Está en la página 1de 84

internal control structure

CASE 3
Overview
• Discussion Questi ons
• Internal Control Structure
• Approach in the study and evaluati on of the
client’s internal control
DISCUSSION QUESTIONS
1. ANALYZE THE ENGAGEMENT LETTER PREPARED BY ABERNETHY AND
CHAPMAN. WHAT SPECIFIC RESPONSIBILITIES ARE BEING ACCEPTED
BY THE CPA FIRM? WHAT RESPONSIBILITIES ARE ASSIGNED TO THE
CLIENT COMPANY?

The specifi c responsibiliti es accepted by the fi rm includes:


• To conduct the audit in accordance with the Philippine Standards on
Auditi ng (PSAs).
• Planning and performing the audit to obtain reasonable assurance
about whether the fi nancial statements are free from material
misstatement.
• Assessment of the risks of material misstatements of the fi nancial
statements, whether due to fraud or error.
• Evaluati ng the appropriateness of accounti ng policies used and the
reasonableness of accounti ng esti mates made by management.
• Evaluati ng the overall presentati on of the fi nancial statements.
• Communicati ng, in writi ng, any signifi cant defi ciencies in internal control
relevant to the audit of the fi nancial statements that have been identi fi ed
during the audit.
• Communicati ng any changes in the initi al esti mate of audit fee.
• To provide the fi nal audit report by February 22, 1992.
Responsibiliti es assigned to the client company includes:

• To provide the fi rm access to all informati on of which


the client company is aware that is relevant to the
preparati on of the fi nancial statements such as records,
documentati ons and other matt ers.
• To provide the fi rm additi onal informati on needed in
performing the audit.
• To provide the fi rm unrestricted access to persons
within the enti ty from wom the fi rm determines it
necessary to obtain audit evidence.
• To provide a year-end trial balance by January 17, 1992
and an interim trial balance for the fi rst three quarters
of the year by October 17, 1991.
2. AS ONE TESTING PROCEDURE USED IN ESTABLISHINIG THE VALIDITY
OF REPORTED AMOUNTS, THE AUDITOR WILL TAKE A FIGURE FOUND
I THE FINANCIAL STATEMENTS AND TRACE ITS COMPONENTS BACK
THROUGH THE VARIOUS ACCOUNTING RECORDS TO THE SOURCE
DOCUMENTS CREATED AT THE TIME OF THE ORIGINAL
TRANSACTIONS. THE LIST OF FORMS, RECORDS, AND DOCUMENTS
LEADING THROUGH THE ACCOUNTING SYSTEM IS OFTEN REFERRED
TO AS “AUDIT TRAIL.”
2. …TO ACCUMULATE EVIDENCE ABOUT THE ACCOUNTS RECEIVABLE
TOTAL, ASSUME THAT YOU HAVE BEEB ASSIGNED TO SUBSTATIATE A
NUMBER OF DEBIT ENTRIED IN LAKESIDE’S LEDGER ACCOUNT. FOR
EXAMPLE, YOU SELECT A $2,800 DEBIT ENTRY MADE ON JULY 11,
1991. WHAT ITEMS MAKE UP THE AUDIT TRAIL FOR THIS AMOUNT
AND WHAT INFORMATION COULD BE GATHERED FROM EACH?
INDICATE THE DEGREE OF RELIANCE THE AUDITOR SHOULD PLACE ON
THE DATA DERIVED FROM THESE INDIVIDUAL SCORES.

The auditors of Abernethy and Chapman, in gathering evidence as to


whether a certain accounts receivable amount is presented fairly,
fi rst needs to understand how the enti ty arrives at such amount.
1. Sales Invoice – a document which indicates the amount billed to the
customer and the sales order. The auditor can use this to verify if
the prices included in the invoice are appropriate and whether the
bill is computed correctly.
2. Bill of Lading – a document which records the quanti ty and
descripti on of the items being shipped. The auditor can use this to
verify that the quanti ti es and types of items shipped agree with the
actual quanti ti es and types of items ordered by the customer
3. Inventory Sales Journal – a document that records inventory sales as
a basis for perpetual inventory. The auditor can use this to verify if
the items sold agree with the sales invoice.
4. Inventory Price List – a list used to price sales invoices. The auditor
can use this to verify if the items sold are correctly priced.
5. Sales Journal – a document that indicates the original entry recorded
for each sales transacti on.
6. Accounts Receivable Subsidiary Ledger – a document that indicates
the receivable balance from each individual customer. The auditor
can use this in comparing the entries made in the subsidiary ledger
with the entries made in the general ledger.

According to PSA 500 Audit Evidence par A31 ,

“the reliability of audit evidence that is generated internally is


increased when the related controls, including those over its
preparati on and maintenance, imposed by the enti ty are eff ecti ve.”

