AA – May 2018 – L2 – Q1 – Audit Evidence

This question focuses on substantive procedures to verify additions and disposals of non-current assets and statutory books to be audited.

Question

The following figures were supplied by a small business client to your firm regarding its non-current assets for the year ended 31 December 2016:

	Generating Plant (N)	Equipment & Fittings (N)	Furniture (N)	Motor Vehicles (N)
Opening Balance	400,000	3,637,000	247,000	1,450,000
Additions	–	530,000	–	–
Disposal	–	–	–	(400,000)
Closing Balance	400,000	4,167,000	247,000	1,050,000

Depreciation:

	Generating Plant (N)	Equipment & Fittings (N)	Furniture (N)	Motor Vehicles (N)
Opening Balance	160,000	873,000	59,800	859,000
Charge for the Year	80,000	416,700	24,700	260,000
Charge on Disposal	–	–	–	(236,966)
Closing Balance	240,000	1,289,700	84,500	882,034

Required:

Identify FIVE substantive procedures you will carry out to verify additions to the assets in 2016. (10 Marks)
Explain FIVE substantive procedures for verifying disposal of assets during the year. (10 Marks)
Explain briefly FOUR of the statutory books that the auditor is required to audit in the course of his audit engagement in an entity. (10 Marks)

Answer

Substantive Procedures to Verify Additions:
- Obtain or prepare a schedule of additions for the year.
- Inspect supporting documentation, such as invoices, for evidence of the additions.
- Verify that the additions were properly authorized by the management.
- Physically inspect the additions to confirm their existence.
- Recalculate the depreciation charge for the additions to ensure correctness.
Substantive Procedures to Verify Disposals:
- Obtain or prepare a schedule of disposals for the year.
- Inspect documents related to the sale or disposal, such as sales invoices.
- Verify that the disposals were properly authorized by the management.
- Ensure that the related assets and accumulated depreciation were removed from the books.
- Recalculate the profit or loss on disposal to verify its accuracy.
Statutory Books to Audit:
- Register of Directors: The book records details of directors and their interests in the company’s shares and loans.
- Minutes of General Meetings: This book contains the official records of shareholders’ meetings.
- Register of Charges: This book records details of charges against the company’s assets.
- Register of Members: This book lists the company’s shareholders and their holdings.