Substantive Procedure

Question: Discuss about the Substantive Procedure. Answer: As we all know that the substantive procedure mainly aims to determine the substantive procedure for the detection of material misstatements at the level of assertion. It would involve various tasks such as test of details of the transaction, balances, disclosures as well as the substantive procedures. In regard to the wages and salaries- In order to carry out the substantive procedure which would provide sufficient appropriate evidence in regard to the accuracy in respect of the account balance (ACCA,2016) It is required to perform the same in total taking under consideration total payroll which will involves all account joiners as well as leavers and also any rise in the pay. Also it is required to compare the same with the earlier period and of required discuss the significant change with those charged with the governance or the management. Taking into consideration sample employees, it is required to recalculate both the gross net pay as well as must reconcile the same to verify the accuracy with the payroll records maintained by them After recalculations of the deduction as per law must be done so as to determine that the deduction have been corrected calculated for the year within the payroll expenses. In addition, it is also required to analyze that wages salaries which have been recognized in the accounting period must relate to that period only. Also any prepaid as well as accrued expenses have been accounted correctly at financial statements. It is required that salaries wages have been correctly allocates in production activities and general and administrative expense as per the category (CAT,2016). 2. Electricity- In regard to the substantive procedure for the verification of electricity it is essential to conduct confirmation procedure since the same is relevant in order to determine the accuracy while confirmation it is required by the auditor to obtain confirmation from third party or reconcile the amount represented by the entity with the bills sent by the authority in regard to the electricity an must in accordance with the PCAOB (Auditing tools, 2016). Also there must be proper record in regard to meeting reading so as to have proper control over the expense, auditor must review the register and analyze the fluctuations , if there is materiality in the fluctuation must discuss the same as well as reason for the same (ACCA,2016). 3. Repair and Maintenance- In order to carry out the substantive procedure for the repair and maintenance, it would be necessary to Inquiry- it refers to seeking the required information from the person having knowledge whether in financial or may be non financial roles within or outside the company. In addition to the other audit procedure, inquiry can be carrying out thought the audit of the company. However, it has also seen that the inquiry for company personnel only would not be able to provide sufficient appropriate evidence so as to reduce the risk to low level or also to support ant conclusion in regard to the control effectiveness. Hence, it is required by the auditor to conduct or examine the documentation in resects of the same to indicate that the procedure has been performed. In accordance with the Auditing standard 11 which refer as Consideration of Materiality in planning and performing the audit it clearly prescribes that the responsibility of the auditor in order to determine the tolerable misstatement at the discloser or account level (Ey,2016). It states that at the time of conducting sampling for the class of transaction, it is required by the auditor to determine mistaken which are tolerable in respect of the population to be sampled with the purpose to design the appropriate sample plan. In the stated case, audit assistant conducted test of control for 50 transactions which were resulting provided three errors which are tolerable /hence it implies that since the tolerable mistaken in regard to the population sampled has been less than the tolerable mistaken. Hence, as a result it allow for the possibility which prescribes that the identified result would not cause the financial statement of the company to be misstated Conclusion by the audit assistant is correct. It has been provided that an amount can be recognized as liability only when it meets the criteria as follow Liability means the present obligation and has been resulted or arises because of the past event and as a result company is requires an outflow from the enterprises as per IASB. It is clear from the above that obligation arises for the company only on the basis of the past event, in the stated case company has recognized an amount as accounts payable against which goods and services have not been received till the date of audit hence it cannot be shown as accounts payable. In order to recognize the liability, it must meet the following criteria The outflow of resources is probable The value can be measured significantly in relation to the liability (Auditing tools,2016) Although it is also provided that if an obligation seems to meet the criteria of the liability but not recognition, the same can be shown as contingent liability. In the given case, the transaction not meet the criteria for liability hence it cannot be shown as even contingent liability since the good have not received yet. (2)(b) In the given case where it states that there is total error of $ 206,702 which constitute 4% in regard to the overall balance have not been material since it is less than the materiality level which has been set by the audit. Even though the risk is 4% but there must be requirement to carry on the further work or perform activities to identify the reason for the misstatement. It can be said that extensive search must be carry on for the recoded liabilities which will involves examining of the supporting documents (Auditing tools,2016) So, the conclusion by the audit assistant that accounts payable have been stated fairly is somewhat questionable. References Accounting-simplified.com. (2016).Assertions in the Audit of Financial Statements. [online] Available at: https://accounting-simplified.com/audit/introduction/audit-assertions.html#sthash.E7zBhDwo.dpuf [Accessed 2 Jun. 2016]. CAT, F. and In, L. (2016).Wages Substantive Audit Procedures . [online] Opentuition.com. Available at: https://opentuition.com/topic/wages-substantive-audit-procedures/ [Accessed 2 Jun. 2016]. Ey.com. (2016).Sampling substantive procedures. [online] Available at: https://www.ey.com/publication/vwluassetsdld/pcaob_practicealertauditingrevenue_9september2014/$file/pcaob_practicealertauditingrevenue_9september2014.pdf?OpenElement [Accessed 2 Jun. 2016]. https://www.accaglobal.com, A. (2016).The audit of wages | Students | ACCA | ACCA Global. [online] Accaglobal.com. Available at: https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/the-audit-of-wages.html [Accessed 2 Jun. 2016]. www.accaglobal.com. (2016).Accounts payable. [online] Available at: https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f8/exampapers/uk/f8uk-2013-dec-a.pdf [Accessed 2 Jun. 2016].