PSP by Accounts
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E&Y Global Audit Methodology and Supplemental Audit Guidance Workflow EY Global Audit Methodology Strategy and Risk Assessment S11 Design Substantive Audit Procedures S11_Exhibit 1 Nature, Timing, and Extent of Substantive Procedures Appendix A: Primary Substantive Procedures (PSP) by Account [S11_Exhibit 1]
Appendix A: Primary Substantive Procedures (PSP) by Account [S11_Exhibit 1] A s w e a r e d e s i g n i n g o u r a u d i t procedures, cons i d e r t h e f a c t t h a t w e p e r f or or m Pr i m a r y S u b s t a n t i v e P r o c e d u r e s ( ‘ PS P’ ) o n a ll a u d i t e n g a g e m e n t s f o r a ll s i g n i f i c a n t a c co co u n t s , r e g a r d l ess of the comb i n e d r i sk assessments. The PSPs w i t h i n t h i s A p p e n d i x a r e a p p li c a b l e t o a ll i ndustr i e s a n d f i n a n c i a l r e p o r t i n g f r a m e w o r k s a n d a r e b a s e d o n a st st a n d a r d i z e d s e t o f s i g n i f i c a n t accounts, wh i c h i n c l u d e s a st st a n d a r d n a m i n g c o n v e n t i o n a n d t h e g l o b a l work i n g p a p e r i n d e x ( f or o r e x a m p l e , C : C a s h , i n c l u d i n g b a n k b a l ances). These PSPs are referred to as standard PSPs. For aud i t e n g a g e m e n t s i n c e r t a i n i ndustry sectors, a d d i t i o n a l PSPs PSPs are r equ i r e d f o r s t a n d a r d i z e d s i g n i f i c a n t a c c o u n t s a n d / o r s e c t or or s p e c i f i c s i g n i f i c a n t ac ac co co u n t s . T h e s e a d d i t i o n a l sector PSPs are i n c l u d e d i n A p p e n d i x A 1 : S e c t or or P ri m a r y S u b s t a n t i ve Procedures (PSPs) (PSPs) by Account [ S 1 1 _ E x h i b i t 1]. Each PSP i n c l u d e s a t i t l e t h a t d e s cr cr i b e s t h e o b j e c t i v e o f t h e p r o ce ce d u r e . I n a d d i t i o n , t h e m o s t r e l e v a n t a s s e r t i o n s h a v e b e e n i n d i c a t e d f o r each of the respect i v e p r o ce ce d u r e s . PSPs descr i b e t h e n a t u r e o f t h e p r o c e d u r e s t o b e p e r fo fo r m e d . A s p a r t o f t h e d e v e l o p m e n t o f ou ou r a u d i t procedures, we a l so i n c l u d e t h e t i m i n g a n d e x t e n t o f t h e P S Ps Ps . H o w e v e r , t h e t i m i n g a n d e x t e n t o f t h e p r i m a r y p r o c e d u r e s p e r f o r m e d w il l b e a f f e c t e d b y o u r c o m b i n e d r i s k a s s e ss ss m e n t s . S o m e o f t h e p r i m a r y p r o ce ce d u r e s m a y b e p e r f or or m e d a s t e s t s o f c o n tr t r o l s a s w e ll a s s u b s t a n t i v e p r o ce ce d u r e s ( k n o w n a s d u a l -purpose tests). PSPs PSPs on th e i r o w n w il l not necessar il y p r o v i d e a ll o f t h e a u d i t e v i d e n c e w e n e e d o n a p a r t i c u l ar assert i on for a s i g n i f i c a n t a c c o u n t . T h e r e f o r e , o u r a u d i t procedures a l s o i n c l u d e o t h e r s u b s t a n t i v e p r o c e d u r e s w e b e li e v e a r e n e c e ss ss a r y t o a p p r o p r i a t e l y r e s p o n d t o o u r c o m b i n e d r i s k a s s e ss ss m e n t . I n a d d i t i o n , w h e n d e v e l o p i n g o u r a u d i t procedures, we cons i d e r t h e a p p li c a b il i t y o f I ll u s t r a t i v e S u b s t a n t i ve Procedures (ISPs) wh i c h a r e a v a il a b l e f o r b o t h s t a n d a r d a n d sector-spec i f i c s i g n i f i cant accounts. Sector ISPs i n c l u d e s u p p l e m e n t a l w o r k s t e p s spec i f i c a ll y d e s i g n e d t o a s si st i n t h e e x e c u t i on of stand ard a nd sector PSPs PSPs i n c e r t a i n i ndustry sectors.
Summary of procedures
Pr i m a r y s u b s t a n t i v e procedures (PSPs) (PSPs)
Standard R e q u i r e d f o r a ll e n g a g e m e n t s r e g a r d l e ss o f i ndustry sector and r is k a s s e s s m e n t f o r t h e accounts i d e n t i f i e d a s sig n ific a n t .
Sector
R e q u ir e d f o r e n g a g e m e n t s in t h e i ndustry sector on l y f o r t h e accounts i d e n t i f i ed as s i g n i f i c a n t r e g a r dl ess of r i s k a s s e ss ss m e n t .
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I ll u s t r a t i v e substantive procedures (ISPs)
I ll u s t r a t i v e ( n o t r e q u i r e d ) f o r a ll e n g a g e m e n t s r e g a r d l e ss o f i ndustry sector for [NOTE: Standard i i i I S P s a r e a v a il a b l e i n accounts d e n t f e d a s sig n ific a n t . Chapter 5 of the G l o b a l S u p p l e m e n t a l C e r t a i n ISPs are A u dit M a n u al] a p p li c a b l e r e g a r d l ess of r is k a s s e ss ss m e n t a n d o t h e r s a r e a p p li c a b l e i n r e s p o ns ns e t o c e r t a i n r i s k assessments.
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I ll u s t r a t i v e ( n o t r e q u i r e d ) f o r e n g a g e m e n t s in t h e in d u s t r y sector on l y f o r t h e a c co co u n t s i d e n t if i e d a s s i g n i f i c a n t , r e g a r dl ess of r i s k a s s e ss ss m e n t . C e r t ain I S P s a r e d e sig n e d t o b e w o r k s t e p s t o cl a r i f y h o w c e r t a i n PSPs are genera ll y e x e c u t e d f o r a n i ndustry sector. F o r co co n v e n i e n c e , e a c h w o r k s t e p h a s b e e n r e f e r e n c e d t o its a p p li c a b l e PSP.
