Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER 14 - Coggle Diagram
CHAPTER 14
Things to be included in the sample of accounts for confirmation
Old, unpaid balances
Acc. written off under the period of review
Acc. with credit balances
Acc. settled by round sum payments
Acc. with large balances
Acc. with nil balances
External confirmation / Circularisation
Test
Existence
Rights & obligation
Evidence obtain
Reliable
Independent source
In documentary form
Must be written on client's headed paper
Signed by client
With a copy of current statement attached
Request that the reply be sent directly to the auditor
Prepaid envelope is included
Two types of confirmation
Positive confirmation request
Agree /disagree must reply
Generally preferable
Encourage definite replies from those contacted
Negative confirmation request
Only reply if disagree
Provide less persuasive audit evidence
Shall not be used as the sole substantive procedure
Unless
Low risk of material misstatement
Sufficient audit evidence on control
Small & homogeneous account balances
Very low exception rate is expected
Auditor wouldn't think customers will ignore
Best way to generate a wide range of audit procedure
Consider the key risks associated with the item/balance
Identify the principal assertions that we need evidence over
Complete as many questions on this area as possible remembering to use 'AEIOU'
Revenue
Key assertions
Occurence
Completeness
Accuracy
Testing revenue
Analytical procedures are important
Auditors should consider the following
Level of revenue over the year, compared with previous year (month-by-month basis)
Effect in revenue value
Changes in quantities
Changes in products /prices
Level of goods returned, allowances & discounts
Efficiency of labour
Reasons for changes in gross profit margin
Directional testing
On completeness of recording
GDN to sales ledger
Procedures
Obtain listing
Agree total to nominal ledger
Compare current year list with last year & review any obvious omission/misstatement
Select a sample of accounts for confirmation. Use Aged receiveble report to select
Send additional confirmation request if no reply
Follow up by phone/fax/email if still no reply
If still no reply, use alternative method
If disagree, further audit work is required
Exceptions
Indicate misstatement/ potential misstatement
Must be investigated
Whether indicative of fraud
Deficiency in IC
Not all exceptions represent misstatement
Timing
Clerical errors