Audit & Assurance

1. AUDITING AND ASSURANCE
CHAPTER 3
AUDIT ON FINANCIAL STATEMENT

2. GROUP MEMBERS :
1. UMMI SARAH BINTI ABD KGUPOR
10DAT11F2006
2. NOR SHAWAL LEILA BINTI ZAHARUDIN
10DAT11F2011
3. NUR AZWEEN SYAFIERA BINTI ABD NASIR
10DAT11F2025
4. SITI AISHAH BINTI MUSA
10DAT11F2032
CLASS : DAT 6A

3. 3.1 REVENUE AND
EXPENDITURE

4. 3.1.1 PURPOSE
• Measured at their fair value of the
consideration received or receivable
• Ensure voluntary compliance between all
documentations, control, policies and
guidelines
• Test control for detection significant
weaknesses and check financial statements

5. 3.1.2 EVIDENCE
Evidence selection
a) Sales of goods and services
b) Payments received for goods and services
c) Good returned by claims received from
customers

6. a) Sales of goods and services
1) Receiving and recording customers orders
2) Authorising credit terms and shipment
3) Confirming orders
4) Executing shipping orders for goods or work
orders for the performance of services
5) Recording the shipments or services
performed

7. b) Payments received for goods and
services
1) Receiving the cash and depositing in the bank
cash
2) Comparing amounts remitted with recorded
amounts
3) Authorising discounts and allowances
4) Recording cash receipts, discounts and
allowances

8. c) Good returned by claims received
from customers
1) Receiving and accepting goods and claims
2) Preparing receiving reports
3) Reviewing claims
4) Authorising credits
5) Preparing and mailing credit memo
6) Recording returns and claim

9. 3.1.3 SUITABLE AUDIT OBJECTIVES
1) authorisation – all are pre-approved by
responsible personnel
2) completeness – all valid transactions are included
in the accounting records
3) accuracy
4) Validity
5) Physical safeguards and security
6) Error handling
7) Segregation of duties

10. 3.1.4 SUITABLE AUDIT TEST
1) Authoring sales transactions
2) Adequate segregation of duties
3) Adequate documents and records
4) pre-numbered documents
5) Monthly statements
6) internal verifications procedures

11. 3.1.5 SUITABLE AUDIT PROCEDURES
Assertions Test of control Substantive test
Existence Examine sales
invice for
supporting bill
of lading and
customer order
An auditor is concerned with three types of
misstatements:
a) Recorded sale with no shipments-trace from sales
journal entry to shipping document
b) Sales recorded more than once – check cancellation
of shipping documentation
c) Shipment made to nonexistent customers – person
recording sales shoud not authorised shipmments
Completeness Account for
sequence of
shipping
documents
Many audits ignore completeness on the grounds that
overstatement of income of is greater concern. However
errors may still misstate financial statements.
One effective proedure is to trace from shipping
documents to the sales invoice and entry in the sales
journal

12. Accuracy Examine the approved
price list for accuracy and
proper authorisation
Start with entries in the
sales journal and compare
the total of selected
transactions with accounts
receivable master file
entries and duplicate sales
invoices
Classification Examine document
package for duplicate
verification
When there are cash and
credit sales, it is important
not to debit accounts
receivable for a cash sale
or to credit sales for
collection of a receivable.
It is also important not to
classify sales of operating
assets as sales. A common
procedure is to examine
duplicate sales invoices for
proper account
classification

13. Timing Account for sequence of
shipping documents
Sales should be billed
when ownership is
transferred to the
customer
A common procedure is to
compare the date on the
duplicate sales invice and
bill of lading
Posting and summarisation Examine evidence that
account receivable master
file is reconciled to general
ledger
Use audit software to foot
the sales journal and trace
totals to general ledger.

14. 3.2 CASH AND BANK BALANCES
EVIDENCE

15. 3.2.1 PURPOSE
• Consist of confirmation of bank balances and
other matters from the client’s bankers at the
period end.
• Standard letters are used to confirm
information with the bank where the client
has dealings.

16. 3.2.2 EVIDENCE
• Liquid assets and include: notes and coins,
bank current accounts, bank deposit accounts.
• Vulnerable assets because of its liquidity.
• Easily verified because they can be confirmed
directly by third parties or by physical counts.

17. 3.2.3 Audit Objectives and assertions
Assertions Descriptions
1. Existence To ensure that the cash is actually in existence and belong
to the company at a given date or at the year-end date.
2. Completeness To ensure that there is no unrecorded cash.
3. Accuracy To ensure cash at bank stated on the reconciliation is
accurate
4. Cut-off To ensure that amounts are correctly recorded in the
proper period
5. Presentation and
disclosure
To ensure that the cash balance and related statement of
comprehensive income entries are correctly disclosed in
the financial statements in accordance with legislation
and accounting standards.
6. Detail tie-in Cash in the bank as stated on the reconciliation foots
correctly and agrees with the general ledger

18. 3.2.4 Suitable audit test to be
used when auditing

19. CASH BALANCES
Audit
Objectives
Substantive Procedures
1. Occurrence,
completeness
and valuation
 Agree balance on bank confirmation with bank reconciliation and
cash book.
Trade deposits in transits, outstanding cheques and other reconciling
items to cut-off bank statements.
2. Accuracy Check calculation of bank reconciliation and agree with book balance
on cash book and general ledger.
3. Cut-off For cash receipts, observe cash count for the last day of the year end
and trace deposits to cash receipts journal and cut-off banks statement.
For cash disbursement, record the last cheque issued at the year end
date and trace to cash payments in the cash book; and trace outstanding
cheques on bank reconciliation and investigate any cheque clearing after
a long delay.
4. Classification,
presentation
and disclosure
Review board of directors’ minutes, bank letter, loan agreement or
other documents for any restrictions on cash.
Ensure bank loans and overdrafts are not offset against positive bank
balances in the financial statements.