il l ustrat i v e
* Balance Sheet and Profit Loss Legend Balance Sheet (B/S)
E = E x i stence V = V a lu a tio n C = Completeness R &O &O = Ri ghts & Ob li g a t i o n s P &D &D = P r e s e n t a t i o n a n d D i sc l osure
Profit Loss (P/L)
O = Occurrence M = Measurement C = Completeness P &D &D = P r e s e n t a t i o n a n d D i sc l osure
RELEVANT ASSERTIONS* B/S Index Index Signifi Significant cant Account Account and Primary Primary Substantive Procedures C
Cash, in includ luding Ba Bank Ba Balances ces
1
B a n k c o n f ir m a ti o n s :
P/L
E V C R&O P&D O M C P& P&D
X X X
X
X
O b t a i n a c o m p l e t e li s t o f b a n k accounts (deb i t a n d c r e d i t b a l ances) a s w e ll as re l a t e d l o a n a n d s i m il a r c o n t r a ct ct s . O b t a i n , a t a m i n i m u m , b a n k c o n f i r m a t i ons for a ll m a j o r d e p o si t o r y a n d d is b u r s e m e n t accounts, and bank accounts c l osed d u r i n g t h e y e a r a n d o t h e r a c c o u n ts ts as appropr i a t e , b a s e d o n t h e n a t u r e o f t h e a cc cc o u n t s ( e . g . , w e m a y d e c i d e n o t t o c o n fi r m s o m e i m p r e s t b a n k a c co co u n t s , p a s s - t h r ou ou g h b a n k accounts, or non-operat i n g b a n k accounts w i t h li m i ted act i v i t y ) t o
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conf i r m t h e r e l a t i onsh i p w i t h t h e b a n k i nc l u d i n g c o n t i n g e n c i es, li e n s , p l edges, restr i ct i o n s o n t h e c li ent's a s se t s , g u a r a n t e e d a m o u n t s e t c . D o c u m e n t in t h e w o r k p a p e r s t h e r a t i on a l e f o r t h e s e l ect i o n o f b a n k accounts for conf i r m a t i on . 2
B a n k r econc il i a t i o n s :
X X X
E x a m i n e t h e c li ent's bank reconc il i a t i o n a s o f y e a r e n d , i nc l u d i ng cash- i n - t r a n s i t accounts, ( e . g . i n s u b l e d g e r s ) t o v e r if y t h e proper reconc il i a t i o n o f b a n k statements and genera l ledger accounts. 3
C a sh cu t off :
X
X
Test cutoff of cash rece i pts and cash d i s b u r s e m e n t s f o r t r a n s fe r s b e t w e e n d i f f e r e n t b a n k a c c o un t s a t the balance sheet date. 4
C a sh v a l u a t i o n :
X
Test appropr i a t e v a l u a t i on of cash a n d c a s h e q u i v a l ents ( i nc l u d i n g o v e r d r a f t s ) i n f o r e i g n c u r r e n c i e s.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures D
Marketable Securities
1
V e r i f i ca t i on of ex i s t e n c e a n d o w n e r s hip :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
V e r if y t h e e x i s t e n c e a n d o w n e r s h i p of recorded secur i t i e s t h r o u g h conf i r m a t i o n or e x a m i n a t i on of e vid e n c e o f o w n e r s h ip ( e . g . , s t o c k c e r t i f i c a t e s , b a n k s t a t e m e n t s, b r o k e r s t a t e m e n t s) . 2
D e t a il e d c o n f i r m a t i o n r e v i e w :
X
X
X
X
R e v i e w c o n f i r m a t i o n r e p li es for e v i d e n c e o f t h e e x is t e n c e o f m a r k e t a b l e secur i t i e s , a n d o f li e n s , pledges or other securit y interests i n m a r k e t a b l e secur i t i es. 3
Ma r k e t v a l u at i o n :
X
X
X
X
I n s p e c t ma r k e t q u o t a t io n s o r o t h e r e v i d e n c e o f c u rr e n t v a l u e o f m a r k e t a b l e secur i t i es, i nc l u d i n g t h o s e i n fore i g n c u r r e n c i es. 4
V a l u a t i o n i n accordance w i t h account i n g p o li c i e s :
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T e s t t h a t m a r k e t a b l e secur i t i es are carr i e d i n accordance w i t h t h e c li ent's account i n g p o li c i es or a pp li ca b l e f i n a n c i a l r e p o r t i n g framework. 5
R ec l as s i f i c a t i o n b e t w e e n t r a d i n g a n d i n v e s t m e n t p o r t f o li os :
X X
X
I n s p e c t d o c u m e n t a t io n a n d m a k e i n q u i r i e s t o d e t e r m i n e t h e v a li d i t y a n d e x t e n t o f r ec l a ss i f i ca t i o n b e t w e e n c a t e g o r i es of i n v e s t m e n t s . B y r e f e r e n c e t o t h e c li ent's account i n g p o li c i es or app li ca b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k , e v a l u a t e t h e r e c l ass i f i c a t i o n t o d e t e r m i n e i t s e f f e ct o n : 1 ) recogn i t i on of prof i t or l oss, 2) the s t a t e d i n t e n t a n d a b il i t y , a n d 3 ) t h e c l ass i f i c a t i o n o f o t h e r i n v e s t m e n t s .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures E
Accounts Receivable trade
1
A g r e e m e n t of su b l e d g e r w i t h general ledger:
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
A g r e e r e c e i v a bl e s s u b l e d g e r t o t h e g e n e r a l l e d g e r c o n t r o l a c c o u n t a n d in v e s t ig a t e la r g e a n d u n u s u a l reconc il i n g i t e m s . 2
C onf i r m a t i o n s a n d s u b s e q u e n t c a s h r e c ei p t s :
X X
X
X
V e r i f y t h e e x i stence of accounts receivable trade through conf i r m a t i o n , e x a m i n a t i on of s u b s e q u e n t c a s h r e c e ip t s , o r o t h e r a lt e r n a tiv e p r o c e d u r e s , a s a p p r o p ri a t e . C o n si d e r u s i n g t h e a u d i t r i s k t a b l es or EY M i croSTART to determine the exte nt of the s a m p l e o r d o cu m e n t t h e r a t i o n a l e f o r t h e s a m p l e se l e ct i o n i n t h e workpapers. 3
Ro ll f o r w a r d p r o c e d u r e s :
X X X
I f a c c o u n t s a r e v e r ifi e d a t a n i n t e r i m d a t e , r e v i e w t h e r o ll f o r w a r d of act i v i t y f r o m t h e i n t e r i m d a t e t o t h e b a l a n c e s h e e t d a t e in a m a n n e r respons i v e t o o u r c o m b i n e d r i sk a s s es s m e n t a n d c o m p a r e l e v e l of act i v i t y w i t h p r i or per i ods.
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I n v e s t i g a t e u n u s u a l i t e m s ; c o ns i d e r conf i r m i n g ( a t t h e b a l a n c e s h e e t d a t e ) s i g n i f i c a n t n e w a c co u n t s a n d those accounts w i t h s i g n i f i c a n t i n c r e a s e s or d e c r e a s e s b e t w e e n t h e i n t e ri m d a t e a n d t h e b a l a n c e s h e e t date. 4
Acco un ts r ec e i v a b l e c u t o f f :
X
X
P e r f o r m a n a l y t i ca l procedures to i d e n t i f y p e a k s i n sa l es vo l u m e i n t h e l a s t f e w d a y s or w e e k s o f t h e y e a r a n d t e s t c u t o ff b y i nspect i n g s a l es reg i s t e r , b illi ngs, sh i p p i n g d o c u m e n t s a n d o t h e r s u p p o r ti n g documents before and after the y e a r - e n d d a t e . W h e r e w e p e r f or m s u b s t a n tiv e p r o c e d u r e s a t a n i n t e r i m d a t e , w e p e r f o r m c u t o ff t e s t i n g a t t h a t d a t e a l so . 5
A ll owance for doubtfu l accounts:
X
X
X
X
X
X
Ev aluate the ad equacy of the a ll o w a n c e f o r d o u b t f u l accounts, i nc l u d i n g t h e a p p r o p r i ateness of the m e t h o d o l o g y u s e d t o c a l cu l a t e t h e a ll o w a n c e . 6
O th er a dj ust m en ts to accou nts receivable : Ev aluate the ad equacy of other a d j u s t m e n t s t o a c c ou n t s r e c e i v a b l es, such as rebates, cred i t m e m o s, d i scounts.
