Substantive Procedures 1-Page Summary for Autumn 2022 Attempt

Tangible Non-Current Assets Intangible Non-Current Assets Accrual/Prepayments for Expenses

General Procedures/Balance: Goodwill:  Obtain list, agree with F/S.
 Agree F/S with records  Inspect approval.  Compare list with last year.
 Physical Verification.  Inspect sale agreement.  Check supporting documents.
 Reconciliation.  Inspect due diligence report.  Subsequent clearance.
 Inspect (Title Documents).  Recalculation.
 Scan Ledger.  Adequacy of disclosures. Bank
 Disclosure (as per IAS – 16). For Amortization/Impairment:  Agree F/S with records
 Understand management’s process.  Scan Ledger
For Depreciation/Impairment:  Check annual impairment testing.  Inspection of BRS (balances,
 Review Fixed Assets' Register.  Evaluate appropriateness of unpresented/uncredited items)
 Recalculate depreciation on sample. assumptions used in impairment  Bank Confirmation Letter
 Check estimates are reasonable testing.
(e.g. rate, life, residual value).  Engage expert, if necessary. Cash
Engage Expert, if necessary.  Obtain written representation  Physical Verification
 Review gain or losses on disposals (about assumptions)  Reconciliation
 Compare ratio of depreciation.  Inquiry about money advanced.
 Understand management’s process Development Cost:  Cut-off
to identify and record impairment.  Check recognition criteria  Inspect whether real.
(PIRATE).
For Additions:  Discuss feasibility and obtain Trade Payables
 Obtain list and agree with F/S. representation.  Agree F/S with records
 Inspect authorization  Discuss any technical problem/  External Confirmation
 Inspect sale deed etc. impairment.  Subsequent clearance
 Inspect supplier’s invoice  Review development cost for  Reconciliation
 Check date of capitalization. classification.  Scan Ledger
 Test calculation of depreciation.  Select a sample, and inspect  Review aging report.
 Physically inspect supporting documents.  Presentation and Disclosure
 Test controls over scientists’
For Disposal: documentation. Procedures to ensure Completeness:
 Obtain list and agree with F/S.  Cut-off on purchases.
 Inspect authorization. Other Intangibles:  Inspect pending GRN.
 Inspect sale invoice etc.  Inspect approval.  Subsequent clearance.
 Verify removal from books and  Inspect legal documents.  Compare list of suppliers with last
register.  Check reasonableness of life. year.
 recalculate profit or loss.  Discuss for impairment.
 Inquire management possibility of Provisions and Contingencies
unrecorded disposals. Inventory Provisions:
 Agree F/S with records.  Obtain list and agree with F/S
For Revalued Asset:  Physical Verification. If not visited,  Review list to ensure completeness.
1. Evaluate Competence, Capability and compare inventory level & internal  Compare list with last year.
Objectivity of Expert. auditor report.  Evaluate recognition and
2. Evaluate Adequacy of work of Expert.  Scan Ledger measurement criteria
3.Evaluate Accounting/Disclosures:  Reconciliation  Written representation (on
 Agree with valuer’s report.  Test valuation method. adequacy).
 Valuation is up-to-date.  Inspect supporting documents.
 Entire class revaluated.  Subsequent clearance Contingencies:
 Evaluate method to ensure  Expert  Obtain list and inquire approach.
consistency.  Cut-off on sales & purchase.  Follow up last year.
 Recalculate revaluation surplus.  Presentation and Disclosure  Effect of subsequent events.
 Physically inspect condition. Valuation:  Letter of Inquiry to lawyer.
 Appropriate disclosure.  Aging analysis.  Identify undisclosed contingencies
 Written Representation (on  Check physical condition. (BOD minutes, Legal expenses,
reasonableness of assumptions)  Discuss increase in inventory. business press, Representation,
 Evaluate calculation of NRV. communication with lawyer)
For Self-constructed Fixed Asset:
 Inspect permission of authorities Trade Receivables Non-current Liabilities/Borrowings
 Physical verification.  Agree F/S with records  Obtain list and agree with F/S.
 For sample of cost, inspect  External Confirmation  Inspect loan agreement.
Suppliers’ invoice, Payroll records,  Reconciliation  New borrowings (approval, legal
and relevant evidence.  Scan Ledger requirements).
 Review list of capital expenditure.  Presentation and Disclosure  Inspect repayments (recalculation
 Discuss capitalization policy. and payment).
 Compare budget with actual cost. Procedures to ensure Provision for  Interest expense (calculation and
 Expert’s assessment of stage of bad debts: presentation)
completion.  Evaluate basis of provisioning.  External Confirmation
 Depreciation starts when asset is  Aging analysis  Presentation and Disclosure
available for use.  Subsequent clearance and write-
 Presentation and Disclosures. off.
 Evaluate disputed receivable.
 Assess historical accuracy.