20. BANK BALANCES
(a) Test the mathematical accuracy of the bank reconciliation and agree the balance in
the cash book.
(b) Agree the bank balance on the bank reconciliation with the balance on bank
confirmation.
(c) Trace the deposits in transit on the bank reconciliation to the cut-off bank statement
covering a week after the date on which the bank account is reconciled.
(d) Agree any charges included on the bank statement to the bank reconciliation.
(e) Agree the adjusted book balance on the cash account lead schedulE
(f) Trace bank transfers for last week of financial year under review and first .
(g) Identify irregular items and obtain necessary explanation.

21. 3.2.5 Suitable audit procedures
Audit Objectives Substantive Procedures
1. Occurrence /
Existence
 Select samples of cash receipts from cash book and trace to
remittance advices, pay-in slips, and bank statement.
 Select samples of cash payments from cash book and trace to
payment vouchers (with supporting documents) and bank statements.
 Scan through the entries and trace all the unusual items, like contra
items, stopped payment items and cancelled cheques, to support
documents and authorization.
2. Completeness  Trace a sample of remittance advices and pay-in slip to cash receipt
journal.
 Trace a sample of payment vouchers (with supporting documents)
to cash book.
3. Accuracy  Agree the total of cash receipts and payments to general ledger.
4. Valuation  Compare a sample of remittance advices with amount in cash
receipts recorded in the cash book.
Compare a sample of (cancelled) cheques with amounts in cash
recorded in the cash book.

22. 5. Cut-off  Compare the dates for recording a sample of cash
transactions with the dates of cash deposited in bank or
cheques sent.
6. Classification  Examine a sample of cash receipts and payments
transactions for proper classification.

23. 3.3 CONCEPT OF AUDITING IN
INVESTMENT

24. 3.3.1 Purpose
• To ensure that purchases and disposals of
investments are properly authorized ,
recorded and accounted for
• To ensure that investments are properly
valued and disclosed in the financial
statements

25. 3.3.2 Evidence
a) The investment may be in debt or equity
securities may be marketable or non
marketable
b) Investment may be a loan or an advance
rather than security
c) Company have security are held may be
affilated or non affilated
d) Long term investment

26. 3.3.3 Suitable audit objectives and
assertions on investment component.
 Existence or occurrence
– Recorded investment asset and equity balances represent investments that
exist at the balance sheet date.
– Investment revenues, realized gains and losses, and unrealized holding gains
and losses included in income resulted from transactions and events that
occurred during the period.
 Completeness
– All investments are included in the balance sheet investment accounts..
– The income statement effects of all investment transactions and events during
the period are included in the income statement accounts.
 Rights and obligations
– All recorded investments are owned by the reporting entity.

27. • Valuation or allocation
– Investments are reported on the balance sheet at fair value, cost,
amortized cost, or the amount determined by the equity method, as
appropriate for particular investments.
– Investment revenues, and realized and unrealized gains, and losses are
reported at proper amounts.
• Presentation and disclosure
– Investment balances are property identified and classified in the financial
statements.
– Appropriate disclosures are made concerning (1) related party
investments, (2) the bases for valuing the investments, and (3) the
pledging of investments as collateral.

28. 3.3.5 Suitable audit procedure
Audit Procedures Audit Assertion
1. Obtain a listing of investments held by the company at year end
2. Ascertain the nature of the investments, ie. Subsidiaries, associates,
joint venture, and other investments.
3. Sight minutes of the board and/or shareholders (where relevant) for
authorization for the purchase/disposal of the investments
4. For quoted shares, vouch purchases/disposal to brokers’ buy/sell
transaction notes to unsure that the number of the shares
bought/sold, the share price, commissions and other charges are
taken up correctly
5. For quoted shared, vouch to the Central Depository Systems(CDS)
statements to confirm the date and the number of shares
purchased/sold and the number of shares held as at year end
Occurrence
Completeness
Existence
Completeness
Existence
Completeness

29. Audit Procedures Audit Assertions
6. For unquoted shares, vouch purchases/sales to purchase/sale
agreements for the number of shares purchased/sold, the
purchase/sale price, the terms and conditions for payment
6. Ensure payments/proceeds for the purchases/sales are
properly accounted for and recorded in the books
7. Ensure that dividends or interests have been received and
properly accounted for in the book
8. Ensure proper disclosure of investments in the financial
statements
Existence
Completeness
Completeness
Accuracy
Right/Obligations
Accuracy
Classification/
understandability

30. THE END