7
Accou nts r ec e i v a b l e i n f o r e i gn c u r r e n c i e s: T e s t a p p r o p r i a t e v a l u a t i on of accounts rece i v a b l es i n f o r e i g n c u r r e n c i e s.
8
C r e dit b ala n c e s a n d u n u s u a l it e m s :
X
X
I n q u i r e a b o u t o r r e v i e w t h e li st of c r e d i t b a l ances and i n v e s t i g a t e l a r g e it e m s .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures F
Inventories
1
O bs e r v a t i on of phys i ca l i n v e n t o r i es :
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X
O b s e r v e t h e t a k i ng of phys i ca l Ver i f y t h a t c li e n t c o u n t i nstruct i o n s a r e f o ll o w e d a n d t h a t i n v e n t o ri e s o w n e d b y o t h e r s a r e i n v e n t o r i es.
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separated. Perform appropriate test counts and trace t est counts to the i n v e n t o r y c o m p il at i o n. 2
C o nf i r m a t i on of i n v e n t o r i e s h e l d b y others:
X
X
X
If s i g n i f i c a n t , c o n f i r m i n v e n t o r i e s h e l d b y o t h e r s a t t h e p h y s ic a l i n v e n t o r y d a t e a n d t r a c e c o n fi r m e d q u a n t iti e s t o t h e in v e n t o r y c o m p il a t i o n ; c o n s i der observ i n g t h e s e p h y s i c a l i n v e n t o r i es as we ll . 3
Reconc il i a t i on of i n v e n t o r y c o m p il a t i on w i t h g e n e r a l l e d g e r :
X X
R e v i e w t h e r e c o nc il i a t i o n o f t h e v a l u e d p h y s ic a l i n v e n t o r y c o m p il a t i on w i t h t h e g e n e r a l l e d g e r account ba l a n c e s a n d t h e p e r p e t u a l in v e n t o r y r e c o r d s . I n v e s t ig a t e l a r g e a n d u n u s u a l reconc il i n g i t e m s . 4
Ro ll f o r w a r d p r o c e d u r e s :
X X
If inventories are taken at an d a t e , r e v i e w t h e r o ll f o r w a r d d o c u m e n t a tio n in a m a n n e r respons i v e t o o u r c o m b i n e d r i sk a s s e ss m e n t a n d i n v e s t i g a t e u n u s u a l it e m s . i n t e ri m
5
I n v e n t or y cu t off :
X
X
T r a c e t h e c u t o ff i n f o r m a ti o n o b t a i n e d d u r i n g t h e p h y s i ca l o b s e r v a t i o n t o t h e a c co u n t i n g records of sa l es and purchases. 6
V a l u a t i o n i n accordance w i t h account i ng po li c i e s :
X
X
T e s t t h e v a l u a t i on of i n v e n t o r y t o v e r i f y t h a t i t is p e r f o r m e d i n accordance w i t h t h e c li ent's account i n g p o li c i e s o r a p p li c ab l e f i n a n c i a l r e p o r t i n g f r a m e w o r k . 7
N et r e a li z a b l e v a l u e t e s t i n g :
X
T e s t t h e a ll o w a n c e s t o r e d u c e t h e v a l u a t i on of i n v e n t o r y t o n e t r e a li z a b l e v a l u e , e . g . , r e s e r v e s f o r s l o w m o v i n g i t e m s , o b so l escence or l o w e r o f c os t o r m a r k e t .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures G
B/S
P/L
E V C R&O P&D
O M C P&D
Prepaid expenses, deferred charges and other assets
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1
V er i f i ca t i o n o f e x i s t e n c e a n d v a l u at i o n :
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X X X
X
X
V er i f y e x i s t e n c e a n d c a r r y i n g a m o u n t s t h r o u g h e x a m i n a t i on of support i n g d o c u m e n t s , o r conf i r m a t i o n o r a c o m b i n a t i on of those procedures.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures H
Investments, including investments in affiliates
1
V e r i f i ca t i on of ex i s t e n c e a n d o w n e r s hip :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
X
X
X X X
X
X
V e r if y t h e e x i s t e n c e a n d o w n e r s h i p of recorded i n v e s t m e n t s , i nc l u d i n g those i n aff il i a t e s , t h r o u g h conf i r m a t i o n or e x a m i n a t i on of e v i d e n c e o f o w n e r s hi p . I n v e s t i g a t e u n u s u a l it e m s . 2
D et a il e d m i n u t e s r e v i e w : R e v i e w m i n u t e s ( s h a r e h o l ders, b o a r d , e x e c u t i v e c o m m it t e e , e t c . ) , a g r e e m e n t s a n d c o n f ir m a tio n r e p li es for ev i dence of ex i s t e n c e , li e n s , p l e d g e s o r o t h e r s e c u r i t y in t e r e s t s in in v e s t m e n t s ; a n d o f c o m m i t m e n t s t o a cq u i r e o r d i spose of i n v e s t m e n t s .
3
V a l u a t i o n i n accordance w i t h account i n g p o li c i e s :
X
X
X
X
I n s p e c t m a r k e t q u o t a t i ons, f i n a n c i a l statements of investees and other e v i d e n c e o f c u rr e n t v a l ue, cost or e q u it y a m o u n t o f i n v e s t m e n t s a n d t e s t t h a t i n v e s t m e n t s a r e c a r r i ed i n accordance w i t h t h e c li e n t ’ s account i n g p o li c i es or app li ca b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k i nc l u d i ng fore i gn currency t r a n s l a t i ons. 4
I m p a i r m e n t t e st i n g : Use i n f o r m a t i o n o b t a i n e d d u r i n g t h e a u d it i n d e t e r m inin g w h e t h e r m a n a g e m e n t h a s i d e n t ifi e d a p p r o p r i a t e i n d i cators of i m p a ir m e n t a n d v e rif y t h a t a p p r o p r i a t e a d j u s t m e n t s a re m a d e i n accordance w i t h t h e a p p li c a b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k .
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R ec l as s i f i c a t i o n b e t w e e n t r a d i n g a n d i n v e s t m e n t p o r t f o li os :
X X
X
I n s p e c t d o c u m e n t a t io n a n d m a k e i n q u i r i e s t o d e t e r m i n e t h e v a li d i t y a n d e x t e n t o f r ec l a ss i f i ca t i o n b e t w e e n c a t e g o r i es of i n v e s t m e n t s . B y r e f e r e n c e t o t h e c li ent's account i n g p o li c i es or app li ca b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k , e v a l u a t e t h e r e c l ass i f i c a t i o n t o d e t e r m i n e i t s e f f e ct o n : 1 ) recogn i t i on of prof i t or l oss, 2) the s t a t e d i n t e n t a n d a b il i t y , a n d 3 ) t h e c l ass i f i c a t i o n o f o t h e r i n v e s t m e n t s .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures I
Intercompany balances and transactions
1
V er i f i ca t i on of i n t e r c o m p a n y a c co u n t b a l ances:
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X
X
O b t a i n a c o m p l e t e li st of aff il i a t e d c o m p a n i e s a n d o b t a i n conf i r m a t i o n of rece i v a b l e s fr o m a n d p a y a b l es to aff il i a t e s , o r a g r e e t h e a c c o un t b a l ances w i t h t h o s e i n t h e a f f il i ates' records. 2
V a l u a t i on of i n t e r c o m p a n y accounts:
X
Test the carrying a mounts of a c co u n t s , i nc l u d i n g t h o s e i n fore i g n c u r r e n c i es .
in t e r c o m p a n y
3
I nt erco m pa ny accou nts cu toff :
X
X
Test cutoff by i nspect i n g s a l e s r e g i s t e r , b illi ngs, sh i p p i n g d o cu m e n t s a n d o t h e r s u p p o r t i n g documents before and after the year end date. 4
A ll o w a n c e f o r d o u b t f u l i n t e r c o m p a n y r e c e i v a b l es :
X
E v a lu a t e t h e a d e q u a c y o f t h e a ll o w a n c e f o r d o u b t f u l i n t e r c o m p a n y r e c e i v a b l es cons i d e r i n g t h e a g i n g a n d f i n d i n gs f ro m a u d i t p r o c e d u r e s p e r f or m e d i n the area of investments.