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Substantive Procedures 1-Page Summary for Autumn 2022 Attempt

Equity Sales Payroll

Share Capital:  Select sample from GL and check  Agree F/S with records
 Agree F/S with records supporting documents.  Compare total with prior year.
Share capital issued:  Select sample of GDN and check  Compare month to month.
 Inspect Authorization recording in GL.  Check reasonableness by
 Check compliance with legal  Select invoices and check calculating expected value.
requirements. mathematical accuracy.  Payroll sheet (cast, recalculate).
 Check Cash received  Cut-off  Physical verification
 Check Treatment of  Scan Ledger  Authorization of new staff.
premium/discount on issue  Classification, Presentation &
 Review disclosures Disclosures Expenses
 Compare with last year.
Reserves:  Check adjustment for accrual and
 Obtain list and agree with F/S. Purchases prepayment.
 Inspect Authorization of movement.  Select sample from GL and check  Scan Ledger.
 Check compliance with legal supporting documents.  Select sample of transactions and
requirements.  Select sample of GRN and check inspect (supporting documents,
 Presentation and Disclosure recording in GL. mathematical accuracy, evidence
(revenue & capital reserves)  Select invoices and check and acknowledgment of payment,
mathematical accuracy. purpose)
For Dividend distributed:  Cut-off
 Inspect Authorization.  Scan Ledger Interest Expense & Income
 Recalculate  Classification, Presentation &  Inspect agreement
 Ensure payment out of Disclosures.  Check reasonableness by
distributable profit, within legal calculating expected value.
time, deduction of zakat & tax,  Inspection receipts/payments.
 Unpaid/unclaimed dividend
(accounted for and disclosed).

Other Specific Areas:

Insurance Receivable Loss by Fire/Flood

 Read Insurance Policy.  Physically inspect location.
 Inspect communication.  Assess reasonableness of inventory/assets balance at
 Record only if virtually certain. location.
 Appropriate accounting and disclosures (e.g.
Litigations Impairment, NRV, Loss). Use Expert, if needed.
 Inspect Communication.
 Written representation (on likely settlement). Inventory count at other than B/S date
 Effect of Subsequent events  Inventory count at other date.
 Possibility/Impact of regulatory action.  Prepare reconciliation.
 Inspect documents for intervening transactions.
Warranty
 Inspect sales agreement. Physical Verification not possible
 Check reasonableness of cost of warranty repair. Perform alternative procedures i.e.
 Discuss nature of defect in inventory, and impact on  Inspect documents (e.g. GRN).
other areas.  Use technology (e.g. drone cameras, video calls)
 Subsequent events, and their impact on recognition.
 Written representation. Impairment of Fixed Assets
 Ask management to test impairment.
 Obtain working, review source data and assumptions to
check reasonableness.
 Use of expert to verify working.

Bankruptcy of a specific debtor

 Inspect agreement with customer, and check for security.
 Send confirmation letter to liquidator to confirm
expected recovery.
 Check subsequent collection, if any.
 Inquire management about expected recovery.

Please note that:

 you have to memorize procedures in Key Words, but have to write in Complete Sentence Form.
 In a Case Study, you will have to write only that part of the area/procedures which is relevant to case. [no blind
reproduction in case study]

Prepared by: Muhammad Asif, FCA

Assisted by: Atif Farooq
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