Kế toán, kiểm toán - Chapter 10: Substantive tests of transactions and balances

CHAPTER 10:SUBSTANTIVE TESTSOF TRANSACTIONSAND BALANCES1Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettRELATIONSHIP BETWEEN TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONSMost controls built around transaction flows.Tests of controls: transactions selected to test whether related controls are working.Substantive test of transactions: transactions selected to determine whether monetary errors have occurred.2Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettDUAL PURPOSE TESTSThese are tests of transactions that address both control and financial misstatement issues simultaneously.Very common in practice since both tests of controls and substantive tests of transactions involve inspection of documents.It is efficient to perform tests on transactions selected simultaneously, e.g. select document and check evidence of authorisation (test of control) and recompute amount (substantive test of transaction).3Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettSUBSTANTIVE TESTS OF TRANSACTIONS AND BALANCESObjective is to provide reasonable assurance of validity and propriety of financial report or identify monetary misstatements and thus reduce detection risk of auditor.Substantive tests of transactions focus on the individual transactions that make up the balance. Substantive tests of balances substantiate the ending balance of an account.4Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettDISTINGUISHING BETWEEN SUBSTANTIVE TESTS OF TRANSACTIONS AND SUBSTANTIVE TESTS OF BALANCESThe $5000 balance for Able could be verified by confirming this balance with customer (test of balances) or verifying to supporting documentation the three transactions comprising this balance (tests of transactions).5Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettFINANCIAL REPORT ASSERTIONS OF INTEREST6Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettEXISTENCE/ OCCURRENCE AND COMPLETENESS ASSERTIONSNote that the direction of testing determines whether existence/occurrence or completeness assertion is tested.7Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettDETERMINANTS OF AUDIT PROCEDURES USEDWill be determined by:The assertion/audit objective to be testedThe nature of the item and available evidence8Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCASH, CASH RECEIPTS AND CASH PAYMENTS — ASSERTIONS OF PRIMARY INTERESTSCashCash receipts/paymentsExistence;Completeness; and possiblyValuation (if foreign currency balances).OccurrenceCompleteness; and possiblyMeasurement (if foreign currency transactions).These are primarily:- since these are areas where misstatement is most likely to occur9Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAPPROACH IN AUDITING CASH BALANCESDetermined by assessed level of control risk in bank and cash handling procedures.Much of this information will come from evaluations and tests of controls in the sales and cash receipts, purchases and cash payments systems.10Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR CASH BALANCES11Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCASH — KEY PROCEDURESThese are:Testing of client’s bank reconciliationObtaining confirmation of bank balances from client’s bankers12Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettSALES, CASH RECEIPTS, ACCOUNTS RECEIVABLE — ASSERTIONS OF INTERESTSales/cash receiptsAccounts receivableOccurrenceMeasurementExistenceValuation- as these are areas in which misstatement is most likely to occur13Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettACCOUNTS RECEIVABLE — KEYAUDIT PROCEDURESConfirmationSubsequent receipts reviewCut-offAnalytical proceduresTests of sales transactionsReview of aged trial balance14Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR SALES AND ACCOUNTS RECEIVABLE15Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettACCOUNTS RECEIVABLE —CONFIRMATION AND OTHER PROCEDURESAuditor might plan to obtain direct confirmation from debtors using:Positive form — asks client to respond, whether or not they agree with information as to amount owed in requestNegative form — requests client to respond when they disagree with amount shownAuditor should also consider other proceduressuch as examining evidence of subsequent cashreceipts, and examining sales and shippingdocuments.16Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettFORMAT OF POSITIVE ACCOUNTS RECEIVABLE CONFIRMATION REQUESTS17Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettCONFIRMATION PROCEDURE VERSUS SUBSEQUENT CASH RECEIPTS TESTINGSubsequent cash receipts commonly viewed as superior form of evidence because achieves both key assertions.ConfirmationsSubsequent cash receipts testingExistence YESValuation NOExistence YESValuation YESConfirmations still require tests of likelihood of payment (doubtful debts provision).18Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettPURCHASES AND INVENTORYInventory consists of goods to be sold or used in the production of saleable goods. Transactions involving inventory: increase to inventory when goods purchased and decrease to inventory when goods sold.19Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettRISK ASSESSMENT OF INVENTORYInventory generally considered high riskbecause:Significant to determination of incomeHigh volume of activityAccounting complexitiesPossibility of manipulation in this area20Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVENTORY — ASSERTIONS OF INTERESTTwo key assertions of inventory aregenerally:ExistenceValuation21Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVENTORY — KEY PROCEDURESObservation of physical inventoriesAnalytical proceduresCut-offTests of pricing and summarisation22Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR PURCHASES AND INVENTORY I23Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR PURCHASES AND INVENTORY II24Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVENTORY — OBSERVATION OF PHYSICAL