RELEVANT ASSERTIONS*
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Index Significant Account and Primary Substantive Procedures J
Long-term receivables, noncurrent deposits, and other long-term financial assets
1
V er i f i c a t i on of ex i s t e n c e a n d o w n e r s hip :
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B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X
X
V er i f y t h e e x i s t e n c e a n d o w n e r s h i p of l o n g - t e r m r e c e i v a b l es through conf i r m a t i o n o r e x a m i n a t i on of support i n g d o c u m e n t a t i o n . 2
V a l u a t i on of l o n g - t er m f i n a n c i a l assets:
X
T e s t t h e c a r r y in g a m o u n t s o f lo n g t e r m f i n a n c i a l assets. 3
I m p a i r m e n t t e st i n g :
X
X
Use i n f o r m a t i o n o b t a i n e d d u r i n g t h e a u dit in d e t e r m inin g w h e t h e r m a n a g e m e n t h a s i d e n t i fi e d appropr i a t e i n d icators of i m p a ir m e n t a n d v e r if y t h a t appropr i a t e a d j u s t m e n t s a r e m a d e i n accordance w i t h t h e a p p li ca b l e f i n a n c i a l report i n g f r a m e w o r k.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures K
Property, plant and equipment and related income statement accounts
1
A gr e e m en t of su b l edgers w i t h g e n e r al le d g e r :
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X X
O b t a i n a s c h e d u l e o f p r o p e r t y , p l an t a n d e q u i p m e n t , i nc l u d i n g ca p i t a li z e d l e a s e s , a n d r e l a t e d a d d i t i ons, d i sposa l s, r ec l ass i f i c a t i o n s a n d d e p r e c i a t i on , d e p l e t i o n a n d / o r a m o r t i z a t i on (PPE su b l e d g e r ) a n d a g r e e b a l ances to the respectiv e g e n e r a l le d g e r accounts. 2
A dd i t i o n s a n d d i sposa ls :
X X X
X
X
X
X
For s i gn i f i c a n t a d d i t i ons ( i nc l u d i n g ca p i t a li z e d l abor, borrow i ng costs a n d o t h e r a c c e p t a b l e costs) and d i sposa l s dur i n g t h e y e a r , e x a m i n e
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i n v o i ces,
cap i t a l e x p e n d i t u r e a u t h o r i z a t i ons, l e a s e s a n d o t h e r d a t a t h a t s u p p o rt t h e s e a d d i t i o ns a n d d i sposa l s. A l s o , w h e r e a p p li c a b l e , r e v i e w t h e r a t i o of l abor ca p i t a li z e d v e r s u s e x p e n s e d a n d c o m p a r e t o p rio r y e a r a n d e x p e c t a t i ons. 3
Le a se s, r e p a i r a n d m a i n t e n a n c e :
X
X
X
X
Re v i e w a n d e x a m i n e s u p p o r t f o r r e n t a ls u n d e r o p e r a t in g l e a s e s a n d for s i g n i f i c a n t c h a r g e s t o r e p a i rs , m ain t e n a n c e a n d o t h e r e x p e n s e a c co u n t s t o d e t e r m i n e i f t h e y shou l d b e c a p i t a li z e d a s p r o p e r t y , pl a n t a n d e q u i p m e n t . 4
D e pr e c i a t i o n , d e p l e t i o n a n d a m o r ti z a t i o n :
X
X X
X
X
X
Re v i e w r e a s o n a b l en ess of d e p r e c i at i o n , d e p l e t i o n a n d a m o r ti z a t i o n c h a r g e b y r e f e r e n c e t o t h e c li ent's account i ng po li c y o r a p p li c a b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k a n d e x p e c t a t i on for current year. 5
I m p a i r m e n t s o f pr o p e r t y , p l a n t a n d e q u ip m e n t : Use i n f o r m a t i o n o b t a i n e d d u r i n g t h e a u d i t in d e t e r m ini n g w h e t h e r m a n a g e m e n t h a s i d e n t i fi e d appropr i a t e i n d i cators of i m p air m e n t .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures L
Intangibles, including Goodwill
1
E v i d e n c e o f c h a n g e s i n i n t a n g i b l es :
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X
X
O b t a i n a s c h e d u l e of i n t a n g i b l e s, g o o d w il l , a n d t e s t t h e b a s e s o n w h i c h a d d i t i ons, a m o r t i z a t i o n a n d d i sposa l s are r e c o r d e d . E x a m i n e i n vo i ces, a u t h o r i z a t i ons, contracts, agreements, and other data that s u p p o r t o w n e r s h i p of i n t a n g i b l es c a p i t a li z e d a n d d i sposed of dur i n g the year. i nc l u d i n g
2
I m p a i r m e n t o f i n t a n g i b l es :
X
D e t e r m in e w h e t h e r w r it e d o w n s a r e r e q u i r e d , i n accordance w i t h t h e
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c li ent's account i n g p o li c i es or a p p li c a b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k t o r e f l ect i m p a i r m e n t of t h e c a r r y in g a m o u n t s o f in t a n gibl e assets or goodw il l .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures M
Notes payable
1
V e r i f i ca t i o n o f n o t e s p a y a b l e a n d r e l a t e d o b li ga t i o n s :
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X
X
X X X
X
X
X
X
X
C o n fi r m n o t e s p a y a b l e o r r e v i e w support i n g d o c u m e n t a t i on as to a m o u n t s o w e d , t e r m s , c o ll a t e r a l a n d r e s t r i ct i o n s a n d t h e d e b t o r 's c o m p li a n c e w i t h t h e l o a n p r o v i s i ons a n d i d e n t i f y li ens, secur i t y in t e r e s t s , a n d a s s e t s p l e d g e d a s l o a n c o ll a t e r a l . 2
I nspe ct i o n o f c o n t r a c t s : I n s p e c t d o c u m e n t a t i on of l o a n agreements or other short-term le n din g a r r a n g e m e n t s ( e . g . , factor i n g ) t o d e t e r m i n e t h e t e r m s , r e s t r i ct i o n s , r e v o l v i ng li nes of c r e dit , a n d o t h e r p e r tin e n t p r o v isi o n s o f n o t e s p a y a b l e .
