Listed below are ten substantive procedures: 1. Ensure that interest paid on the

Question

Listed below are ten substantive procedures:

1. Ensure that interest paid on the bank loan is correct by multiplying the interest rate by the outstanding principal for each month of the year.

2. Send a letter to the bank to confirm a loan taken out by the company during the year.

3. Attend the year-end stocktake and perform test counts on a sample of stock items.

4. Review all invoices received for one month after the year-end to ensure that they do not relate to the current year.

5. Calculate the accounts receivable turnover and compare with previous year’s turnover.

6. Select a sample of non-current assets and sight them.

7. Review the income statement for unusual differences in the balances recorded for this year and last year.

8. Select a sample of invoices and ensure that they have been properly recorded in the sales ledger.

9. Trace the last inventory received before the year-end to the inventory listing.

10. Review the adequacy of the company’s allowance for doubtful debts.

REQUIRED:

(a) For each test, indicate what type of substantive procedure to which it relates (analytical review, tests of details of balances or tests of details of transactions).

(b) Give an assertion (ONLY ONE) to which each test relates.

Explanation / Answer

Substantive Procedure Type of Substantive Procedure Assertion 1 Ensure that interest paid on the bank loan is correct by multiplying the interest rate by the outstanding principal for each month of the year. Analytical Review Accuracy 2 Send a letter to the bank to confirm a loan taken out by the company during the year. Test of details of transactions Existence 3 Attend the year-end stocktake and perform test counts on a sample of stock items. Tests of details of balances Completeness 4 Review all invoices received for one month after the year-end to ensure that they do not relate to the current year. Analytical Review Completeness 5 Calculate the accounts receivable turnover and compare with previous year’s turnover. Analytical Review Accuracy 6 Select a sample of non-current assets and sight them. Analytical Review Existence 7 Review the income statement for unusual differences in the balances recorded for this year and last year. Analytical Review Accuracy 8 Select a sample of invoices and ensure that they have been properly recorded in the sales ledger. Test of details of transactions Completeness 9 Trace the last inventory received before the year-end to the inventory listing. Tests of details of balances Completeness 10 Review the adequacy of the company’s allowance for doubtful debts. Analytical Review Accuracy

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