Dec 2007 Question No. 1

[Hamdy Hafez]

Dec 2007 Question No. 1
(d) (i) State the aim of a test of control and the aim of a substantive procedure.
(ii) In respect of your attendance at DinZee Co’s inventory count, state one test of control and one substantive procedure that you should perform. (4 marks)
Answer:
(d) (i) The aim of a test of control is to check that an audit client’s internal control systems are operating effectively.
The aim of a substantive procedure is to ensure that there are no material errors at the assertion level in the client’s financial statements.

(ii) Regarding the inventory count:
Test of control
Observe the count teams ensuring that they are counting in accordance with the client’s inventory count instructions.
Substantive procedure
Record the condition of items of inventory to ensure that the valuation of those items is correct on the final inventory summaries.


wait again, it will be more clear in the next post

[Hamdy Hafez]

Dec 2006 Question No. 3
(b) Jayne Co has a significant number of cash transactions and recent non-current asset purchases have been financed by a bank loan. This loan is repayable in equal annual instalments for the next five years.
Required:
(i) Explain the procedures to obtain a bank report for audit purposes from Jayne Co’s bank and the substantive procedures that should be carried out on that report. (5 marks)
(ii) List the further substantive procedures that should be carried out on the bank balances in Jayne Co’s financial statements. (5 marks)

Answer:
(b) (i) Procedure for obtaining a bank letter
The auditor should consider if a bank letter is required. For the audit of Jayne Co the letter is required as the company has significant cash transactions and a loan from the bank.
The auditor will produce a confirmation letter in accordance with local audit regulations and practices.
The letter will be sent to the client to sign and authorize disclosure and then it will be forwarded on to Jayne’s bank.
Alternatively, the client may already have provided a standard authority for the bank to respond to a bank letter each year. In this case separate authority would not be required.
Ideally the letter should be sent before the end of the accounting period to enable the bank to complete it on a timely basis e.g. at the year-end.
The bank will complete the letter and send it back directly to the auditor.
Audit procedures on the bank letter include:
– Agree the balances for each bank account to the relevant bank reconciliation and the year end balance in the financial statements.
– Agree total interest charges on the letter to the interest expense account in the general ledger.
– For any details of loans, ensure repayment terms are correctly disclosed in the financial statements between current and non-current liabilities.
(ii) Substantive procedures for the audit of bank balances.
(1) Obtain a copy of the year end trial balance.
Agree the bank balance on the trial balance to
– The year end bank balance on the computer system, and
– The balance on the financial statements.

[Vivienne]

Yes Hamdy,
this is a very welcome move.i salute you for your initiative. i was just trying to make a suggestion on the questions, that we need a lot of practice on question 1 type of questions. for example the audit procedures that would be performed on the following

Inventory
Receivables
Non current assets
Sales
Purchases
Payroll
Procurement system
Payables and many more

If we know the procedures to do then we can definately be able to spot the weakneses and if possible make recomendations.


Is it possible you may also feature these type of questions maybe in a summarised form than what appears in the actual exams

[abduladedokun]

can anyone explain in simple language what this phrase means?

[Annie]

HI,

I think it is performing audit with the help of computers using audit softwares. It also means computer auditing techniques.


Annie