3
C o m p li a n c e w i t h c o n t r a ct t e r m s : T e s t c a l cu l a t i o n s a n d o t h e r e v i d e n c e r e l a t i n g t o c o m p li a n c e w i t h t h e t e r m s , r e s tr i ct i ons, or o t h e r p r o v i s i ons of l o a n agreements.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures N
Accounts payable, trade
1
A gr e e m e n t of su b l e d g e r w i t h g e n e r al le d g e r :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
Agree the accounts payab le su b l e d g e r t o t h e g e n e r a l l e d g e r contro l account and i n v e s t i g a t e l a r g e a n d u n u s u a l reconc il i n g i t e m s .
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U n usu a l i t e m r e v i e w :
X X X
X
X
X
X
I n q u i r e a b o u t o r p e r f or m a r e v i e w of the accounts payab le subledger for unusua l i t e m s , e . g . , s i g n i f i c a n t d e b i t b a l ances i n t h e a c co u n t s p a y a b l e s u bl e d g e r o r o t h e r u n e x p e c t e d a m o u n t s t o v e r if y proper c l ass i f i ca t i o n a n d v a l u a t i o n . 3
Acco u n ts p a y a b l e cutoff:
X
Perform cutoff tests for goods and s e r v i ces rece i v e d a s w e ll as for s u p p li e r c r e d i t m e m o s t o v e r i f y t h a t transact i o n s a r e c o m p l et e l y r e c o r d e d i n t h e c o r r e c t p e r i od . 4
S ea rch for unr e cor d e d
li a b il i t i e s:
X X
P e r fo r m a s e a r c h f o r u n r e c o r d e d li a b il i t i e s a t t h e y e a r e n d d a t e b y se l ect i n g s u b s e q u e n t d i s b u r s e m e n t s a n d u n m a t ch e d i n v o i ces and r e c e i v i ng reports. 5
V a l u a t i o n o f a c c o u n ts p a y a b l e :
X
Test appropr i a t e v a l u a t i on of a c co u n t s p a y a b l e i n fore i g n currenc i e s.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures O
Income taxes, deferred taxes and related income statement accounts
1
Reconc il i a t i on of account i n g t o t a x a bl e i n c o m e :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
X
X
X
X
X
X
T e s t t h e r e c o n c il i a t i o n o f t h e c u r r e n t y e a r b o o k / l oca l GAAP /statutory and taxabl e i n c o m e , v a li d a t e t h e s p li t b e t w e e n p e r m a n e n t a n d t i m i n g d i fferences, a n d c o m p a r e r e c o n c il i n g i t e m s w i t h those i n pr i o r y e a r s a n d e x a m i n e support. 2
Pro v i s i ons for i n co m e t a x e s :
X
T e s t co m p u t a t i ons of prov i s i ons for current and deferred income taxes f o r t h e c u r r e n t y e a r a n d r e c o n c il e t o a p p r o p ri a t e b a l a n c e s h e e t a n d in c o m e s t a t e m e n t a c c o u n t s . 3
I m p air m e n t o f d e f e r r e d t a x a s s e t s :
X
X
X
I n v e s t ig a t e p o t e n t i a l i m p a ir m e n t s
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o f d e f e r r e d t a x a ss e t s . 4
Mo v e m e n t of i n c o m e t a x a c co u n t b al a n c e s :
X X
X X X
Re v i e w t h e m o v e m e n t o f i n c o m e t a x a c co u n t b a l a n c e s f r o m p r i or y e a r ( i nc l u d i n g t h o s e c u r r e n t l y p a y a ble o r d e f e r r e d ) a n d v a lu a tio n a ll o w a n c e s f o r d e f e r r e d t a x a s se t s . 5
Pro v i s i ons for certa i n t a x p o s i t i o n s :
X
X
X
X
X
X
X
X
D e t e r m in e w h e t h e r p r o v isio n h a s t o b e m a d e f or a n y t a x p o si t i o n s t a k e n b y t h e c li e n t o r o t h e r t a x cont i n g e n c i es, e.g., as a resu l t of r e l a t e d p a r t y t r a n s a c ti o n s , t h a t m a y b e c h a ll e n g e d b y t a x a u t h o r i t i e s. 6
B a s i s for record i n g r e l a t e d p a r t y transact i o n s : Test that intercompany and other r e l a t e d p a r t y t r a n s a c ti o n s h a v e a v a li d b u s i n e s s r e a so n a n d a r e recorded on an arm's l e n g t h b a s i s. If i n doubt, cons i d e r t h e i n vo l v e m e n t o f a p p r o p r i a t e E Y profess i o n a l s.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures OOT
1
B/S
P/L
E V C R&O P&D
O M C P&D
Indirect Taxes
V AT s u m m a r y :
X X X
O b t ain a summ ary of VAT on inputs and VAT on outputs over a month/quarter/year and compare to a s u m m a r y o f sa l es and purchases o v e r t h e s a m e p e rio d . I n v e s ti g a t e a n y u n u s u a l v a r i at i o n s , t a k i n g i n t o account app li c a b l e V A T r e li efs, such a s e x e m p t io n s o r z e r o - r a t e s . 2
V A T r e co nc il i a t i on :
X
X
O b t a i n a reconc il i a t i o n o f t h e l a t e s t VAT return to the general ledger. O b t a i n e x p l a n a t i ons for reconc il i n g it e m s a n d a g r e e t o s u p p o r tin g d o c u m e n t a tio n w h e r e a p p r o p r i a t e . 3
C usto m s d u t y :
X X X
C o m p a r e t h e t o t a l c u s t o m s d u t i e s f o r t h e p e rio d t o t h e e x p e c t e d customs duty by reference to the purchases or other or i g i n a t i n g transact i o n s o v er t h e s a m e p e r i od.