The degree of reliance that the auditor should place on each document
depends on the enti ty ’s internal control. If the controls are strong,
the reliability of these documents is higher than if the controls are
weak.
3. WHAT KINDS OF INFORMATION SHOULD ANDREWS HAVE GATHERED
DURING THE PRELIMINARY STAGE OF THIS AUDIT IN ORDER TO
ANSWER CLINE’S QUESTIONS? WHAT SOURCES ARE AVAILABLE TO
THE AUDITORS TO HELP UNDERSTAND AND ASSESS THE CLIENT’S
INTERNAL CONTROL STRUCTURE?
4. FRO THE INFORMATION PROVIDED TO THIS POINT, WHAT ANSWERS
CAN BE GIVEN TO CLINE’S QUESTIONS? MENTION THE STRENGTHS AS
WELL AS ANY WEAKNESSES THAT HAVE BEEN FOUND THAT WILL
HAVE A BEARING ON THE AUDITOR’S ASSESSMENT OF CONTROL
RISK.
5. AFTER THE PRELIMINARY ASSESSMENT HAS BEEN MADE OF
LAKESIDE’S CONTROL RISK, WHAT POSSIBLE ACTIONS CAN BE TAKEN
BY THE AUDITOR?

Aft er a preliminary assessment of control risk, the auditors possible


acti on would be:

a. POTENTIAL STRENGTH OF INTERNAL CONTROL


b. WEAKNESS OF INTERNAL CONTROL
c. POTENTIAL STRENGTH (other opti on)
6. IN THE PRELIMINARY PHASES OF AN EXAMINATION, THE AUDITORS
MUST ALSO ASSESS THE INHERENT RISK, THE POSSIBILITY THAT A
MATERIAL MISSTATEMENT WILL OCCUR.WHAT FACTORS WOULD BE
MOST LIKELY TO INFLUENCE THIS EVALUATION? WHAT IMPACT DOES
THE INHERENT RISK HAVE ON SUBTATIVE AUDITING PROCEDURES?

Inherent risk is the suscepti bility of asserti on to a misstatement


could be material, individually or when aggregated with other
misstatements assuming that there were no internal controls. (PSA
200 par. 13.n.i)
The factors to be considered in assessing inherent risk on a fi nancial
statement level include: (SAS par. 12a)

• Integrity of management
• Management experience and knowledge and changes in management
during the period
• Unusual pressures on management
• The nature of the enti ty ’s business
• Factors aff ecti ng the industry in which the enti ty operates
The factors to be considered in assessing inherent risk on account
balances and class of transacti on levels include: (SAS par. 12b)

• Financial statement accounts likely to be suscepti ble to


misstatement, such as those required adjustment in prior period or
which involve a high degree of esti mati on
• Complexity of underlying transacti ons and other events which might
require using the work of an expert
• Degree of judgment involved in determining account balances
• Suscepti bility of assets to loss or misappropriati on
• Completi on of unusual and complex transacti ons, parti cularly at or
near period-end
• Transacti ons not subjected to ordinary processing

The assessment of inherent risks has direct impact on


substanti ve auditi ng procedures.
The higher the assessment of inherent and control risks, the
greater the importance that the auditors should obtain suffi cient
appropriate audit evidence from the performance of substanti ve
procedures. (SAS par. 58)

In accordance with PSA 330 par. 6 , the auditor shall design and
perform further audit procedures whose nature, ti ming, and extent
are based on and are responsive to the assessed risks of material
misstatements at the asserti on level.
Internal control structure
UNDERSTANDING OF THE DESIGN AND EVALUATION
OF THE OPERATING EFFECTIVENESS OF INTERNAL
CONTROL
The nature, extent, and ti ming of the audit procedures to
be performed in gathering audit evidence related to class of
transacti ons, account balances and disclosures take their most
signifi cant momentum from a thorough understanding of the
design and evaluati on of the operati ng eff ecti veness of
Internal Control.
An auditor ’s approach in the study a nd evaluati o n of the client ’s interna l
control is generally consi st s of the fol lowi ng:

Step 1. Obtain an Understanding of the Cl ient ’s internal control structure.


