Question Tag: Substantive Procedures

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  • 15 Marks

AA – May 2016 – L2 – Q6 – Internal Control Systems

Identify control activities in a trade payables system and the need for substantive procedures.

Control activities may be defined as policies, procedures, and operations that help to enable management directives to be carried out. These activities are detailed procedures designed to prevent, or to detect and correct errors that may arise in processing information.

Required:

a. Set out the five types of control activities and illustrate each one in the context of purchases or trade payables system. (10 Marks)

b. Explain why, even where tests of controls prove satisfactory, substantive procedures can never be completely eliminated. (5 Marks)

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  • 15 Marks

AA – Nov 2014 – L2 – Q6 – Audit-Related Services

Outline the benefits of auditing partnership accounts, key audit considerations, and substantive procedures for partnership-owned schools.

The audit of the accounts of a partnership is not statutorily required, but it is clear that various benefits would accrue to the firm if its accounts are voluntarily audited.

Required:

a. State FOUR reasons which may necessitate the audit of the accounts of a partnership. (4 Marks)

b. State FIVE important issues that you, as an auditor, would look into while auditing the books of a partnership. (5 Marks)

c. Suggest SIX substantive procedures that might be performed on the receipts of a school owned by a partnership. (6 Marks)

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  • 20 Marks

AA – Nov 2014 – L2 – Q2 – Audit Evidence

Discuss factors affecting sufficiency of audit evidence and audit procedures for current liabilities in Radcliffe Co.

Radcliffe Co.

ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”

Required:

a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)

b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:

Description 2013 2012
Trade payables 884,824 816,817
Accruals 56,903 51,551
Provision for legal action 60,000 –
Total 1,001,727 868,368

The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.

List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.

Marks are allocated as follows:

  • Trade payables (9 Marks)
  • Accruals (3 Marks)
  • The provision for legal action (4 Marks)

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  • 15 Marks

AA – Nov 2017 – L2 – Q4 – Audit and Assurance Evidence

Describe the substantive procedures you would apply to audit wages and salaries.

You are part of the audit team auditing the financial statements of Stainless Co. Ltd for the year ended 30 June 2017. The company has a staff of 200. You have been asked to audit the wages and salaries expenses for the year.

Required:
i) Describe the substantive procedures you would apply in your work.

ii) Identify the objective that a substantive procedure seeks to achieve.

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  • 6 Marks

AA – May 2016 – L2 – Q5c – Audit and Assurance Evidence

This question focuses on the substantive audit procedures for verifying the valuation, completeness, and rights and obligations of property, plant, and equipment.

(c) Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertions in relation to an entity’s property, plant and equipment:

(i) Valuation
(ii) Completeness
(iii) Rights and obligations.

(Note: Assume that the hospital adopts International Financial Reporting Standards). (6 marks)

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  • 15 Marks

AA – Nov 2021 – L2 – Q2b – Audit and Assurance Evidence

Describes the substantive procedures auditors should adopt to verify valuation, completeness, and rights and obligations of property, plant, and equipment (PPE).

Describe FOUR (4) substantive procedures the external auditor of HMH should adopt to verify each of the following assertions in relation to an entity’s property, plant and equipment (PPE):

i) Valuation
ii) Completeness
iii) Rights and obligations

(Note: Assume that the hospital prepares Financial Statements in accordance with International Financial Reporting Standards)

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  • 6 Marks

AA – May 2018 – L2 – Q4b – Audit and Assurance Evidence

Identifies key financial statement assertions for year-end account balances and describes substantive procedures related to inventory.

b)
i) Identify and explain two financial statement assertions relevant to account balances at the year-end. (2 marks)
ii) For each identified assertion, describe a substantive procedure relevant to the audit of year-end inventory.

(4 marks)

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  • 9 Marks

AA – May 2018 – L2 – Q4a – Audit and Assurance Evidence

Describes substantive audit procedures for depreciation of assets and a legal claim involving food poisoning.

BDE Company Limited operates a hotel providing accommodation, leisure facilities, and restaurants. Its year-end is 31 March. You are the senior associate of ABC and Associates and are currently preparing the audit programmes for the year-end audit of BDE Company Limited. You are reviewing the notes of last week’s meeting between the audit manager and finance director, where two material issues were discussed.

Depreciation
BDE Company Limited incurred significant capital expenditure during the year for refurbishing the restaurant facilities for the hotel. The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the straight-line method.

Food Poisoning
BDE’s directors received correspondence in January from a group of customers who attended a wedding at the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are claiming substantial damages. BDE’s lawyers have received the claim and believe that the lawsuit against the company is unlikely to be successful.

