Accounting Q&A · Auditing · Topic 9
Practise audit procedures for inventory, cash, receivables and liabilities. Try each answer before revealing it.
Worked example
Some warehouse stock is damaged. Inspect condition and compare subsequent selling prices and costs. Quantify any required write-down.
Core concepts
1. What should you know about cash confirmation?
Obtain a direct bank response for relevant balances and arrangements.
2. What should you know about inventory attendance?
Observe counting, inspect stock and perform test counts when required and practicable.
3. What should you know about receivables valuation?
Assess recoverability and the credit loss allowance.
4. What should you know about unrecorded liabilities search?
Check subsequent payments and supporting records for obligations at reporting date.
5. What should you know about fixed asset inspection?
Supports existence and condition of selected equipment.
6. What should you know about depreciation recalculation?
Checks the charge using relevant rates, dates and bases.
7. What should you know about revenue cut-off?
Test whether revenue is recorded in the correct period.
8. What should you know about related parties?
Review relationships and transactions for risks and required disclosures.
9. What should you know about accounting estimate?
A monetary amount subject to measurement uncertainty.
10. What should you know about subsequent events?
Events after period-end that may affect recognition or disclosure.
Case 1
Some warehouse stock is damaged.
11. Which audit concept is central here?
Inventory valuation.
12. What is the main objective?
Assess whether the recorded value is recoverable.
13. What evidence or procedure would you use?
Inspect condition and compare subsequent selling prices and costs.
14. What limitation should you consider?
Count attendance alone does not establish value.
15. What should happen next?
Quantify any required write-down.
Case 2
A large January payment relates to a December delivery.
16. Which audit concept is central here?
Payables completeness.
17. What is the main objective?
Determine whether the liability belongs at year-end.
18. What evidence or procedure would you use?
Inspect invoice, receiving records and posting date.
19. What limitation should you consider?
Cash settlement date alone does not determine recognition.
20. What should happen next?
Propose an accrual if the obligation was omitted.
Case 3
A customer owing a material balance files for bankruptcy after year-end.
21. Which audit concept is central here?
Receivable valuation.
22. What is the main objective?
Determine whether it confirms conditions at reporting date.
23. What evidence or procedure would you use?
Review payment history, correspondence and bankruptcy evidence.
24. What limitation should you consider?
Later events need classification based on underlying conditions.
25. What should happen next?
Reassess the allowance and disclosure.
Professional standards reference. For statutory duties, confirm the rules in the relevant jurisdiction.