Substantive Procedures
Kaplan Kit :
Before Inventory Count :
Review prior year audit files / working papers to confirm whether there were any
particular warehouses where significant inventory issues arose last year.
Discuss management whether any warehouses are new this year , or any
significant changes occur regard to inventory items or if any warehouses with
significant low controls.
Obtain copy of propsed inventory count instruction , review and identify any
control deficiencies and if noted discuss with management prior to counts.
Decide which of warehouses the audit team will visit , basing this on level of
materiality and risks .
If scenerio is about the “ third-party inv in co warehose”
Discuss with management whether any third party inventory is stored in any of
warehouse and what procedures are for ensuring that its omitted from count.
During Inventory Count :
Observe the counting teams of co to confirm inventory count instruction are
followed correctly.
Select sample of inventory and perfom test counts from inventory sheets to
floor/warehouse aisle and from floor/warehouse aisle to inventory sheets.
Confirm procedures for identifying and segregating of damaged goods are
operating correctly , assess inventory for evidence of any damage or slow
moving items
Obtain photocopy of completed sequentially numbered inventory sheets for
follow-up testing during final audit.
Observe the procedure of movement of inventory during count and confirm that
all movements have ceased.
Discuss with Supervior of count about the procedure of estimating any raw
material , if possible reperform the procedure adopting by supervisor.
Identify and make notes of last GDN & GRN at bal sheet date in order to
perform cut-off procedures.
If scenerio is about the “ third-party inv in co warehose”
Observe the procedure carried out by company’s staff in identifying
third-party inventories are working correctly and review the completed
inventory count-sheets to confirm no third party inventory is included.
If scenerio is about the “ work in progress”
Observe the procedure carried about by manager/supervisor in
assessing level of WIP and consider the reasonableness of assumption
used.
Research & Development :
Discuss with Finance Director rationale for using ______ useful life and consider
its reasonableness.
Recalculate the amortization charged for sample of intangible assets and which
commenced production and confirm its in line with amortization policy “whatever
the company policy given in scenario” and amortization only commenced
from point of production.
Review market research report to confirm “ Company Name” has
ability to sell product once completed and probable future economic
benefit will arise.
For the new projects “given in scenario” discuss with management
details of each project along with stage of completion and whether it
has been capitalized or expensed.
Review disclosure for intangible assets in draft f/s to verify they are in
accordance with applicable IAS – 38
Obtain and cast schedule of intangible, detailing o/p bal , amount
capitalized in current year, amortization and closing bal.
Agree closing balance with general ledger and to f/s.
For those expensed as research cost , agree cost incurred to invoices ,
supporting document and to inclusion in P&L.
For those capitalized as Development expenditure Agee cost incurred
to invoices , and discuss with manager whether company is technically
feasible or by reviewing feasibility reports.
Agree opening bal to prior year f/s.
Inventory Valuation :
If scenario related WIP
Obtain breakdown of WIP and agree a sample of WIP assessed during count to
schedule of WIP , agreeing the % of completion to that recorded in inventory
count.
For sample of inventory items obtain relevant cost card , agree raw material cost
to recent purchase invoice , labor cost to time sheets and confirm overhead
allocated are of production related nature.