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I n v e s t i g a t e s i gn i f i c a n t v a r i a n c e s f r o m e x p e c t a t i ons. 4
O t h er t a x e s :
X X X X
R e v i e w s i gn i f i c a n t o t h e r t a x e s ( e . g . , property taxes, for correctness and proper cutoff.). 5
Accr u e d
li a b il i t i es :
X
X
R e v i e w t h e s c h e d u l e of prov i s i o ns a n d a c c r u e d li a b il i t i e s f or V A T a n d o t h e r i n d i rect taxes for correctness a n d c o m pl e t e n e s s , a g r e e a m o u n t s t o t h e g e n e r a l l e d g e r a cc o u n t s a n d e s t a b li sh proper cutoff. 6
U nr ecord e d n o n - i n co m e t a x
X X X
li a b il i t i es :
D e t e r m i n e w h e t h e r a p r o visi o n is r e q u ir e d f o r a n y n o n - i n c o m e t a x pos i t i o n s t a k e n b y t h e e n t i t y o r other tax contingencies that may be ch a ll e n g e d b y t h e t a x a u t h o r i t y . 7
C o m p li a n c e w i th l e g i s l a t i o n :
X X X
X
F o r a s a m p l e o f r e le v a n t transact i o n s ( e . g . , i m p o r t e d i n v e n t o r y i n t h e c a s e o f c us t o m s d u t y o r s a l es i n respect of VAT, d e t e r mi n e w h e t h e r t h e n o n -in c o m e t a x h a s b e e n p r o p e r l y accounted for i n accordance w i t h t h e n o n - i n c o m e t a x l e g i sl a t i o n . )
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures P
Provisions, accrued and other liabilities, deferred income
1
Cor r e ct n ess a n d co m p l eteness of prov i s i o n s :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
Re v i e w t h e s c h e d u l e of prov i s i ons, accrued li a b il i t i e s a n d d e f e r r e d i ncome for correctness and c o m p l e t e n e ss , a g r e e a m o u n t s t o t h e g e n e r a l l e d g e r a c c o u n t s a n d v e r if y proper cutoff. 2
Pe ns i o n a n d o t h e r e m p l o y e e r e l a t e d lo n g - t e r m r e s e r v e s :
X X
E x a m in e t h e c o m p o s it io n a n d c o m p u t a t i on of pens i o n a n d o t h e r e m pl o y e e r e l a t e d l o n g - t e r m r e s e r v e s f o r r e a s o n a b l eness and cons i d e r t h e i n v o l v e m e n t o f EY
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profess i o n a l s. 3
A pp ro p r i a t e n e ss o f o t h e r
li ab il i t i e s :
X
Re v i e w o t h e r li a b il i t i e s t o d e t e r m i n e t h e y a r e a p p r o p ri a t e . D e t e r min e that the amounts appear to be r e a s o n a b l e i n c o m p a r i son w i t h p r i or y e a r s a n d u n d e r c o n s i d e r a t i on of y o u r u n d e r s t a n d i n g o f t h e c li ent's bus i n e s s a n d c h a n g e s t o i t. 4
D e t a il e d r e v i e w o f l a w y e r s conf i r m a t i o n s a n d o t h e r d o c u m e n t a t i on :
X X X
X
X X
X
X
Re v i e w l a w y e r c o n f i r m a t i ons as r e q u ir e d i n t h e P G A P ; m i n u t e s ; w h e r e a p p li ca b l e, correspondence w i t h r e l e v a n t li c e n s i n g o r r e g u l a t o r y bod i e s ; a n d o t h e r d o cu m e n t s t o v e rif y t h a t a p p r o p r i a t e r e s e r v e s / a c c r u a ls h a v e b e e n r e c o r d e d b y t h e c li e n t . 5
S ea rch for u nr ecor de d r ese rv es an d accrua l s : Search for unrecorded r e s e r v e s / a c c r u a ls , e . g . , r e l a t e d t o e m pl o y e e s , c o n t r a c t s ( r e n t , l e a s e ) , f i n a n c e ( i n t e r e s t ) , s a l es (product a n d s e r v i c e w a r r a n t i es, c o m m i ss i ons, returns), purchases (goods and serv i ces, li censes, r o y a l t i e s ) , s e r v i ces rece i v e d ( a u d i t , t a x , l e g a l , consu l t i n g ) .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures PWA
1
B/S
P/L
E V C R&O P&D
O M C P&D
Significant Account and Primary Substantive Procedures
E v a l u at i o n o f w a r r a n t y a c cr u a l c o m p u t a tio n :
X X X
X
X
O b t a in a n d u n d e r s t a n d t h e c o m p u t a t i o n o f w a r r a n t y a c cr u a l a n d c o m p a r e w i th pr i o r y e a r . E v a l u a t e m a n a g e m e n t ’s m e t h o d a n d a s s u m p t i ons used i n est i m a t i n g t h e w a r r a n t y a c c r u a l. E v alu a t e w h e t h e r a s s u m p t i ons used for r e p a i r c o st , q u a n t i t i e s , a n d r e t u r n r a t e a r e r e a s o n a ble .
RELEVANT ASSERTIONS*
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Index Significant Account and Primary Substantive Procedures Q
Long-term debt, leases and related income statement accounts
1
Lon g- t er m d e b t i n t e r e s t e x p e n s e s a n d c o m p li a n c e w i t h a g r e e m e n t s :
Page 16 of 23
B/S
P/L
E V C R&O P&D
O M C P&D
X X X
X X X
X
X
X
X
X
X
X
X
X
X
X X X
X
X
Re v i e w s u m m a r y o f l o n g - t e r m d e b t a n d i n t e r e s t p r e p a r e d b y t h e c li e n t f o r r e a s o n a b l eness of ca l cu l a t i ons of i n t e r e s t e x p e n s e a n d a c cr u e d i n t e r e s t i nc l u d i ng fore i g n c u r r e n c y t r a n s l a t i o n s a n d a g r e e s c h e d u l es to g e n e r a l l e d g e r . T e s t c o m p li ance w i t h t h e t e r m s , m a t u r i t i e s, restr i ct i v e c o v e n a n t s , o r o t h e r prov i s i o n s of d e b t a g r e e m e n t s . 2
I nsp ect i o n o f n e w a g r e e m e n t s : For new agreements in the year u n d e r a u d i t , i nspect or i g i n a l or a u t h e n t i c a t e d c o p i es of debt a g r e e m e n t s , o r ot h e r r e l a t e d d o cu m e n t s t o t e s t t h e t e r m s , restr i ct i v e c o v e n a n t s a n d o t h e r p e r t i n e n t p r o v i s i ons of l o n g - t e r m debt.
3
Co ll a t e r a l s : I d e n t i f y li ens, secur i t y i nterests, and assets p l e d g e d a s c o ll a t e r a l for d e b t , c r o s s- r e f e r e n c e t o t h e correspond i n g g e n e r a l l e d g e r a c co u n t s a n d v e r i f y p r o p e r d i sc l osures.
4
V er i f i ca t i o n o f e x i s t e n c e a n d o b li g at i o n s :
X
Conf i r m l o n g - t e r m d e b t o r r e v i e w support i n g d o c u m e n t a t i on as to a m o u n t s o w e d , t e r m s , c oll a t e r a l , restr i ct i o n s a n d t h e c li ent's c o m p li a n c e w i t h t h e p r o v i s i ons of t h e a g r e e m e n t s. 5
Le as e a n d re nt co nt r acts :
X
X
X
X
Re v i e w s u m m a r y o f l e a s e a n d r e n t contracts and test correct p r e s e n t a t i o n ( e . g . , o p e r a t i ng or fi n a n c e l e a s e ) i n t h e f i n a n c i a l statements.
