Immersing in audit

  Inventories are assets: (a) held for sale in the ordinary course of business. (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. Inventory is a material item in the statement of financial position of some companies.   Auditors use assertions to consider the different types of potential misstatements that may occur when identifying, assessing and responding to the risks of material misstatements in the financial statements. When auditing inventory auditors focus on obtaining evidence about the following assertions: ·  Existence —inventory really exists and is in proper conditions.  Audit evidence for Inventory ·  Rights —the company holds or controls the rights to inventory. ·  Completeness —inventory that should have been recorded has been recorded, and all related disclosures that should have been included in the financial statements have been included.

  The item “Property, Plant and Equipment” is often material in the company’s statement of financial position. Revaluation relates to assertions about account balances, and related disclosures, at the period end such as accuracy, valuation and allocation . Why do auditors use assertions? When auditing revalued PP&E auditors may perform the following audit procedures: 1. Considering reasonableness of valuation, reviewing: · The competence, capabilities and objectivity of the expert. · Scope of work. · Methods, assumptions and data used. What is the management`s expert and how does the auditor use the management`s expert work? 2. Checking the valuations are regularly updated. 3. Verifying amounts in the financial statements with the valuer’s report. 4. Confirming the entire class of property, plant and equipment to which that asset belongs is revalued. 5. Reperforming calculation of revaluation surplus. 6. Checking the accounting for the rise or fall in value o

  Alternative procedures are additional audit tests used by auditors when the planned original set of audit procedures cannot be performed or are considered to be ineffective. The original procedures which auditors usually plan to perform to get audit evidence are inspection, observation, external confirmation, recalculation and inquiry. ISAs allow the use of alternative procedures in audit of  inventory, accounts payable, accounts receivable  as well as in the audit of  claims and litigation . For  accounts receivable  balances, the example of alternative procedures is examining specific subsequent cash receipts, shipping documentation, and sales near the period end. For  accounts payable balances,  the example of alternative procedures is examining subsequent cash disbursements or correspondence from third parties, and other records, such as goods received notes. As for  inventory,  in some cases where attendance of auditors at physical inventory counting is impracticable the a

  Intangible asset is an identifiable non‑monetary asset without physical substance. Common examples of intangible assets may include: (a) brand names. (b) mastheads and publishing titles. (c) computer software. (d) licences and franchises. (e) copyrights, patents and other industrial property rights, service and operating rights. (f) recipes, formulae, models, designs and prototypes; and (g) intangible assets under development.   Auditors use assertions to consider the different types of potential misstatements that may occur when identifying, assessing and responding to the risks of material misstatement. Assertions related to item of balance sheet “intangible assets” and the disclosure of information about it are listed below: ·         Existence. ·         Rights and obligations. ·         Completeness. ·         Accuracy, valuation and allocation. ·         Classification. ·         Presentation. The key assertions to obtain evidence about intan

  Pension accounting principles depend on the post-retirement scheme. There are two categories of post-retirement benefits: – Defined contribution schemes. – Defined benefit schemes. According to IAS 19, under defined contribution plans the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Under defined benefit plans the entity’s obligation is to provide the agreed benefits to current and former employees and actuarial risk and investment risk fall on the entity. The accounting principes of defined contribution plans are as following: (a)    Contributions to a defined contribution plan should be recognized as an expense in the period they are payable (b) Any liability for unpaid contributions that are due at the end of the period should be recognized as a liability (accrued expense). (c) Any excess contributions paid should be recognized as an asset (prepaid expense), but only to the extent that the prepayment will lead

  Unlike IAS 11 IFRS 15 prescribes treating construction contracts the same way as any other contract with customers. The following are issues that were not covered in IAS 11, but are introduced in IFRS   15 : A ) IFRS 15 sets up the 5-steps model for revenue recognition: Identify contract with the customer. Identify the performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the performance obligations in the contract. Recognize revenue when (or as) an entity satisfies a performance obligation. B) Revenue should be recognized when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset. C) If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the en

  Key audit matters are those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance. The purpose of communicating key audit matters is to enhance the value of the auditor’s report by providing greater transparency about the audit that was performed. The auditor shall determine, from the matters communicated with those charged with governance, those matters that required significant auditor attention in performing the audit. Matters which the auditor may determine to be KAMs include: · Areas of higher risk of material misstatement, or ‘significant risks’ identified at the planning stage. · Significant judgements in relation to areas where management made judgement. · The effect of significant events or transactions. Key audit matters are described in a separate section of the auditor’s report under the head