material costs to recent purchase invoices, labour costs to
time sheets or payroll records and confirm overheads
allocated are of a production related nature.
4. Review aged inventory reports and identify any slowmoving goods, discuss with management why these items
have not been written down or if an allowance is required.
5. Discuss the basis of WIP valuation with management and
assess its reasonableness.
6. Examine post year-end credit notes to determine
whether there have been returns which could signify that a
write down is required.
Substantive procedures for research and development
expenditure
1. Obtain and cast a schedule of intangible assets, agree the
closing balances to the general ledger, trial balance and
draft financial statements.
2. For those expensed as research, agree the costs incurred
to invoices and supporting documentation and to inclusion
in profit or loss.
3. For those capitalised as development, agree costs
incurred to invoices, agree compliance with the criteria in
IAS 38 for capitalisation and verify technical feasibility by
discussion with development manager or by reviewing
feasibility reports.
4. Review market research reports to confirm that the
company has the ability to sell the product once complete
and probable future economic benefits will arise.
5. Recalculate the amortisation charge for a sample of
intangible assets which have commenced production and
confirm that it is in line with the amortisation policy of the
company and that amortisation only commenced from
the point of production.
6. For the new projects, discuss with management the
details of each project along with the stage of development
and whether it has been capitalised or expensed.
7. Review the disclosures for intangible assets in the draft
financial statements to verify that they are in accordance
with IAS 38 Intangible Assets.
Substantive procedures for year-end sales tax liability
1. Compare the year-end sales tax liability to the prior year
balance or budget and investigate any significant
differences.
2. Review any disclosures made of the sales tax liability to
ensure that it is shown as a current liability and assess
whether disclosures are in compliance with accounting
standards and legislation.
3. Agree the subsequent payment to the post year-end cash
book and bank statements to confirm completeness and
that it has been paid in line with the terms of the tax
authority.
4. Review any current and post year-end correspondence
with the tax authority to assess whether there are any
additional outstanding payments due. If so, confirm they
are included in the year-end liability.
5. Agree the year-end sales tax liability in the trial balance
to the tax return/reconciliation submitted to the tax
authority and cast the return/reconciliation.
6. Recalculate the amount payable to the tax authority as
being sales tax charged less sales tax incurred.
Substantive procedures for valuation of trade receivables
1. Obtain a breakdown of the opening allowance and
consider if the receivables provided for in the prior year
have been recovered to assess the reasonableness of the
prior levels of allowances.
2. Review the aged trade receivables ledger to identify any
slow moving or old receivable balances and discuss the
status of these balances with the credit controllers to assess
whether they are likely to be received.
3. Review whether there are any after-date cash receipts
for slow moving/old receivable balances.
4. Review customer correspondence with the significant
customer and others to identify any balances which are in
dispute or are unlikely to be paid.
5. Review board minutes to identify whether there are any
significant concerns in relation to payments by customers.
6. Calculate the potential level of trade receivables which
are not recoverable and assess whether this is material or
not and discuss with management.
Substantive procedures for disposal of plant and machinery
1. Obtain a breakdown of disposals, cast the list and review
the non-current assets register to confirm that all assets
have been removed.
2. Inspect the board minutes to ensure that the disposal of
plant and machinery was authorised.
3. Recalculate the profit/loss on disposal and agree to the
trial balance and statement of profit or loss.
4. Select a sample of disposals and agree sale proceeds to
supporting documentation such as sundry sales invoices.
5. Recalculate the depreciation charge for a sample of
disposals to confirm the calculations are correctly applied
as per the company policy.
6. Review the disclosure of the disposals in the draft
financial statements and ensure it is in line with IAS 16
Property, Plant and Equipment.
Substantive procedures for allowance for trade receivables
1. Inspect the aged trade receivables ledger to identify any
slow moving or old receivable balances and discuss the
status of these balances with the credit controllers to assess
whether they are likely to be received.
2. Obtain a breakdown of the opening allowance and
consider if the receivables provided for in the prior year
have been fully recovered or not to assess the
reasonableness of the assumptions made by the
management.
3. Review whether there are any after-date cash receipts
for identified slow moving/old receivable balances.
4. Review customer correspondence to identify any
balances which are in dispute or are unlikely to be paid and
confirm if these have been considered when determining
the allowance.
5. Inspect board minutes to identify whether there are any
significant concerns in relation to payments by customers
and assess if these have been considered when determining
the allowance.
6. Recalculate the potential level of trade receivables which
are not recoverable and compare to allowance and discuss
differences with management.
Substantive procedures for faulty inventory
1. Obtain a breakdown of the damaged goods held in
inventory and returned from customers and cast to confirm
its accuracy.
2. Agree the cost of damaged goods to supporting
documentation to confirm the raw material cost, labour
cost and any overheads attributed to the cost.
