SUB0 Auditing

CHAPTER 1

D. Perform further audit procedures—tests of controls.

1. Examples of tests of controls:
a. Examine significant aspects of a sample of sales transactions.
b. Compare a sample of shipping documents to related sales invoices.
c. Review the use and authorization of credit memoranda.
d. Reconcile selected cash register tapes and sales tickets with sales journals.
e. Test IT application controls.
f. Examine evidence of review and approval of revenue estimates.
2. If necessary, revise the risks of material misstatement based on the results of tests of
controls.

E. Perform further audit procedures—substantive procedures for receivables

and
revenue.
1. Obtain an aged trial balance of trade accounts receivable and analyses of other accounts
receivable and reconcile to ledgers.
2. Obtain analyses of notes receivable and related interest.
3. Inspect notes on hand and confirm those with holders.
4. Confirm receivables with debtors.
5. Review the year-end cut-off of sales transactions.
6. Perform analytical procedures for accounts receivable, notes receivable, and revenue.
7. Review significant year-end sales contracts for unusual terms.
8. Test the valuation of notes receivable, computation of interest income, interest
receivable, and amortization of discount or premium.
9. Evaluate the propriety of the client’s accounting methods for receivables and revenue.
10. Evaluate accounting estimates related to revenue recognition.
11. Determine the adequacy of the client’s allowance for uncollectible accounts.
12. Ascertain whether any receivables have been pledged.
13. Investigate any transactions with or receivables from related parties.
14. Evaluate the business purpose of signifi cant and unusual sales transactions.
15. Evaluate fi nancial statement presentation and disclosure of receivables and revenue.

CHAPTER 2
D Perform further audit procedures—tests of controls.
1. Examples of tests of controls:

a. Examine significant aspects of a sample of purchase transactions.

b. Perform tests of the cost accounting system.

E. Perform further audit procedures—substantive procedures for inventories

and cost of
goods sold.
1. Obtain listings of inventory and reconcile to ledgers.
2. Evaluate the client’s planning of physical inventory.
3. Observe the taking of physical inventory and make test counts.
4. Review the year-end cutoff of purchases and sales transactions.
5. Obtain a copy of the completed physical inventory, test its clerical accuracy, and trace
test counts.
6. Evaluate the bases and methods of inventory pricing.
7. Test the pricing of inventories.
8. Perform analytical procedures.
9. Determine whether any inventories have been pledged and review purchase and sales
commitments.
10. Evaluate financial statement presentation of inventories and cost of goods sold,
including the adequacy of disclosure
Chapter 3
D. Perform further audit procedures—tests of controls.
1. Nature of tests of controls.

2. If necessary, revise the risks of material misstatement based on the results of tests of
controls.

E. Perform further audit procedures—substantive procedures for property,

plant, and equipment.
1. Obtain a summary analysis of changes in property owned and reconcile to ledgers.

2. Vouch additions to property, plant, and equipment during the year.

3. Make a physical inspection of major acquisitions of plant and equipment.
4. Analyze repair and maintenance expense accounts.
5. Investigate the status of property, plant, and equipment not in current use.
6. Test the client’s provision for depreciation.
7. Investigate potential impairments of property, plant, and equipment.
8. Investigate retirements of property, plant, and equipment during the year.
9. Examine evidence of legal ownership of property, plant, and equipment.
10. Review rental revenue from land, buildings, and equipment owned by the client but
leased to others.
11. Examine lease agreements on property, plant, and equipment leased to and from
others.
12. Perform analytical procedures for property, plant, and equipment.
13. Evaluate fi nancial statement presentation and disclosure for plant assets and for
related revenue and expenses.

CHAPTER 4.
D. Perform further audit procedures—tests of controls.
1. Examples of tests of controls.
a. Verify a sample of postings to the accounts payable control account.
b. Vouch to supporting documents a sample of postings in selected accounts of the
accounts payable subsidiary ledger.
c. Test IT application controls.
2. If necessary, revise the risks of material misstatement based on the results of tests of
controls.

E. Perform further audit procedures—substantive procedures for accounts

payable.
1. Obtain or prepare a trial balance of accounts payable as of the balance sheet date and
reconcile with the general ledger.
2. Vouch balances payable to selected creditors by inspection of supporting documents.
3. Reconcile liabilities with monthly statements from creditors.
4. Confi rm accounts payable by direct correspondence with vendors.
5. Perform analytical procedures for accounts payable and related accounts.
6. Search for unrecorded accounts payable.
7. Perform procedures to identify accounts payable to related parties.
8. Evaluate proper balance sheet presentation and disclosure of accounts payable.

CHAPTER 5
internal control of long term debt
1. Authorization by the Board of Directors
2. Use of an Independent Trustee.
3. Interest Payments on Bonds and Notes Payable.

1. Audit procedures appropriate for the verification of debt include the

following:
1. Obtain or prepare analyses of debt accounts and related interest, premium, and discount
accounts.
2. Examine copies of notes payable and supporting documents.
3. Confirm debt with payees or appropriate third parties.
4. Vouch borrowing and repayment transactions to supporting documents.
5. Perform analytical procedures to test the overall reasonableness of interest-bearing debt
and interest expense.
6. Test the valuation of debt, computation of interest expense, interest payable, and
amortization of discount or premium.
7. Evaluate whether debt provisions have been met.
8. Trace authority for issuance of debt to the corporate minutes.
9. Review notes payable paid or renewed after the balance sheet date.
10. Perform procedures to identify notes payable to related parties.
11. Send confirmation letters to fi nancial institutions to obtain information about financing
arrangements.
12. Evaluate proper financial statement presentation and disclosure of debt and related
transactions.

2. Audit of Capital stock

internal control of long term debt
(1). the proper authorization of transactions by the board of directors and corporate
Officers.
(2) the segregation of duties in handling these transactions (preferably the use of
independent agents for stock registration and transfer and for dividend payments), and (3)
the maintenance of adequate records.

2. The following procedures are typical of the procedures required in many

engagements
for the verification of capital stock:
1. Obtain an understanding of internal control over capital stock transactions.
2. Examine articles of incorporation, bylaws, and minutes for provisions relating to capital
stock.
3. Obtain or prepare analyses of the capital stock accounts.
4. Account for all proceeds from stock issues.
5. Confirm shares outstanding with the independent registrar and stock transfer agent.
6. For a corporation acting as its own stock registrar and transfer agent, reconcile the
stockholder records with the general ledger.
7. Determine that appropriate accounting is applied to employee stock compensation plans.
8. Determine that compliance with restrictions and preferences pertaining to capital
stock and disclosures are appropriate.