1) REVENUE substantive procedures

 Compare the overall level of revenue against prior years and budgets and
investigate any significant fluctuations.
 Calculate the gross profit margin for Heraklion Co and compare this to the prior
year and investigate any significant fluctuations.
 Select a sample of sales invoices for customers and agree the sales prices back to
the price list to ensure the accuracy of invoices.
 Select a sample of credit notes raised, trace through to the original invoice and
ensure the invoice has been correctly removed from sales.
 Select a sample of customer orders and agree these to the despatch notes and
sales invoices through to inclusion in the sales ledger.
 Select a sample of despatch notes both pre and post year-end and follow these
through to sales invoices to ensure that cut off has been correctly applied.

2) Substantive procedures over bank and cash balance

 Obtain client’s current bank account reconciliation and check the additions to
ensure arithmetical accuracy.
 Obtain a bank confirmation letter from client’s bankers for all its accounts.
 Agree all balances listed on the bank confirmation letter to client’s bank
reconciliations or the trial balance to ensure completeness of bank balances.
 Examine the bank confirmation letter for details of any security provided by the
client or any legal right of set-off as this may require disclosure.
 In respect of material cash balances, count cash balances at the year-end and
agree to petty cash records, such as the petty cash book.
 Review the financial statements to ensure that the disclosure of cash and bank
balances are complete and accurate.

3) Procedures during the inventory count

 Observe the counting teams of Lily to confirm whether the inventory count
instructions are being followed correctly.
 Select a sample and perform test counts from inventory sheets to warehouse
aisle and from warehouse aisle to inventory sheets.
 Confirm the procedures for identifying and segregating damaged goods are
operating correctly.
  Select a sample of damaged items as noted on the inventory sheets and
inspect these windows to confirm whether the level of damage is correctly
noted.
 Observe the procedures for movements of inventory during the count, to
confirm that no raw materials or finished goods have been omitted or
counted twice.
 Obtain a photocopy of the completed sequentially numbered inventory
sheets for follow up testing on the final audit.
 Identify and make a note of the last goods received notes (GRNs) and goods
despatched notes (GDNs) for 31 December in order to perform cut-off
procedures.
 Observe the procedures carried out by the warehouse manager in assessing
the level of work-in-progress and consider the reasonableness of any
assumptions used.
 Discuss with the warehouse manager how he has estimated the raw
materials quantities. To the extent that it is possible, re-perform the
procedures adopted by the warehouse manager.
 Identify and record any inventory held for third parties (if any) and confirm
that it is excluded from the count.

4) Substantive procedures NON-CURRENT ASSET

TANGIBLE NON-CURRENT ASSETS
 Carry out physical inspection of fixed assets (E)
 Verify ownership of property by inspecting title deeds and registration
documents (R & O)
 Verify ownership of motor vehicles by inspecting motor registration
documents (R & O).
 Review lease agreements to ensure correctly treated as finance or operating
lease (R & O)
 Select a sample of physically present assets in company and inspect asset
register to ensure they are included (C)
 Reperform reconciliation of non-current asset register to general ledger,
investigate difference (c)
 Review depreciation policies for reasonableness by comparison to last year,
industry average.
ADDITIONS
 Obtain a sample of additions PPE and check the list and agree to the non-
current asset register to confirm completeness of PPE.
 Select a sample of additions and agree cost to supplier invoice to confirm
valuation.
 Verify rights and obligations by agreeing the addition of plant and equipment
to a supplier invoice in the name of COMPANY.
 Review the list of additions and confirm that they relate to capital
expenditure items rather than repairs and maintenance.
 For a sample of additions recorded in P&E physically verify them on the
factory floor to confirm existence.

DISPOSALS
 Take a sample of disposals and verify from NCA that it has been removed
from the register
 Calculate the cost that it has been sold for as compared to its carrying value
to verify that correct gain/loss has been noted
 Physically check that the NCA sold has been removed from factory
 Compare the cash/cheque received from supplier and the invoice send to
confirm value
 Check the documents have been transferred and rights have been passed to
the purchaser.

DEPRECIATION

 Review depreciation rates and compare to industry average.

 Review profits and loss on disposal of assets.
 Review disclosure of depreciation charges and policies in draft financial
statements.
 Perform a proof in total calculations for depreciation charged.
 Select a sample of non-current assets and re calculate their depreciate.
 Assess that on disposal of an asset the profit and loss booked is according to
the depreciation policies
 Confirm the year the asset was made and confirm the useful life of asset to
assess that it is correctly depreciated.
REVALUATION

 Agree revaluation amounts to valuation statement provided by valuer.