3. Discuss with management if the goods have been written
down; if so, follow through the write down to the inventory
valuation to confirm.
4. Discuss with management the current status of their
plans for this product line and whether they are able to
rectify the damage and then sell the goods on. If so, agree
the costs of rectification to supporting documentation.
5. If the damaged inventory has been rectified and sold post
year end, agree to the sales invoice to assess NRV in line
with the new cost of the product.
6. Inspect monthly board meeting minutes to obtain further
information regarding the faulty inventory and its possible
resale value.
7. During the inventory count identify the quantity of the
damaged goods and agree to the schedule.
Substantive procedures for revenue
1. Compare the overall level of revenue against prior years
and budget for the year and investigate any significant
fluctuations.
2. Obtain a schedule of sales for the year broken down into
the main product categories and compare this to the prior
year breakdown and for any unusual movements, discuss
with management.
3. Select a sample of GDNs both pre and post year end and
follow these through to sales invoices in the correct
accounting period to ensure that cut-off has been correctly
applied.
4. Select a sample of sales invoices for customers and agree
the sales prices back to the price list or customer master
data information to ensure the accuracy of invoices.
5. For a sample of invoices, recalculate invoice totals
including discounts and sales tax to ensure the accuracy of
invoices.
6. Calculate the final gross profit margin and compare this
to the prior year and investigate any significant fluctuations.
7. Select a sample of customer orders and agree these to
the despatch notes and sales invoices through to inclusion
in the sales ledger to verify completeness.
8. Inspect credit notes issued after the year end, trace to
GDN and invoice and ensure the sale has been reversed to
verify occurrence.
Substantive procedures for trade receivables
1. Review customer correspondence to identify any
balances which are in dispute or unlikely to be paid and
discuss with management.
2. Review the aged trade receivables ledger to identify any
slow moving or old balances, discuss the status of these
balances with the credit controller to assess whether they
are likely to pay.
3. Calculate the average receivables collection period and
compare this to the prior year and investigate any
significant differences.
4. Obtain a breakdown of the allowance for trade
receivables, recalculate and compare to any potentially
irrecoverable balances to assess if the allowance is
adequate.
5. Select a sample of goods despatched notes (GDN)
immediately before and after the year end and follow
through to the receivables ledger to ensure they are
recorded in the correct accounting period.
6. Select a sample of year-end receivables balances and
agree back to valid supporting documentation of sales
invoices, GDNs and sales orders to ensure existence.
7. Review board minutes to identify whether there are any
significant concerns in relation to payments by customers.
8. Inspect post year-end sales returns/credit notes and
consider whether an additional allowance against
receivables is required.
Substantive procedures for bank balances
1. Obtain a bank confirmation letter from company’s
bankers for all of its accounts.
2. Agree the balance per the bank reconciliation to an
original year-end bank statement and to the bank
confirmation letter.
3. Examine any old unpresented cheques to assess whether
they need to be written back.
4. Trace all unpresented cheques through to a pre-year-end
cash book and post year-end bank statement. For any
unusual amounts or significant delays, obtain explanations
from management.
5. 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.
6. Review the financial statements to ensure that the
disclosure of bank balances is complete and accurate.
Substantive procedures for bank reconciliation
1. Obtain bank account reconciliation and cast to check the
additions to ensure arithmetical accuracy.
2. Agree the balance per the bank reconciliation to an
original year-end bank statement and to the bank
confirmation letter.
3. Agree the reconciliation’s balance per the cash book to
the year-end cash book.
4. Trace all the outstanding lodgements to the pre-year-end
cash book, post year-end bank statement and also to
paying-in-book pre year end.
5. Trace all unpresented cheques through to a pre-year-end
cash book and post year-end statement. For any unusual
amounts or significant delays, obtain explanations from
management.
6. 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.
Substantive procedures for going concern
1. Obtain the company’s cash flow forecast and review the
cash inflows and outflows. Assess the assumptions for
reasonableness and discuss the findings with management
to understand if the company will have sufficient cash.
2. Review the post year-end board minutes to identify any
other issues which might indicate further financial
difficulties for the company.
3. Review post year-end management accounts to assess if
in line with cash flow forecast.
4. Consider whether the going concern basis is appropriate
for the preparation of the financial statements.
5. Obtain a written representation confirming the directors’
view that the company is a going concern.
6. Consider whether any additional disclosures as required
by IAS 1 Presentation of Financial Statements in relation to
material uncertainties over going concern should be made
in the financial statements.
7. Review the company’s post year-end sales and order
book to assess if the levels of trade are likely to increase
and if the revenue figures in the cash flow forecast are
reasonable.
8. Review post year-end correspondence with suppliers to
identify if any have threatened legal action or any others
have refused to supply goods.
Substantive procedures for depreciation of property, plant
and equipment
1. Agree the depreciation charge on PPE for the year to the
trial balance and the statement of profit and loss.
