MGAD10H3 Lecture Notes - Retained Earnings, Accrual, Audit Risk

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Published on 29 Jun 2013
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Chapter 10 substantive testing and balance sheet accounts
Learning objectives
1. Explain the relationship between the overall risk assessment for a significant account and the
extent and timing of substantive procedures
2. Design and understand how to execute substantive procedures to address audit risk related to
cash, receivables, inventory, PPE, and payables
3. Understand when to have additional substantive testing
CAS 500 audit evidence
CAS 501 audit evidence, specific consideration
CAS 505 external confirmation
CAS 610 using the work of internal auditors
IFRS 7 financial instruments: disclosures
IAS 2 inventories
IAS 16 PPE
10.1.1 extent of substantive procedures
Accounts that are trivial or immaterial are usually ignored or subject to analytical procedures
10.1.2 timing of substantive procedures
Reviewing events occurring prior to year end: payroll bonuses or major FA additions/disposals
Reviewing activity in the period to date: things such as AR can be done during interim visit
Performing general audit procedures prior to year end: BoD minutes, JE, and legal can be done
throughout the year
Reviewing provisions prior to year end: based on system-generated assessment, it can be
carried forward
Leverage off internal audit: CAS 610 outlines auditor’s responsibilities
10.1.3 matters to consider when designing substantive procedures
Ensure that substantive procedures respond to specific risks: understand the risks (i.e. assets =
overstatement, thus test for existence, occurrence, and valuation assertions)
Take credit for work already undertaken: can take the work, but needs to understand their
approach first
Set appropriate testing thresholds: dependent on the client and the environment
10.2 substantive testing of cash
Audit assertions: existence, completeness, and classification
Existence is done by bank confirmations
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Document Summary

Chapter 10 substantive testing and balance sheet accounts. Cas 610 using the work of internal auditors. Accounts that are trivial or immaterial are usually ignored or subject to analytical procedures. Reviewing events occurring prior to year end: payroll bonuses or major fa additions/disposals. Reviewing activity in the period to date: things such as ar can be done during interim visit. Performing general audit procedures prior to year end: bod minutes, je, and legal can be done throughout the year. Reviewing provisions prior to year end: based on system-generated assessment, it can be carried forward. Leverage off internal audit: cas 610 outlines auditor"s responsibilities. 10. 1. 3 matters to consider when designing substantive procedures. Ensure that substantive procedures respond to specific risks: understand the risks (i. e. assets = overstatement, thus test for existence, occurrence, and valuation assertions) Take credit for work already undertaken: can take the work, but needs to understand their approach first.

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