 Ensure revalued amounts of assets are correctly included in NCA register.
 Ensure disclosures of revaluation comply with IAS 16 (PPE).
  Obtain a schedule of assets revalued and cast to confirm completeness and
accuracy.
 Recalculate the new depreciation to verify accuracy.

CAPITAL EXPENDITURE

 For items treated as capital, agree to invoices to ascertain whether they are
in fact capital and correctly included with PPE.
 For items treated as repairs, agree to invoices to ensure they are in fact not
capital and correctly expensed to Profit and loss account
 Obtain a schedule of capital expenditure and ensure accuracy.
 For capital items, agree to NCA register to ensure they are correctly
included.

7) Substantive procedures over RECEIVABLES

ACCURACY, VALUATION AND ALLOCATION
 Review the after-date cash receipts and follow through to pre year-end
receivable balances.
 Inspect the aged receivables report to identify any slow-moving balances and
discuss these with the credit control manager to assess whether an
allowance or write down is necessary.
 For any slow-moving/aged balances review customer correspondence to
assess whether there are any invoices in dispute.
 Review board minutes of Dashing Co to assess whether there are any
material disputed receivables.

COMPLETENESS
 Select a sample of goods despatched notes from before the year end, agree
to sales invoices and to inclusion in the sales ledger and year-end receivables
ledger.
 Agree the total of individual sales ledger accounts to the aged receivables
listing and to the trial balance.
 Obtain the prior year aged receivables listing and for significant balances
compare to the current year receivables listing for inclusion and amount due.
 Discuss with management any missing receivables or significantly lower
balances.
 Review the sales ledger for any credit balances and discuss with
management whether these should be reclassified as payables.
 RIGHTS AND OBLIGATIONS
 Review bank confirmations and loan agreements for any evidence that
receivables have been assigned as security for amounts owed by Dashing Co.
 Review board minutes for evidence that legal title to receivables has been
sold onto a third party such as a factor.
 For a sample of receivables, agree the balance recorded on the sales ledger
to the original name of the customer on a sales order or a contract.
8) Substantive procedures over INVENTORY
TO CONFIRM VALUATION OF INVENTORY
 1. For a sample of inventory of goods at year end, ensure cost is correctly stated
by comparing cost per records to a recent purchase invoice.
 2. For a sample of manufactured items, obtain cost sheets and confirm material
cost to purchase invoice, as cost to time sheets etc.
 3. Review aged inventory reports and discuss with management why slow
moving goods have not been written off/ down.
 4. Review average inventory days of current year and compare with previous
years, discuss variations with management.
 5. Follow up any damaged/obsolete items noted by auditor at inventory counts
to ensure inventory records have been updated correctly.
 6. Select a sample of goods and review post year end invoices to ascertain if NRV
is above cost or not.
9) Substantive procedures for
REVALUATION (PPE)
a. Discuss with management if the valuer has financial interests in the company
which may impact his independence
b. Consider if all items in the same class of assets have been revalued
c. Agree the revalued amounts included correctly in the non-current assets register.
d. Recalculate the total revaluation adjustment and agree recorded in the
revaluation surplus
e. Recalculate the depreciation charge for the year and compare industry average.
f. Review the financial statements disclosures for compliance with IAS 16.

10) Substantive procedures for SUPPLIER STATEMENT RECONCILIATIONS

a. Select a representative sample of year-end supplier statements and agree the
balance to the purchase ledger of client. If the balance agrees, then no further
work is required.
 b. Where differences occur due to invoices in transit, confirm from goods received
notes (GRN) whether the receipt of goods was pre year-end, if so confirm that
this receipt is included in year-end accruals.
c. Where differences occur due to cash in transit from Hawthorn to the supplier,
confirm from the cashbook and bank statements that the cash was sent pre year-
end.
d. Discuss any further adjusting items with the purchase ledger supervisor to
understand the nature of the reconciling item, and whether it has been correctly
accounted for.
11) PAYROLL substantive procedures
 Agree the total wages and salaries expense per the payroll system to the trial
balance, investigate any differences.
 Cast a sample of payroll records to confirm completeness and accuracy of the
payroll expense.
 For a sample of employees, recalculate the gross and net pay and agree to the
payroll records to confirm accuracy.
 Recalculate the statutory deductions to confirm whether correct deductions for
this year have been made in the payroll.
 Compare the total payroll expense to the prior year and investigate any
significant differences.
 Review monthly payroll charges, compare this to the prior year and budgets and
discuss with management for any significant variances.
 Agree the total net pay per the payroll records to the bank transfer listing of
payments and to the cashbook.
 Agree the individual wages and salaries per the payroll to the personnel records
for a sample.
 Select a sample of weekly overtime sheets and trace to overtime payment in
payroll records to confirm completeness of overtime paid.