2. Perform a proof in total calculation for the depreciation
charged on PPE to confirm arithmetical accuracy.
3. Compare the breakdown of depreciation by asset
categories to the industry averages and investigate any
significant differences.
4. Obtain a breakdown of depreciation by asset categories,
compare to prior year; where significant changes have
occurred, discuss with management and assess whether
this change is reasonable.
5. Select a sample of PPE and recalculate the depreciation
charge to ensure arithmetical accuracy.
6. Inspect the capital expenditure budgets for the next few
years to assess the appropriateness of the useful economic
lives in light of plans to replace assets.
7. Review profits and losses on disposal of assets disposed
of in the year, to assess the reasonableness of the
depreciation policies (if depreciation policies are
reasonable, there should not be a significant profit or loss).
8. Review the disclosure of the depreciation charges and
policies in the draft financial statements and ensure it is in
line with IAS 16 Property, Plant and Equipment.
Substantive procedures for accounting estimates
1. Enquire of management how the accounting estimate is
made and the data on which it is based and assess its
reasonableness.
2. Determine whether events occurring up to the date of
the auditor’s report (after the reporting period) provide
audit evidence regarding the accounting estimate.
3. Review the judgements and decisions made by
management in the making of accounting estimates to
identify whether there are indicators of possible
management bias.
4. Test the operating effectiveness of the controls over how
management made the accounting estimate.
5. Obtain written representations from management and,
where appropriate, those charged with governance
whether they believe significant assumptions used in
making accounting estimates are reasonable.
6. Obtain sufficient appropriate audit evidence about
whether the disclosures in the financial statements related
to accounting estimates and estimation uncertainty (e.g.,
contingent liabilities) are reasonable.
Substantive procedures for issuance of shares
1. Review board minutes to confirm the issue of additional
share capital during the year.
2. Agree the issue of shares is permitted from a review of
any statutory constitution agreements in place.
3. Inspect the cash book and bank statements for evidence
of cash receipts from the share issue.
4. Where the sum received is less, agree the difference is
treated as share capital called up but not paid in the
financial statements.
5. Recalculate the split of proceeds between the nominal
value of shares and premium on issue and agree correctly
recorded within share capital and share premium account.
6. Review the disclosure of the share issue in the draft
financial statements and ensure it is in line with relevant
accounting standards and local legislation.
Substantive procedures for directors’ remuneration
1. Obtain a schedule of the directors’ remuneration, split by
salary and bonus paid and cast the schedule to
ensure accuracy.
2. Confirm the amount of each bonus paid by agreeing to
the cash book and bank statements.
3. Review the board minutes to identify whether any
additional payments relating to this year have been agreed
for any directors.
4. Agree the amounts paid per director to board minutes to
ensure the sums included are genuine.
5. Inspect payroll records and agree wages, bonuses, and
pension contributions.
6. Obtain a written representation from management
confirming the completeness of directors’ remuneration
including the bonus.
7. Review the disclosures made regarding the directors’
remuneration and assess whether these are in compliance
with local legislation.
Substantive procedures for inventory
1. 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 yearend and to ensure that any errors identified
during counting procedures have been rectified to verify
completeness.
2. Calculate gross profit margin and compare this to prior
year, investigate any significant differences that may
highlight an error in costs of sales and closing inventory to
verify valuation.
3. Inspect purchase invoices for the name of the client to
verify rights.
4. Calculate inventory turnover/days ratio and compare this
to prior year, to assess whether inventory is being held
longer and therefore requires an allowance to bring the
value down to the lower of cost and NRV to verify
valuation.
5. Inspect the ageing of inventory items to identify old/slow
moving amounts that may require an allowance, and
discuss these with management to verify valuation.
6. Recalculate work-in-progress and finished goods
valuations using payroll records for labour costs and utility
bills for overhead absorption to verify valuation.
Substantive procedures for perpetual inventory systems
1. Attend at least one count to ensure that adequate
controls are applied during the counts.
2. Inspection of purchase invoices for the name of the client
will enable rights to be confirmed.
3. Inspect GRNs and GDNs around the year end to confirm
correct cut off.
4. NRV testing and comparison of inventory days with prior
year will be performed to identify issues with valuation.
5. Inspect the number and value of adjustments made as a
result of the count. If significant adjustments are required
each month, this would indicate that the system figures for
inventory cannot be relied on at the year end and a full
count will be required.
Substantive procedures for payroll
1. Cast the monthly payroll listings to verify the accuracy of
the payroll expense.
2. Recalculate the gross and net pay for a sample of
employees, and agree to the payroll records to verify the
accuracy of the payroll expense.
3. For salaries, agree the total net pay per the payroll
records to the bank transfer listing of payments and to the
cashbook to verify occurrence.