Required:
i) Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above two issues. (6 marks)

ii) List and explain the purpose of three items that should be included on every working paper prepared by the audit team during the audit of depreciation and food poisoning of BDE Company Limited. (3 marks)

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  • 10 Marks

AA – May 2018 – L2 – Q3a – Planning and Approach for Audit and Assurance Engagements

Describes key audit procedures performed during the interim and final audit phases for large entities.

i) The external audit process for large entities generally involves two or more phases. One phase involves understanding the business and risk assessment, determining the response to assessed risk, testing of controls, and a limited amount of substantive procedures. This phase is sometimes known as the interim audit. Another phase involves further tests of controls and substantive procedures, as well as audit finalization procedures. This phase is sometimes known as the final audit.

Required:
Describe and explain the main audit procedures and processes that take place during the interim and final audit of a large entity. (10 marks)

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  • 15 Marks

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

You are the external auditor of Paa Willy Ltd (PW) for the year ended 31 March 2019. PW operates 12 convenience stores in the Greater Accra region:

  • Each store sells food.
  • Each store is responsible for its own inventory procurement and produces monthly management accounts which are sent to the centralised accounting department at PW head office.

PW is financed by a GH¢250,000 bank loan which is repayable at a rate of GH¢50,000 per annum over each of the next 5 years starting on 31 October 2019. It also has an overdraft facility of GH¢100,000, which it uses in full. The bank overdraft facility is due for renewal on 1 May 2020.

The bank has already told the company that it will need a cash flow forecast for two years from 1 February 2020 in order for the bank to decide whether or not the overdraft facility will be renewed. The bank has also said it will require a report from the external auditors to confirm the accuracy of the forecast.

Required:
a) Define the term analytical procedures.
(2 marks)

b) In relation to the work of an external auditor:
i) Describe THREE (3) analytical procedures that should be performed to confirm PW’s revenue and profit.
(3 marks)
ii) Outline THREE (3) substantive procedures that should be adopted to verify each of the following assertions:

  • The valuation of inventory.
    (3 marks)
  • The completeness of payables.
    (3 marks)

c) Recommend FOUR (4) appropriate substantive procedures that should be performed to confirm PW’s bank loan.
(4 marks)

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  • 15 Marks

AA – May 2016 – L2 – Q6 – Internal Control Systems

Identify control activities in a trade payables system and the need for substantive procedures.

Control activities may be defined as policies, procedures, and operations that help to enable management directives to be carried out. These activities are detailed procedures designed to prevent, or to detect and correct errors that may arise in processing information.

Required:

a. Set out the five types of control activities and illustrate each one in the context of purchases or trade payables system. (10 Marks)

b. Explain why, even where tests of controls prove satisfactory, substantive procedures can never be completely eliminated. (5 Marks)

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  • 15 Marks

AA – Nov 2014 – L2 – Q6 – Audit-Related Services

Outline the benefits of auditing partnership accounts, key audit considerations, and substantive procedures for partnership-owned schools.

The audit of the accounts of a partnership is not statutorily required, but it is clear that various benefits would accrue to the firm if its accounts are voluntarily audited.

Required:

a. State FOUR reasons which may necessitate the audit of the accounts of a partnership. (4 Marks)

b. State FIVE important issues that you, as an auditor, would look into while auditing the books of a partnership. (5 Marks)

c. Suggest SIX substantive procedures that might be performed on the receipts of a school owned by a partnership. (6 Marks)

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  • 20 Marks

AA – Nov 2014 – L2 – Q2 – Audit Evidence

Discuss factors affecting sufficiency of audit evidence and audit procedures for current liabilities in Radcliffe Co.

Radcliffe Co.

ISA 500 Audit Evidence states that the objective of the auditor is to “design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”

Required:

a. List and explain the factors which will influence the auditors’ judgment concerning the sufficiency of audit evidence obtained. (4 Marks)

b. You are the audit senior in charge of the audit of Radcliffe Co, a company that has been trading for over 50 years. Radcliffe Co manufactures and sells tables and chairs directly to the public. The company’s year-end is 31 December. Current liabilities are shown on Radcliffe Co’s statement of financial position as follows:

Description 2013 2012
Trade payables 884,824 816,817
Accruals 56,903 51,551
Provision for legal action 60,000 –
Total 1,001,727 868,368

The provision for legal action relates to a claim from a customer who suffered an injury while assembling a chair supplied by Radcliffe Co. The directors of Radcliffe Co dispute the claim, although they are recommending an out-of-court settlement to avoid damaging publicity.

List the substantive audit procedures that you should undertake in the audit of the current liabilities of Radcliffe Co for the year ended 31 December 2013. For each procedure, explain the purpose.

Marks are allocated as follows:

  • Trade payables (9 Marks)
  • Accruals (3 Marks)
  • The provision for legal action (4 Marks)

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  • 15 Marks

AA – Nov 2017 – L2 – Q4 – Audit and Assurance Evidence

Describe the substantive procedures you would apply to audit wages and salaries.

You are part of the audit team auditing the financial statements of Stainless Co. Ltd for the year ended 30 June 2017. The company has a staff of 200. You have been asked to audit the wages and salaries expenses for the year.

Required:
i) Describe the substantive procedures you would apply in your work.

ii) Identify the objective that a substantive procedure seeks to achieve.