INVENTORY: STOCKTAKEWhere inventory is considered material, auditor should attend physical inventory count (stocktake), unless impractical.When attending stocktake, auditor uses a combination of observation and inquiry and making test counts. If inventory outside auditor’s area of expertise, should consider utilising services of expert.25Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVENTORY — TESTS OF PRICING AND SUMMARISATION OF COUNT PROCEDURESA combination of vouching, tracing andrecomputation. In performing theseprocedures auditor’s main concerns are:Identifying obsolete, excess and slow-moving itemsThat inventory is counted correctly and results of inventory count are updated correctlyThat prices for goods are applied appropriatelyThat inventory is valued at the lower of cost and net realisable value26Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettACCOUNTS PAYABLE AND PAYMENTSPrimary assertion of concern is completeness, as most likely form of misstatement is understatement.Common audit procedures to address this assertion are confirmation, a search for unrecorded liabilities and analytical procedures performed on related expense account balances.27Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES OF ACCOUNTS PAYABLE28Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettNON-CURRENT ASSETSThe balances of non-current asset accounts are usually affected by a few relatively large transactions each year.For this reason, it is usually efficient for auditor to verify account balances by performing tests on individual transactions.29Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettPROPERTY, PLANT ANDEQUIPMENTAssertions of interest are generally:ExistenceRights and obligationsValuation30Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettPROPERTY, PLANT AND EQUIPMENT — KEY PROCEDURESSubstantiating additions and identifying retirementsConsidering any revaluationsAnalytically testing or recomputing related expense accounts such as depreciation31Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR PROPERTY, PLANT AND EQUIPMENT 32Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVESTMENTS AND INTANGIBLE ASSETSAssertions generally of interest are:Rights and obligationsExistenceValuation33Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR INVESTMENTS34Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINTANGIBLES — USE OF EXPERTAssertions in relation to valuation and existence for intangible assets are particularly subjective given nature of intangible assets.Auditor may consider use of experts where issues are outside auditor’s own expertise.35Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettINVESTMENTS AND INTANGIBLES — KEY PROCEDURESPhysical examinationConfirmationInspection of legal documents Recomputation, vouching, tracingSpecialised valuation procedures36Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettNON-CURRENT LIABILITIES AND OWNERS’ EQUITYKey assertions completeness:Key procedures:ConfirmationsReading minutes of meetingsExamination of contracts and agreementsInspection of share registers37Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettASSERTIONS, OBJECTIVES AND PROCEDURES FOR NON-CURRENT LIABILITIES38Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettSTATEMENT OF FINANCIAL PERFORMANCE ACCOUNTS: ASSERTIONS OF INTERESTOccurrenceCompletenessRights and obligationsMeasurementDisclosure39Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDIT PROCEDURES FOR STATEMENT OF FINANCIAL PERFORMANCE ACCOUNTS ISubstantiation indirectly by simultaneous tests of statement of financial performance accounts, e.g. sales  accounts receivable; cost of goods sold  inventorySubstantiation directly in conjunction with statement of financial position accounts, e.g. property, plant & equipment  depreciation40Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDIT PROCEDURES FOR STATEMENT OF FINANCIAL PERFORMANCE ACCOUNTS IISubstantiation directly by analytical procedures, e.g. relationships between amounts that are expected to follow a predictable pattern such as sales  sales commissionSubstantiation directly by separate direct tests of individually significant transactions or events or account balances of intrusive interest, e.g. discontinued operations41Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDITING BY COMPUTER: TESTING CLIENTS’ FILESThe major way the auditor uses the computer for substantive tests involves using audit software to read clients’ master files and/or transactions files.Major advantages:Directs auditor’s attention to items of risk and/or materialityUndertakes routine audit tasks efficiently42Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettAUDITING BY COMPUTER: FOUR MAJOR TECHNIQUESGeneralised audit software — audit interrogation software used with many clientsSpecialised audit software — audit interrogation software especially written for client, task or industryUtility programs — routines written by manufacturer for hardware, e.g. sort, mergeSystems management programs — enhanced productivity tools (e.g. data retrieval software) typically part of sophisticated operating systems environments43Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettFUNCTIONS OF AUDIT SOFTWAREThis software can interrogate clients’ files in order to:Select sample itemsIdentify records meeting specified criteria (exception reporting)Test and make calculationsCompare data in separate fields or on separate filesSummarise dataWrite reports44Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger SimnettEFFECT OF STRATEGIC BUSINESS RISK ON SUBSTANTIVE TESTSIncreased emphasis on tests of controls for routine transactions implies decreased emphasis for substantive tests for such transactions.Increased emphasis on non-routine transactions implies increased emphasis on substantive tests, as would not expect sophisticated control systems around non-routine transactions.45Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & SimnettSlides prepared by Roger Simnett