RELEVANT ASSERTIONS*
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B/S IndexSignificant Account and Primary Substantive Procedures S
Derivatives/Hedging/Commitments/Contingencies
1
V e r i f i c a t i on of ex i s t e n c e a n d o w n e r s h i p :
P/L
E V C R &O P&D O M C P &D
X
X X
X
V e r i f y t h e e x i s t e n c e a n d o w n e r s h i p of recorded d er i v a t i ves through conf i r m a t i o n w i t h t h e b r o k e r / d e a l e r o r co u n t e r p a r t y o r e x a m i n a t i on of ev i d e n c e o f o w n e r s h i p . C o n fi r m b o t h s e t t l e d a n d u n s e t t l e d t r a n s a c t i ons w i t h t h e b r o k e r / d e a l e r o r c o u n t e r p a r t y . R e q u e s t t h e i nc l us i on of other i n f o r m a t i o n a b o u t t h e d er i v a t i v e s , su c h a s w h e t h e r t h e r e a r e a n y s i d e agreements. 2
D e t a il e d r e v i e w o f m i n u t e s a n d o t h e r e v i d e n c e :
X X
Re v i e w m i n u t e s , c o n t r a ct a g r e e m e n t s , a n d c o n f i r m a t i o n r e p li es for ev i d e n c e a n d c o m p l e t e n e s s o f t h e e x i s t e n c e of der i v a t i v e s , o f li ens, p l e d g e s , o r o t h e r s e c u r i t y i nterests i n d e r i v a t i v e s ; a n d o f co m m i t m e n t s t o a c qu i r e or d i spose of der i v a t i ves. 3
I n qu i r y f o r c o m p l eteness of der i v a t i v e s :
X
I n q u i re about aspects of operat i ng act i v i t i e s t h a t m i g h t p r e s e n t r i s k s h e d g e d b y d e r i v a t i ves. 4
I d e n t i f i c at i o n o f e m b e d d e d o r s u r p r i s e d e r i v a t i v e s :
X
I d e n t i f y a n y e m b e d d e d o r s u r p ri s e d e r i v a t i v e s n o t o t h e r w i se i d e n t i f i e d i n s t e p s 1 t o 3 a b o v e , e . g . , u s e t h e d er i v a t i ves i d e n t i f i e r t o o l ( e . g . , U - 2 6 1 o r I F R S ) . 5
T e st of f a i r v a l u e o f d e r i v a t i v e s :
X
T e s t t h e f a ir v a l u e o f d e ri v a ti v e s a n d t h e a p p r o p r i a t e record i n g i n t h e f i n a n c i a l s t a t e m e n t s. 6
I n q u i r y f o r c o m p l ete ness of si g n i f i c a n t c o m m i t m e n t s :
X X
X
XXX X
X
I n q u i r e o f m a n a g e m e n t f o r co m p l e t e li st i ng of s i g n i f i c a n t c o m m i t m e n t s , e . g . , p u r c h a s e o r s a l e contracts, f i x e d p r i c e d o r l o n g -t e r m a g r e e m e n t s , s e r v i c e g u a r a n t e e s , i n s u r a n c e p o li c i e s a n d d e t e r m i n e w h e t h e r o r n o t d i sc l o su r e s n e e d t o b e m a d e . 7
I d e n t i f i ca t i on of s i g n i f i c a n t c o n t i n g e n c i es : Re v i e w l a w y e r s ´ c on f i r m a t i o n s a n d o t h e r a p p r o pr i a t e documents for s i g n i f i cant cont i n g e n c i e s a n d d e t e r m i n e w h e t h e r o r n o t a c cr u a l s h a v e t o b e r e c o r d e d a n d / o r d i sc l o s u r e s m a d e .
8
A g re e me n t of d er i v a t i v e s s u b l e d g e r t o g e n e r a l l e d g e r :
X
X
A g r e e t h e d e r i v a t i ves sub l e d g e r ( s ) t o t h e g e n e r a l l e d g e r contro l accounts. Inv est i g a t e l a r g e o r u n u s u a l reconc il i n g i t e m s . 9
H e d g i n g R e l a t i onsh i p :
XX
X
X
E v a l u a t e t h e h e d g i n g r e l at i onsh i p a n d v e r i f y t h a t a ll cond i t i ons for hedg i n g r e l at i onsh i ps (e.g., fa i r v a l u e h e d g e , c a s h f lo w h e d g e , a n d n e t in v e s t m e n t h e d g e ) a r e i n accordance w i t h t h e c li ent's account i n g p o li c i es or
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a pp li ca b l e f i n a n c i a l r e p o r t i n g f r a m e w o r k .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures T
Equity
1
E q u i t y r e c o n c il i a t i o n s c h e d u l e :
B/S
P/L
E V C R&O P&D
O M C P&D
X
X
X
O b t a i n a n e q u i t y r e c o n c il i a t i o n schedu l e , i nc l u d i n g r e t a i n e d e a r nin g s , a g r e e t o g e n e r a l le d g e r a c co u n t s a n d t e s t m o v e m e n t s fr o m pr i o r y e a r e n d t o c u r r e n t y e a r e n d t o v e r i fy proper account i ng for c h a n g e s i n e q u i t y ( e . g . , p r o fi t d i st r i b u t i o n s , o t h e r e q u i t y r e d u c t i ons or i n cr e a s e s ) a n d determine completeness and c o m p li a n c e w i t h l a w s a n d r e g u l a t i ons i nc l u d i n g t a x a t i o n i ssues. 2
M i n u t e s a n d e q u i t y t r a n s a ct i o n s :
X
X
Re v i e w b o a r d o f d i r e c t o r , s h a r e h o l d e r a n d c o m m it t e e m e e tin g m i n u t e s a s w e ll a s c h a n g e s t o t h e a r t i c l es of i ncorporat i on for i ssues affect i n g t h e f i n a n c i a l s t a t e m e n t s i nc l u d i n g t h e n o t e s . I f a p p li c a b l e , conf i r m a ll t r a n s a c t i ons w i t h a t r a n s f e r a g e n t o r s h a r e r e g is t r a r . A g r e e a n y c h a n g e s i n stock to the g e n e r al l e d g e r . 3
I n qu i ry for stock opt i o n agreements:
X X X
I n q u i r e o f m a n a g e m e n t f or a n y stock opt i o n a g r e e m e n t s a n d d e t e r m in e a p p r o p ri a t e f u r t h e r a u dit procedures. 4
A p pro pr i ateness of d i v i d e n d payments:
X
V e r i f y t h a t a ll d i v i d e n d p a y m e n t s a r e a p p r o p ria t ely a p p r o v e d a n d d ec l a r e d , a n d t h a t t a x r e g u l a t i o ns h a v e b e e n f o ll o w e d .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures
B/S
P/L
E V C R&O P&D
O M C P&D
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UA
1
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Revenue / Sales
O v er a ll a n a l yt i ca l r e v i e w f o r s i g n i f i c a n t i n co m e s t a t e m e n t accounts:
X
X
X
P e r f or m a n o v e r a ll a n a l yt i c a l r e v i e w for a ll s i gn i f i c a n t i n c o m e st a t e m e n t accounts and i n v e s t i g a t e a n y s i g n i f i c a n t c h a n g e s o r l ack of e x p e c t e d c h a n g e s , e . g . b y m e a n s of c o m p u t e r - a s s is t e d a u d it t e c h n i q u e s ( C A A T ) . I n c l ude those accounts not alr e a d y c o v e r e d t h r o u g h b a la n c e s h e e t a c c o u n t t e s t in g . 2
R e v e n u e r eco gn i t i o n p r o c e d u r e s :
X X X
P e r fo r m r e v e n u e r e c o gn i t i o n procedures ( i f not a l r e a d y c o v e r e d by t ests of accounts rece i v a b l e s, t r a d e a n d i n t e r c o m p a n y ) , f or e x a m p l e , a n a l y t i c a l procedures us i n g d i s a g gr e g a t e d d a t a ( e . g . , b y m o n t h , b y p r o d u ct li n e , b y g e o g r a p h i c a l a r e a , b y s e g m e n t ) , i n q u i ry of sa l e s a n d m a r k e t i n g p e r s o n n e l f o r a n y u n u s u a l transact i ons or s i m il a r i t e m s , r e v i e w o f t h e t e r m s o f s a l es a g r e e m e n t s - i nc l u d i n g s a l es i n c e n t i v e s - a n d c li ent's po li c i es for h a n d li n g r e t u r n s , t o i d e n t i f y p o t e n t i a l u n u s u a l t r a n s a c t i ons or events.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures UAR
1
B/S
P/L
E V C R&O P&D
O M C P&D
Sales returns
S a l es returns and accrua l a n a l ys i s :
X X
1 ) E v a l u a t e t h e c li e n t ’ s a b il i t y t o r e a s o n a b l y est i m a t e f u t u r e p r o d u ct r e t u r n s t o s u p p or t r e v e n u e recogn i t i o n a t t h e t i m e o f d e li v e r y . 2 ) P e r fo r m p r o c e d u r e s t o e v a l u a t e the accrua l for future product r e t u r n s . 3 ) I n v e s t i g a t e si g n i fi c a n t o r u n u s u a l c h a n g e s fr o m t h e p r i or pe r i o d b a s e d o n a c t u a l sa l e s r e t u r n s in t h e c u r r e n t p e r io d t o determine whether the current year accrua l f o r f u t u r e p r o d u c t r e t u r n s m a y r e q u ir e a d j u s t m e n t .
