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12 part c substantive testing of cost of sales and

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12Part C:Substantive Testing ofCost of Sales and Other Expenses3435Substantive Testing of Cost of Sales andOther Significant ExpensesCost of goods sold and other expenses such as wages aresignificant accounts in the income statement.The major risk relates to understatement.Some of these expenses are substantively tested as part ofthe testing of cycles such as the payroll cycle.36Assertions of InterestCOGS (and OtherExpenses)The assertions most at risk with respect to cost of goods sold andother expenses are:OccurrenceClassificationCut-offCompletenessAccuracy343536
1337Audit ObjectivesCOGS (and otherexpenses)38Examples of Substantive Tests of Costsand Other Expenses39Examples of Substantive Tests of Costsand Other Expenses373839
14Illustrative Procedures for AuditingCosts and Expenses3.Illustrative procedures for auditing costs andexpenses:Illustrative Procedures for AuditingCosts and Expenses3.Illustrative procedures for auditing costs andexpenses:Illustrative Procedures for AuditingCosts and Expenses3.Illustrative procedures for auditing costs andexpenses:404142
15Other costs or expenses that could be significant include:administration costsselling expensesaudit feesadvertising and marketing costsimpairment charges.The nature of the tests are similar to purchases and payroll.Use risk assessment based on knowledge of client andprofessional judgement to determine timing and extent of testing.Auditor’s objective is to determine if there are misstatementswithin the account balance and to quantify the amount of anymisstatement.Assessing the Results of SubstantiveProcedures44Examples of Substantive Tests of Costsand Other ExpensesIf an error (misstatement) is found in substantive testing of theseaccounts then:Understand why it occurred.Consider increase to sample size.Consider additional testing.Continue testing until error can be accurately quantified orbalance fully tested to ensure no error remains.45Copyright noticeCopyright © 2021University of Tasmania, Tasmanian School of Business and EconomicsAll rights reserved.Commonwealth of Australia Copyright Regulations 1969 - WARNINGThis material has been reproduced and communicated to you by or on behalf of theUniversity of Tasmania pursuant to Part VB of the Copyright Act 1968 (the Act). Thematerial in this communication may be subject to copyright under the Act. Any furtherreproduction or communication of this material by you may be the subject of copyrightprotection under the Act. Do not remove this notice.434445
1TASMANIAN SCHOOL OFBUSINESS AND ECONOMICSBFA303 AuditingWeek 12Completing and Reporting on theAudit2Part A:Completing the Audit3123
2Phases of an AuditThe main phases of an audit are:Risk AssessmentPhaseRisk ResponsePhaseReporting PhaseIntroductionPhases of an auditAcceptingtheengagementUnderstandingthe clientRiskidentificationand strategyRisk andmaterialityassessmentExecutionConclusionandreportingPlanningPerforming

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