4. Reperform calculation of statutory deductions to confirm
whether correct deductions for this year have been
included within the payroll expense to verify accuracy.
5. For wages, agree the total cash withdrawn for wage
payments equates to the weekly wages paid plus any
surplus cash subsequently banked to verify completeness,
occurrence.
6. Select a sample of joiners and leavers, agree their
start/leaving date to supporting documentation, recalculate
that their first/last pay packet was accurately calculated
and recorded to verify completeness, occurrence, accuracy.
Substantive procedures for completeness of trade payables
and accruals
1. Obtain a listing of trade payables from the purchase
ledger, cast to verify arithmetical accuracy and agree to the
general ledger and the financial statements to verify
completeness.
2. Obtain supplier statements and reconcile these to the
purchase ledger balances, and investigate any reconciling
items.
3. Select a sample of payable balances and perform a trade
payables’ circularisation, follow up any non-replies and any
reconciling items between the balance confirmed and the
trade payables’ balance.
4. Review after date invoices and credit notes to ensure no
further items need to be accrued.
5. Enquire of management their process for identifying
goods received but not invoiced or logged in the purchase
ledger and ensure that it is reasonable to ensure
completeness of payables.
6. Calculate payables payment period and compare to prior
year and budgeted to find out any significant difference
arising in relation to completeness.
7. Reconcile the total of purchase ledger accounts with the
purchase ledger control account to verify completeness.
8. Inspect after date payments, if they relate to the current
year then follow through to the purchase ledger or accrual
listing to verify completeness.
9. Inspect invoices received after the year end to ensure no
further items need to be accrued to verify completeness.
10. Select a sample of goods received notes before the
year-end and follow through to inclusion in the year-end
payables balance to verify completeness of payables and
cut-off of purchases.
Audit software procedures using computer assisted audit
techniques (CAATs)
1. The audit team can use audit software to calculate
payables days for the year-to-date to compare against the
prior year to identify whether payables days have changed
in line with trading levels and expectations. If payables days
have decreased, this may be an indication that payables are
understated.
2. Audit software can be used to cast the payables and
accruals listings to confirm the completeness and accuracy
of trade payables and accruals.
3. Audit software can be used to select a representative
sample of items for further testing of payables balances.
4. Audit software can be utilised to recalculate the accruals
for goods received not invoiced at the year end.
5. CAATs can be used to undertake cut-off testing by
assessing whether the dates of the last GRNs recorded
relate to pre year end; and that any with a date of 1 January
20X6 onwards were excluded from trade payables.
Substantive procedures for purchases and other expenses
1. Review monthly purchases and other expenses to
identify any significant fluctuations and discuss with the
management.
2. Select a sample of GRNs from throughout the year; agree
them to purchase invoices and the purchase day book to
ensure completeness of purchases.
3. Select a sample of GRNs just before and after the year
end; agree to the purchase day book to ensure the expense
is recorded in the correct accounting period.
4. Select a sample of payments from the cash book and
trace to expense account to ensure the expense has been
included and classified correctly.
5. Recalculate the accuracy of a sample of purchase invoice
totals and related taxes and ensure expense has been
included in the correct nominal code.
6. Recalculate the prepayments and accruals charged at the
year end to ensure the accuracy of expense charged
included in the statement of profit or loss.
Substantive procedures for cut off of purchases
1. Analytically review the gross profit margin this year
versus last year and investigate any unexpected
fluctuations.
2. Enquire of the procedures for dealing with goods
awaiting return to suppliers at the date of the physical
inventory count.
3. Examine goods returned notes post year-end and trace
to adjusting entries in the nominal ledger at the year end.
4. Enquire of directors how they ensure that all goods
received but not yet invoiced are recorded in the correct
period, particularly if they are held by the buying
department.
5. Select a sample of purchase invoices recorded in the
nominal ledger either side of the year-end and trace to the
associated goods received note (GRN).
Substantive procedures for completeness of trade
receivables
1. Select a sample of GDNs from before the year end, agree
to sales invoices and to inclusion in the sales ledger and
year-end receivables ledger.
2. Agree the total of individual sales ledger accounts to the
aged receivables listing and to the trial balance.
3. Review the sales ledger for any credit balances and
discuss with management whether these should be
reclassified as payables.
4. Obtain the prior year aged receivables listing and for
significant balances compare to the current year
receivables listing for inclusion and amount due. Discuss
with management any missing receivables or significantly
lower balances.
Substantive procedures for rights and obligations of
receivables
1. Review bank confirmations and loan agreements for any
evidence that receivables have been assigned as security
for amounts owed by the company.
2. Review board minutes for evidence that legal title to
receivables has been sold onto a third party such as a
factor.
3. For a sample of receivables, agree the balances recorded
on the sales ledger to the original name of the customer on
a sales order or a contract.