Page 184 - CA Inter Audit PARAM

CA Ravi Taori
representations and performing analytical procedures. What are the analytical procedures required to be
performed to obtain audit evidence as to overall reasonableness of purchase quantity and price?
➢ Audit procedures to obtain audit evidence as to overall reasonableness of purchase quantity and
price

• Perform cut-off test to ensure that purchases are recognised in the correct accounting
period. For the purpose, the auditor should examine material inward records for few days
say last 5 days prior to closing date to check that all corresponding invoices have been duly
entered in the Purchases book and none have been omitted.
• Ensure correct accounting treatment of goods – in – transit as per the agreed terms with
the vendor regarding transfer of risk and reward of ownership in goods.
• Perform analytical procedures to obtain audit evidence as to overall reasonableness of
purchase quantity and price which may include:

• Consumption Analysis:
Auditor should scrutinize raw material consumed as per manufacturing account
and compare the same with previous years with closing stock and ask for the
reasons from Management If any significant variations found.

• Stock Composition Analysis:
Auditor to collect the reports from management for composition of stock i.e., raw
materials as a percentage of total stock and compare the same with previous year
and ask for reasons from management in case of significant variations.

• Ratios:
Auditor should compare the creditors turnover ratios and stock turnover ratios
of the current year with previous years.

• Quantitative Reconciliation
Auditor should review quantitative reconciliation of closing stocks with opening
stock, purchases and Consumption

Employee benefits expenses – evaluation of Old Course -- (M19E)
QNO
AIFS.48 hiring, appraisal and retirement process-
Bhaskar CNO - AIFS-P3.080
While reviewing Employee benefits expenses of a company, how you as an auditor you will evaluate its

hiring, appraisal and retirement process?
Answer ➢ Auditor needs to obtain a clear understanding about the organization and its hiring, appraisal
and retirement process in the following manner:

• (Test of Controls)
An auditor tests the controls the entity has set around employee benefit payment process to
determine how strong and reliable they are. If they are strong, the auditor can minimize the amount
of transaction testing he must do. Common internal controls over the employee benefit payment
cycle includes maintaining of employee master, attendance records, computation of employee
deductions like payroll taxes, accrual of other benefits like gratuity, leave encashment, bonus
etc. authorization and approval of monthly payroll processing and disbursement

• (Substantive Procedures & Sampling)
Performing substantive audit procedures is must. The auditor selects a random sample of
transactions and examines the related appointment letters, appraisal letters, attendance
records, HR policies, employee master etc.

• (Analytical Procedures)
Substantive analytical procedure will consist of monthly expense reasonability, comparison with
previous accounting period, any analysis auditor may find relevant and most important of all
setting an expectation in relation to the expense incurred during the period under audit and
compare that with the client’s business operations and overall trend in the industry.

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