Answer to Question #207356 in Accounting for Kkkk

Question

1. Discuss briefly the substantive testing/audit procedures in property, plant and equipment.

2. Differentiate full PFRS and PFRS for SME’s

3. Summarize audit assertions and audit objectives and audit procedures in all the accounts we discussed.

Answer 1

Part 1

Substantive testing is an audit technique that looks for flaws in financial statements and supporting paperwork. These tests are required as evidence to support the statement that an entity's financial records are complete, valid, and accurate. An auditor can employ a variety of substantive tests. The procedure is : 

To test ending cash balances, provide a bank confirmation.

Contact customers to ensure that the balances on their accounts receivable are right.

Keep an eye on the physical inventory count at the end of the session.

Verify the accuracy of inventory valuation computations.

Confirm with experts that the fair valuations ascribed to assets acquired resulting from a business combination are acceptable.

Match fixed assets to fixed asset records physically.

Check with suppliers to ensure that the accounts payable balances are correct.

Contact your lenders to ensure that the loan sums are correct.

Examine the minutes of the board of directors to ensure the presence of approved dividends.

Part 2

Full PFRS for SMEs Goodwill recognized using the equity approach is handled and amortized individually. Under the equity method, the associate's accounting rules are modified to match those of the investor unless it is impractical. The same reporting dates must be utilized when using the equity method unless it is impractical to do so. Goodwill is included in the investment's carrying value and is not amortized. There is no provision for the impracticability exemption. The same condition applies, but the disparity in dates is restricted to three months and must be constant year after year.

At the transaction price, an associate is firstly recognized (excluding transaction costs). Fair value changes are accounted for in profit or loss. A stated price in an active market is the greatest indicator of fair value. If the market is not active, an entity uses a valuation methodology to determine fair value. If the fair value cannot be reliably determined, the investor employs the cost model. [11.27, 14 of the International Financial Reporting Standards for Small and Medium-Sized Enterprises (IFRS)] .9] Except, in separate financial statements, this is not permissible.

If a parent prepares separate financial statements (which is not required), management sets a policy of accounting for all its affiliates either at cost minus impairment or at fair value via profit or loss. [IFRS 9 for SMEs] .26] Investments are accounted for in line with IFRS 5 when categorized as held for sale, similar to IFRS for SMEs.

Part 3

Companies must attest to existence, completeness, rights, duties, correctness and valuation, and presentation and disclosure statements.

The goal of an audit is to express an opinion on financial statements. To express an opinion on financial statements, the auditor examines the financial statements to satisfy himself regarding the accuracy and fairness of the enterprise's financial condition and operational performance.

Testing for classification. Audit methods are used to determine if transactions were accurately categorized in accounting records. Purchase records for fixed assets, for example, might be checked to verify if they were appropriately classified inside the relevant fixed asset account.

Testing for completeness. Audit processes might check to discover if there are any missing transactions from the accounting records. For example, the client's bank accounts might be reviewed to determine whether any payments to suppliers or cash receipts from consumers were not recorded in the books. Inquiries can also be conducted with management and third parties to see whether the client has extra commitments that have not been recognized in the financial statements.

Test for cutoff. Audit methods are used to check if transactions were recorded during the proper reporting period. For example, the shipping log may be examined to see whether shipments to clients on the last day of the month were reported within the proper time frame.

Testing for occurrences. Audit processes can be developed to determine if the transactions claimed by a customer really occurred. One method, for example, may demand the client to present particular invoices from the sales ledger and supporting documents such as a customer order and shipping documents.

Testing for the existence of something. To assess if assets exist, audit techniques are employed. Auditors, for example, can witness an inventory being performed to determine if the inventory reported in the accounting records truly exists.

Rights and duties are being tested. Audit methods can be used to determine whether or not a customer owns all of its assets. Inquiries can be conducted, for example, to determine if merchandise is truly owned by the customer or if it is being held on consignment from a third party.

Valuation evaluation. Audit processes are used to evaluate if the asset and liability values reported in a client's books are correct. Checking market price data, for example, to determine if the final prices of marketable securities are valid is one technique.