12) Substantive procedures for PURCHASES and OTHER EXPENSES

 Calculate the operating profit and gross profit margins and compare them to last
year and budget and investigate any significant differences.
 Recalculate the prepayments and accruals charged at the year end to ensure the
accuracy.
 Select a sample of post year-end expense invoices and ensure that any expenses
relating to the current year have been included.
  Select a sample of payments from the cash book and trace to expense account to
ensure the expense has been included and classified correctly.
 Select a sample of goods received notes (GRNs) from throughout the year; agree
them to purchase invoices and the purchase day book to ensure the
completeness of purchases.
 Select a sample of GRNs just before and after the year end; agree to the purchase
day book to ensure the expense is recorded in the correct accounting period.

13) Substantive procedures over TRADE PAYABLES

 Obtain a listing of trade payables from the purchase ledger and agree to the
general ledger and the financial statements.
 Reconcile the total of purchase ledger accounts with the purchase ledger
control account, and cast the list of balances and the purchase ledger control
account.
 Review the list of trade payables against prior years to identify any significant
omissions.
 Calculate the trade payable days for Greystone and compare to prior years,
investigate any significant differences.
 Review after date payments, if they relate to the current year then follow
through to the purchase ledger or accrual listing to ensure completeness.
 Review after date invoices and credit notes to ensure no further items need
to be accrued.
 Obtain supplier statements and reconcile these to the purchase ledger
balances, and investigate any reconciling items.
 Select a sample of payable balances and perform a trade payables’
circularisation, follow up any non-replies and any reconciling items between
balance confirmed and trade payables’ balance.
 Enquire of management their process for identifying goods received but not
invoiced or logged in the purchase ledger and ensure that it is reasonable to
ensure completeness of payables.
 Select a sample of goods received notes before the year-end and follow
through to inclusion in the year-end payables balance, to ensure correct
cutoff.
 Review the purchase ledger for any debit balances, for any significant
amounts discuss with management and consider reclassification as current
assets.
  Review the financial statements to ensure payables are included as current
liabilities.

14) Substantive procedures to confirm the REDUNDANCY PROVISION

a. Discuss with the directors of Dashing Co as to whether they have formally
announced their intention to close the production site and make their employees
redundant, to confirm that a present obligation exists at the year end.
b. If announced before the year end, review supporting documentation to verify that
the decision has been formally announced.
c. Review the board minutes to ascertain whether it is probable that the redundancy
payments will be paid.
d. Obtain a breakdown of the redundancy calculations by employee and cast it to
ensure completeness and agree to trial balance.
e. Recalculate the redundancy provision to confirm completeness and agree
components of the calculation to supporting documentation such as employee
contracts.
f. Review the post year-end cash book to identify whether any redundancy payments
have been made, compare actual payments to the amounts provided to assess
whether the provision is reasonable.
g. Obtain a written representation from management to confirm the completeness of
the provision.
h. Review the disclosure of the redundancy provision to ensure compliance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets.

15) Substantive procedures for DIRECTORS’ REMUNERATION

a. Obtain a schedule of the directors’ remuneration, split by salary and bonus paid in
December and cast the schedule to ensure accuracy.
b. Agree a sample of the individual monthly salary payments and the bonus payment
in December to the payroll records.
c. Confirm the amount of each bonus paid by agreeing to the cash book and bank
statements.
d. Review the board minutes to identify whether any additional payments relating to
this year have been agreed for any directors.
e. Agree the amounts paid per director to board minutes to ensure the sums included
are genuine.
f. Obtain a written representation from management confirming the completeness of
directors’ remuneration including the bonus.
g. Review the disclosures made regarding the directors’ remuneration and assess
whether these are in compliance with local legislation.

h.