Procurement Audit Test

Procurement and Audit notes revision

Tests of control are tests to obtain audit evidence about the effective operation of the accounting and internal control systems, that is, that properly designed controls identified in the preliminary assessment of control risk exist in fact and have operated effectively throughout the relevant period.
Types of Procurement Audit Tests
Substantive procedures are tests to obtain audit evidence to detect material misstatements in the financial statements. They are generally of two types:
• Analytical procedures
• Tests of detail of transactions, account balances and disclosures
The types of substantive tests carried out to obtain evidence about various financial statement assertions are outlined in the table below.

Audit assertion Type of assertion Typical audit tests
Completeness Classes of transactions

Account balances Presentation and

(a)               Review of post year- end items

(b)           Cut-off testing

 

  disclosure (c)  Analytical review

(d)  Confirmations

(e)       Reconciliations    to control accounts

Rights and Obligations Account balances Presentation and disclosure (a)  Reviewing invoices for proof that item belongs to the

company

(b)     Confirmations   with third parties

Valuation and Allocation Account balances Presentation and disclosure (a)  Matching amounts to invoices

(b)  Recalculation

(c)                              Confirming accounting            policy consistent and reasonable

(d)   Review of post year- end payments and invoices

(e)  Expert valuation

Existence Account balances (a)  Physical verification

(b)               Third         party confirmations

(c)  Cut-off testing

Occurrence Classes of transactions Presentation and disclosure (a)                      Inspection        of supporting documentation

(b)          Confirmation   from directors                   that transactions relate to business

(c)        Inspection of items

purchased

Accuracy Classes of transactions Presentation and disclosure (a)                Recalculation     of correct amounts

(b)                        Third         party confirmation

(c)    Analytical review

Directional testing
A general assumption that audit firm have is that companies overstate assets and understate liabilities. It also has to do with double entry system e.g. creditors and purchases. If one is correct then most likely the other is correct also.
The techniques used are:
• Review payments after balance sheet date and matching them against related invoices specifically noting dates on invoices to ensure that the invoice was accounted for in the correct accounting period.
• Cut-off tests which involve selecting goods, received notes raised before the year-end and ensuring that the related invoices have been included in the purchases daybook before year-end as well as individual creditors’ accounts. If no invoices have been received to match those goods received notes than a reasonable liability should have been set up.
• Comparison of the present list of creditors with the previous year’s list and investigations being carried out on those creditors on the list of the previous year missing from current year’s list to confirm that they are properly excluded through settlement during the year under review.
• Reviewing reconciliation of creditors’ statements with the creditors’ individual ledger accounts ensuring that any reconciling items are valid and genuine.
• Reviewing lending contracts or agreements for breach of contract accusations to determine where claims would be made against the company.
• Reviewing correspondence with professional advisers e.g. lawyers for claims that they may have made against the company but not recorded.

Procurement and Audit notes revision

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