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  • 6 Marks

AA – May 2016 – L2 – Q5c – Audit and Assurance Evidence

This question focuses on the substantive audit procedures for verifying the valuation, completeness, and rights and obligations of property, plant, and equipment.

(c) Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertions in relation to an entity’s property, plant and equipment:

(i) Valuation
(ii) Completeness
(iii) Rights and obligations.

(Note: Assume that the hospital adopts International Financial Reporting Standards). (6 marks)

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  • 15 Marks

AA – Nov 2021 – L2 – Q2b – Audit and Assurance Evidence

Describes the substantive procedures auditors should adopt to verify valuation, completeness, and rights and obligations of property, plant, and equipment (PPE).

Describe FOUR (4) substantive procedures the external auditor of HMH should adopt to verify each of the following assertions in relation to an entity’s property, plant and equipment (PPE):

i) Valuation
ii) Completeness
iii) Rights and obligations

(Note: Assume that the hospital prepares Financial Statements in accordance with International Financial Reporting Standards)

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  • 6 Marks

AA – May 2018 – L2 – Q4b – Audit and Assurance Evidence

Identifies key financial statement assertions for year-end account balances and describes substantive procedures related to inventory.

b)
i) Identify and explain two financial statement assertions relevant to account balances at the year-end. (2 marks)
ii) For each identified assertion, describe a substantive procedure relevant to the audit of year-end inventory.

(4 marks)

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  • 9 Marks

AA – May 2018 – L2 – Q4a – Audit and Assurance Evidence

Describes substantive audit procedures for depreciation of assets and a legal claim involving food poisoning.

BDE Company Limited operates a hotel providing accommodation, leisure facilities, and restaurants. Its year-end is 31 March. You are the senior associate of ABC and Associates and are currently preparing the audit programmes for the year-end audit of BDE Company Limited. You are reviewing the notes of last week’s meeting between the audit manager and finance director, where two material issues were discussed.

Depreciation
BDE Company Limited incurred significant capital expenditure during the year for refurbishing the restaurant facilities for the hotel. The finance director has proposed that the new leisure equipment should be depreciated over 10 years using the straight-line method.

Food Poisoning
BDE’s directors received correspondence in January from a group of customers who attended a wedding at the hotel. They have alleged that they suffered severe food poisoning from food eaten at the hotel and are claiming substantial damages. BDE’s lawyers have received the claim and believe that the lawsuit against the company is unlikely to be successful.

Required:
i) Describe substantive procedures to obtain sufficient and appropriate audit evidence in relation to the above two issues. (6 marks)

ii) List and explain the purpose of three items that should be included on every working paper prepared by the audit team during the audit of depreciation and food poisoning of BDE Company Limited. (3 marks)

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  • 10 Marks

AA – May 2018 – L2 – Q3a – Planning and Approach for Audit and Assurance Engagements

Describes key audit procedures performed during the interim and final audit phases for large entities.

i) The external audit process for large entities generally involves two or more phases. One phase involves understanding the business and risk assessment, determining the response to assessed risk, testing of controls, and a limited amount of substantive procedures. This phase is sometimes known as the interim audit. Another phase involves further tests of controls and substantive procedures, as well as audit finalization procedures. This phase is sometimes known as the final audit.

Required:
Describe and explain the main audit procedures and processes that take place during the interim and final audit of a large entity. (10 marks)

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  • 15 Marks

AA – May 2019 – L2 – Q4 – Audit and Assurance Evidence

Defines analytical procedures and outlines substantive procedures for revenue, profit, inventory, payables, and bank loan verification.

You are the external auditor of Paa Willy Ltd (PW) for the year ended 31 March 2019. PW operates 12 convenience stores in the Greater Accra region:

  • Each store sells food.
  • Each store is responsible for its own inventory procurement and produces monthly management accounts which are sent to the centralised accounting department at PW head office.

PW is financed by a GH¢250,000 bank loan which is repayable at a rate of GH¢50,000 per annum over each of the next 5 years starting on 31 October 2019. It also has an overdraft facility of GH¢100,000, which it uses in full. The bank overdraft facility is due for renewal on 1 May 2020.

The bank has already told the company that it will need a cash flow forecast for two years from 1 February 2020 in order for the bank to decide whether or not the overdraft facility will be renewed. The bank has also said it will require a report from the external auditors to confirm the accuracy of the forecast.

Required:
a) Define the term analytical procedures.
(2 marks)

b) In relation to the work of an external auditor:
i) Describe THREE (3) analytical procedures that should be performed to confirm PW’s revenue and profit.
(3 marks)
ii) Outline THREE (3) substantive procedures that should be adopted to verify each of the following assertions:

  • The valuation of inventory.
    (3 marks)
  • The completeness of payables.
    (3 marks)

c) Recommend FOUR (4) appropriate substantive procedures that should be performed to confirm PW’s bank loan.
(4 marks)

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