Chapter_12Auditingstocksandtangiblefixedassets.ppt

Chapter12:Auditingstocksandtangiblefixedassets,Recap,CostAuthorisationValuationExistenceBeneficialOwnershipPresentation,Learningobjectives,IdentifytheauditobjectivesapplicabletostocksExplainthenatureofstockrecordsDescribeprocedurestobefollowedataphysicalstocktakeDiscussconsiderationsrelevanttodeterminingtheauditstrategyforstocksDescribeprocedurestobefollowedwhenobservingphysicalstocktakeExplaintheauditproceduresforverifyingstockpricing,IdentifytheauditobjectivesapplicabletotangiblefixedassetsDiscussconsiderationsrelevanttodeterminingtheauditstrategyfortangiblefixedassetsDesignasubstantiveauditprogrammefortangiblefixedassets,Learningobjectives(continued),Stock,ManufacturingTransactions3stages:RawmaterialsawaitingprocessingWorkinprogressFinishedgoodsawaitingsale,STOCK-AUDITOBJECTIVES,STOCKRECORDS,Goodsin/out/transitPerpetualstockrecordsusuallymaintainedbymanufacturingentities;otherentitiesmayrelyonphysicalcountrangefromquantityonlyrecordsthroughtofullyintegratedquantityandcostrecordsFunctionsrecordinggoodsintostockrecordinggoodsfromstockrecordingtransferscomparisonofbooktophysical,Differencesphysicaltostockrecords,TheftDamageObsolescenceFailtorecordinFailtorecordoutThirdpartyTransfer/Quarantine,STOCK-AUDITSTRATEGY,MaterialityandinherentrisksHighvolumeoftransactionsContentiousaccountingissuesincludingdeterminationofcostandvalueDiversenatureposesproblemsindeterminingquantitiesandrelianceonexpertsStorageatmultiplesitesposesriskoftheft,damageandofaccountingforgoodsintransitVulnerabletofallinvalue,AuditStrategy,Controlrisklowwherereliablefullyintegratedperpetualstockrecordsarekeptmediumwherereliablebutnon-integratedperpetualrecordsarekepthighwherenoorunreliableperpetualrecordsarekeptAuditstrategydependsonnatureandreliabilityofstockrecordsformanufacturingentities,theavailabilityofreliablecostrecordsisessentialindeterminingcost,Stockcount,Theauditorisnottocountandvaluestock,buttoensurethatstockistakenandvaluedproperlybyclientsstaff.Includesreviewingstocktakinginstructionsputintoplacebymanagement,observationofthestockcount,andcarryoutasampleofrandomphysicalstockcounts.,Stockcount(ISA501),“Wheninventoryismaterialtothefinancialstatements,theauditorshouldobtainsufficientappropriateauditevidenceregardingitsexistenceandconditionbyattendanceatphysicalinventorycountingunlessimpracticable.”Thisallowstheauditorto“observecompliancewiththeoperationofmanagementsprocedures”andto“provideevidenceastothereliabilityofmanagementsprocedures.”,STOCKTAKE,Stockcountproceduresassigningresponsibilitypreparationidentificationcountingcheckingrecordingclearingcut-off,Comparisonwithrecordsrecountmaterialdifferencesinvestigatecausemaintaincumulativerecordofdifferencesadjustrecords,ReviewStocktakingArrangements,supervisionwhichstaffareinvolvedmakeupandtrainingofteamscontroloverstocksheets-sequentiallynumberedteamssignsheetstoacknowledgeperformance.,OBSERVATIONOFSTOCKTAKE,EvaluateentityplansObservecounttestcompliancewithplansmaketestcountsidentifydamagedetc.itemsaccountforuseofcountsheetsetc.recordcut-off,AttendanceatStocktake,observeproceduresareinstructionscarriedoutdualfunctionofauditoristhereadequatesupervisionisstockdividedintoareasisstockmarkedwhencountedtoavoidomissionordouble-countingisdamagedoroldstockhighlightedonstocksheetsareallstocksheetsaccountedfor.,StockCount,Follow-upcounttestclericalaccuracyoffinalstocklisttracetestcountstolisttestfinallisttoandfromcountrecordscomparecountswithphysicalstockifanytestcut-offverifymovementbetweendateofcountandperiodend,STOCKPRICING,WithsuppliersinvoicesforpurchasedstockWithcostingrecordsformanufacturedstockproprietyofcostsystemcontroleffectivenessofcostrecordsAssessneedforwrite-downtonetrealisablevalue,StockPricing,CostofrawmaterialsperinvoiceDirectlabourcostsForWIP-material,labourandoverheadForFG-material,labourandoverhead,butneedtoevaluatelowerofcostandNRV,ReviewStockValuationMethod,iscostaccuratelyidentifiedonstockrecordsorinvoiceshowareoverheadsevaluatedforinclusioninCostfiguresisvaluationmethodconsistentlyapplied(e.g.FIFO)treatmentandvaluationofdamagedoroldstockperformsomesamplecalculationsObservesalesafterbalancesheetdatetoconfirmvaluation.,SubstantiveProceduresforstock,DesigningproceduresforstockInitialproceduresTraceopeningbalancesReviewactivityAnalyticalproceduresIndustryexperience,SubstantiveProceduresforstock,TestsofdetailsoftransactionsTestingentriesinstockrecordsTestingcut-offofpurchase,manufacturingandsalestransactions,SubstantiveProceduresforstock,TestsofDetailsofBalancesObservephysicalstockcountTestclericalaccuracyofstocklistingsTeststockpricingMaterials,labour,overheadsCostvsnetrealisablevalueUseofexperts,StockProvision,Policy/procedureCompleteness,accuracy,validity,existenceDisclosureRiskremanipulationtoadjustprofits,LONGTERMPROJECTS,Examples-motorways,bridgesRecognitionofrevenueRecognitionofprofitnotionalprofitvrealisedprofitRules-stageofcompletion,futurecosts,recognitionofloss,TangibleFixedAssets,LandandbuildingPlantandmachineryFixturesandfittingsMotorvehicles,IntangibleFixedAssets,GoodwillBrandsTrademarks,FIXEDASSETS-AUDITOBJECTIVES,TransactionclassExistenceoroccurrencerecordedadditionsanddisposalsoccurredCompletenessalladditionsanddisposalsarerecordedRightsandobligationsadditionsanddisposalseffectivelytransferrights,Accountbalancerecordedfixedassetsrepresentsproductiveassetsinuseallapplicableassetsusedinoperationsareincludedtheentityownsorhasrightstoapplicablerecordedassets,TransactionclassValuationadditionsanddisposalsarecorrectlyrecordedDisclosurerecordeddetailsofadditionsanddisposalssupporttheirclassificationandpresentation,Accountbalancefixedassetsarecorrectlystatedatcostorvaluationlessdepreciationdisclosuresareadequateastocostorvaluation,depreciationmethodsandotherrequirements,Property,Plant&Equipment,DevelopingtheauditplanMaterialityInherentriskAuditstrategyPlantregister,FIXEDASSETS-AUDITSTRATEGY,Materialityandinherentriskoftenthelargestcategoryofassetsnotnormallyvulnerabletotheftvaluationandmeasurementproblemsselfconstructedassetsassetsheldunderfinanceleases,FIXEDASSETS-AUDITSTRATEGY,Controlriskandauditstrategytransactionsoftenfew,largeandsubjecttospecialauthorisationpredominantlysubstantiveapproachoftenusedinsuchcaseslowerassessedlevelofcontrolriskapproachusedforexpendituresprocessedasroutinepurchasesplantregistermaybeusedtoassistsubstantiveproceduresbutrarelyassess