1- While performing an audit what kind of observation an auditor should perform
ID: 2583998 • Letter: 1
Question
1- While performing an audit what kind of observation an auditor should perform for the physical inventory count. Explain relevant procedures in your own words and give examples?
2- Explain in detail the inherent risks factors are involved while assessing the risks for the intangible assets?
3- Clarify in detail what are substantive analytical procedures can be used in the audit of property, plant, and equipment?
4- Describe in detail the substantive analytical procedures can be used in auditing the income statements?
Explanation / Answer
(1) Observing the physical inventory count : The auditor discusses the counting procedure with the people involved in the procedure of physical counting, observe the counts as they are being done, test count some of the inventory themselves and trace their counts to the amounts recorded by the company's counters, and verify that all inventory count tags were accounted for. If there is multiple inventory storage locations, they may test the inventory in these locations where there are significant amounts of inventory. They may also ask for confirmations of inventory from the custodian of any public warehouse where the company is storing inventory.
(2) Inherent risk factorsof intangible assets
(3) Substantive analytical procedures used in the audit of property, plant, and equipment:
Reconcile summary of PPE and analysis of accumulated depreciation with ledger - beginning (prior working paper), additions and disposas (during audit), audit adjustemnt is posted in the controlling account.
Physical inspection of major acqusition of PPE (appropriate if appears that there's weakness in the PPE)
Vouch additions and investigate disposal - test basis, additions (purchased through vendor's invoices, freight bills and contructed through material requisitions, labour time ticket, recomputation of overhead and capitalized interests)
Examine minutes of the meetings of BOD
Purchase and sale agreements (indebtness, contingent liabilities andrestrictions)
Examine evidence of legal ownership of PPE (deeds, transfer certificate of title, insurance policy, property tax bills, operating lease confirmation from third party)
Review rental revenue from PPE owned by clients and leased to others : Account for all available rental space (vacant v/s occupied by lessee)
Obtain floor plan and copies of lease contracts.
Rental revenue account v/s lease agreements and cash records.
Analyse repair and maintenance account (capitalisation of extraordinary repairs and accuracy of repair and maintenance expenses)
Investigate status of PPE ( dismantled and unsuitable for operation and temperory idle)
Test clients computation of depreciation
Analytical procedures
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