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RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures UB
1
B/S
P/L
E V C R&O P&D
O M C P&D
Other Income
C on t e n t s of m i sc e ll a n e o u s i n c o m e :
X X X
X
Understand contents of m i sc e ll a n e o u s i ncome accounts. I n v e s t i g a t e s i g n ifi c a n t u n u s u a l transact i ons, i f n o t a l r e a d y c o v e r e d b y b a l a n c e s h e e t a c co u n t t e s t i n g .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures UC
1
B/S
P/L
E V C R&O P&D
O M C P&D
Finance Income
I n t e r est a n d d i v i d e n d i n c o m e :
X X X
X
X
X
T e s t i n t e r e s t a n d d i vi d e n d i n c o m e for s i g n i f i c a n t i n v e s t m e n t s o r ch e c k r e a s o n a b l e n e s s b y co m p a r i n g w i t h t h e r e l a t e d i n v e s t m e n t b a l ances. 2
C h a n g es i n v a l ue of i n v e s t m e n t s : D e t e r m in e t h a t c h a n g e s in t h e v a l u e o f i n v e s t m e n t s a r e p r o p e r ly recorded i n t h e i n co m e s t a t e m e n t .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures VA
1
B/S
P/L
E V C R&O P&D
O M C P&D
Cost of Sales
C o m p a r i son of cost of sa l es w i t h p r i or per i od :
X X X
X
O b t a i n d e t a il of cost of sa l e s accounts i n c o m p a r i son w i t h t h e p rio r p e rio d . I n v e s t ig a t e a n d e x plain ma jor changes, large or u n u s u a l transact i ons, or the l ack of e x p e c t e d c h a n g e s , if n o t a lr e a d y c o v e r e d t h r o u g h a n a l y t i ca l r e v i e w o f sa l es accounts i nc l u d i ng gross
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m a r g i n a n a l ys i s. 2
L a r g e a n d u n usu a l e x p e n s e r e v i e w :
X
R e v i e w t h e a p p r o p ri a t e n e s s o f l a r g e a n d u n u s u a l e x p e n s e s.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures VB
1
B/S
P/L
E V C R&OP&D
O M C P&D
Payroll
P a yr o ll a n a l y t i cs :
X X X
X
X
X
Compare the average pay per e m p l o y e e o r h o u r t o p ri o r y e a r i nc l u d i n g e m p l o y e e b e n e f i ts, i f si g n ific a n t . C o n si d e r d is a g g r e g a ti n g t o t y p e s o f e m plo y e e s o r b y l o c a ti o n . 2
P e ns i o n e x p e n s e s : T e s t c o r r e c t n e s s o f j o u r n a l e n t r i e s in c o n n e c tio n w it h p e n sio n s a n d p o s t - r e t i r e m e n t e x p e n s e s, c u r r e n t pay ments and for changes in p e n si o n r e s e r v e s .
RELEVANT ASSERTIONS* B/S Index Significant Account and Primary Substantive Procedures
P/L
E V C R &O P&D O M C P &D
K
Depreciation/Depletion/Amortization
1
S e e wor ks te ps fo r PPE un de r s ec ti o n K
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures VC
1
B/S
P/L
E V C R&OP&D
O M C P&D
Selling and Distribution Expenses
C o m p a r i son of se ll i n g a n d d i s tr i b u t i o n e x p e n s e s w i t h p r i o r p e r io d :
X X X
X
O b t a i n d e t a il of se ll i n g a n d d i st r i b u t i o n e x p e n s e a c c o u n t s i n
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c o m p a r i son w i t h t h e p r i o r p e r i o d . I n v e s ti g a t e a n d e x p l a i n m a j o r changes, large or unusual t r a n s a c tio n s , o r t h e la c k o f expected changes and the a p p r o p r i a t e n e s s of t h e s e c h a n g e s . 2
L a r g e a n d u n usu a l e x p e n s e r e v i e w :
X X
R e v i e w t h e a p p r o p ri a t e n e s s o f l a r g e a n d u n u s u a l e x p e n s e s.
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures VD
1
B/S
P/L
E V C R&O P&D
O M C P&D
Administrative and Other Expenses
C o n t e n ts of a d m i n i s t r a t i v e a n d other expenses:
X X X
X
Understand contents of a d m i n i s t r a ti v e a n d ot h e r e x p e n s e a c c o u n t s, e . g . , i n t h e a r e a s o f profess i o n a l s e r v i c e s f e e s , r e p a i rs a n d m ain t e n a n c e , le a s e s a n d r e n t s , m a n a g e m e n t c o m p e ns a t i o n , p o li t i c a l c o n t r i b u t i o n s a n d d o n a t i o n s , a n d m i sc e ll a n e o u s . C o m p a r e w i t h p r e v i ous per i o d a n d in v e s tig a t e a n y u n u s u a l t r a n s a c tio n s . 2
Re v i e w o f u n d e r l y i n g d o c u m e n t a tio n :
X X X
For s i g n i f i c a n t t r a n s a c t i o n s i d e n t ifi e d i n t h e p r e v io u s s t e p , r e v i e w u n d e r l y i n g d o cu m e n t a t i o n f o r r e a s o n a bl e n e s s a n d b u s i n e s s purpose. 3
Com plete ness of lawyers' conf i r m a t i o n s :
X
X
V e r if y t h r o u g h a r e v i e w o f l a w y e r ' s f e e s t h a t a ll l a w y e r s a n d i n - h o u s e l e g a l counse l s , w h o h a n d l e s i g n i f i c a n t li t i g a t i o n o r o t h e r c l a i m s , h a v e b e e n co v e r e d i n t h e l a w y e r s ' conf i r m a t i o n w o r k .
RELEVANT ASSERTIONS*
Index Significant Account and Primary Substantive Procedures
B/S
P/L
E V C R&O P&D
O M C P&D
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VE
Finance Expenses
1
I n t e r est E x p e n s es :
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X X X
X
X
X
Re v i e w t h e r e a s o n a b l e n e s s o f i n t e r e s t e x p e n s e f o r si g n i f i c a n t lo a n s b y c o m p a rin g w it h t h e r el a t e d lo a n b a l a n c e s . 2
C h a n g e s in v alu e o f in v e s t m e n t s : D e t e r m in e t h a t c h a n g e s in t h e v a l u e o f i n v e s t m e n t s a r e p ro p e r l y r e c o r d e d i n t h e i n co m e s t a t e m e n t .
Related Topic: I ll u s t r a t i v e S e c t o r S u b s t a n t i v e P r o c e d u r e s D i r e c t o r y G o T o D oc u m e n t I D : 1 0 1 1 4 6 6 1 Last Mod i f i e d D a t e : 0 3 A u g 2 0 0 9
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