Substantive Procedures for Asset Irregularities - 825 Words

Substantive Procedures for Asset Irregularities (Essay Sample) Content: Substantive Procedures for Asset IrregularitiesStudent:Professor:Course title:Date:Substantive Procedures for Asset IrregularitiesSubstantive audit procedures or tests are essentially direct tests with the use of particular information from the accounting system and fiscal statements of a company (Freedman, 2011). This paper provides an outline of the substantive procedures that can be used to detect asset irregularities. In particular, it outlines the substantive audit procedures to detect irregularities in fixed assets, inventory, and accounts receivable audit cycles.Substantive procedures in accounts receivable audit cyclesSubstantive procedures are generally designed to create evidence that an auditor brings together in order to support the claim that there are not any material misstatements regarding the accuracy, validity, and completeness of an entitys fiscal records. As such, substantive audit procedures are carried out with the aim of detecting if there are m aterial misstatements in accounting transactions (Freedman, 2011). The following audit procedures are performed for accounts receivable:Substantive ProcedureDescription1Reviewing the accounts receivable processThis entails examining the original information. The auditor will pull a sample of customers/clients from the accounts receivables ledger of Apollo Shoe Inc. and then review the original information that led to the current balance. It is of note that an entity can create fake accounting balances by adding phony receivables balance and clients in order to bolster its fiscal statement (Vitez, 2014). By reviewing the original sales information, the auditor will establish that a sales on account really happened, leading to the accounts receivable balance.2Verifying balances with customers/clientsApollo Shoe Inc.s main clients/customers are contacted who are then requested to show their accounts payable amounts owed to the entity. The auditor then matches this external in formation to the internal information of the company. Variations in the amounts call for more information or more tests to find out why there are variations (Freedman, 2011). 3Tracking the payoff processThe auditor reviews when Apollo Shoe Inc. was paid for goods and the length of time it took for the entity to apply receipts to the open account receivable balance. The company has to justify the differences between the amount owed and amount paid. The auditor may also review the bank statements of Apollo Shoe Inc. to thoroughly source check the deposits. 4Interviewing accounting staffsStaffs who handle customer accounts will be interviewed to find out how well Apollo Shoe Inc. is operating. These accounting personnel would need to confirm the receivables information and make sure that the paperwork of Apollo Shoe Inc. includes adequate backup. Substantive procedures in inventory audit cyclesSince Apollo Shoe Inc. is a manufacturing firm, its inventory includes raw materia ls; partially manufactured goods; and finished goods, which are shoes. The following substantive procedures will be done on the inventory audit cycle:Substantive ProcedureObjective1Account for a sequence of inventory tags and then trace every tag to the physical inventory to ensure that it actually existsExistence2Trace the test counts to final inventory compilation comparing tag, quantity, and description (Vitez, 2014).Accuracy (quantity agrees); existence (the tag is from valid sequence); classification (description); and completeness (test count is included)3Compare Apollo Shoes count up of the physical inventory stock at an interim day with the perpetual master fileAccuracy, existence, completeness 4Compare the unit prices on final inventory with the vendors invoiceAccuracy5Trace recorded additions in finished goods perpetual inventory to production records (Freedman, 2011).Classification, accuracySubstantive procedures in fixed assets audit cyclesOn the balance sheet, fixed assets basically include buildings and land, equipment and plant, as well as the related accumulated depreciation. The audit objectives for fixed assets are to answer the following questions: do the assets actually exist?/existence; are the assets owned by the firm/obligations and rights; are the assets correctly valued?/valuation. Have the recurrent items been exploited/completeness; and are the assets appropriately disclosed in the fiscal statements?/disclosures and presentation (Vitez, 2014). The substantive audit procedures for fixed assets are as follows:Audit programAssertion CategoryDescription1CompletenessVisible assets to fixed assets registe...