Step 2. Make a preliminary assessment of control risk.
Step 3. Determine the appropri ate response to the assessed ri sks.
Step 4. Reassess cont rol risk
Step 5. Determine the nature, extent, and ti mi ng of substanti ve tests.
Step 1
O B TA I N A N U N D E R S TA N D I N G O F T H E
CLIENT’S INTERNAL CONTROL STRUCTURE.
O B T A I N A N U N D E R S T A N D I N G O F T H E
C L I E N T ’ S I N T E R N A L C O N T R O L
S T R U C T U R E

• Identi fying Transacti on Cycles


• Documenti ng the system
• Performing a transacti on walkthrough
• Identi fying controls that potenti ally reliable
O B T A I N A N U N D E R S T A N D I N G O F T H E
C L I E N T ’ S I N T E R N A L C O N T R O L
S T R U C T U R E

Since the Lakeside Company is engaged solely in merchandising or


distributorship of audio equipment, it ’s main transacti on cycle is the
revenue/receivable/cash receipts cycle. Such cycle is composed of
two parts:

• Revenue Recogniti on
• Cash Receipts.
REVENUE RECOGNITION
CASH RECEIPTS
Transaction cycle
Transaction cycle
Step 2
M a ke a P r e l i m i n a r y A s s e s s m e n t
o f C o n t ro l R i s k
PSA 200 paragraph 13 (n) (ii)

CONTROL RISK – The risk that a misstatement that could occur in


an asserti on about a class of transacti on, account balance or
disclosure and that could be material, either individually or
when aggregated with other misstatements, will not be
prevented, or detected and corrected, on a ti mely basis by the
enti ty ’s internal control.
Control risk is a functi on of the eff ecti veness of the
design, implementati on and maintenance of internal control
by management to address identi fi ed risks that threaten the
achievement of the enti ty ’s objecti ves relevant to preparati on
of the enti ty ’s fi nancial statements.
However, internal control, no matt er how well designed
and operated, can only reduce, but not eliminate, risks of
material misstatement in the fi nancial statements, because of
the inherent limitati ons of internal control.
PSA 200, A39

These include, for example, the possibility of human errors or


mistakes, or of controls being circumvented by collusion or
inappropriate management override.

Accordingly, some control risk will always exist . The PSAs provide
the conditi ons under which the auditor is required to, or may
choose to, test the operati ng eff ecti veness of controls in
determining the nature, ti ming and extent of substanti ve
procedures to be performed.
Why is there a need for risk assessment?

Risk assessment procedures – The audit procedures performed to


obtain an understanding of the enti ty and its environment ,
including the enti ty ’s internal control, to identi fy and assess the
risks of material misstatement, whether due to fraud or error, at the
fi nancial statement and asserti on levels. [PSA 315 4(d)]
According to PSA 315, paragraph 6,
(a.) The r isk assessment procedures shall incl ude the followi ng:
Inquir ies of management, and of ot hers wi thi n the enti ty who in the auditor ’s
judgment may have infor mati on that is li kel y to assist in identi fyi ng risks of
mater ial misstatement due to fraud or error. (Ref: Para. A6)

Abernethy and Chapman had already a conversati on with Rogers about the
informati on it needs. They also i nquired the King and Company which i s the
predecessor auditor for them to have knowledge about their new cli ent ’s
internal control system.
(b.) Analyti cal procedures. ( Ref: Para. A7-A8)

Heyman analyzed the fi l es he had i nspected i n order to familiarize himself with


the organizati on and operati o ns o f the Lakeside Company and he had a
di scussion wi th Andrews and Dan Cl ine, the audit partner who had been
pl ace in charge of the actual engagement to di scuss their understandi ng of
the client ’s internal control structure.
(c.) Observati on and inspecti on. (Ref: Para. A9)

Wallace Andrews and Art Heyman, a staff accountant with Abernethy


and Chapman, had observed and inspected:

1. Organizati on chart
2. Symbols used by previous auditors in fl owchart
3. Revenue and Cash Receipts Cycle –
Distributorship:
(a) Revenue Recogniti on
(b) Cash Receipts
P o i n t e r s w h e n a s s e s s i n g c o n t r o l r i s

According to PSA 315, A47,


The divi sion of internal control i nto the following fi ve components:

(a) The control envi ronment;


(b) The enti ty ’s risk assessment process;
(c) The informati on system, including the rel ated business processes, relevant
to fi nancial reporti ng , and communicati on;
(d) Control acti viti es; and
(e) Moni toring of controls.
RISK ASSESSMENT OF LAKESIDE’S SYSTEM OF REVENUE AND
CASH RECEIPTS CYCLE – DISTRIBUTORSHIP
The foll owi ng documents provides t he risk assessment of the Lakeside’s
system of Revenue and Cash Receipts Cycle – Distributorship.
Step 3
D E T E R M I N E T H E A P P R O P R I AT E
R E S P O N S E T O T H E A SS E SS E D R I S K
OVERALL RESPONSE
In order to reduce audit risk to an acceptable low
level, the auditor shall design and implement overall
responses to address the assessed risk of material
misstatement at the fi nancial statement level under
PSA 330 paragraph 5.
According to PSA 330 paragraph A1 , the overall responses that the
auditor may consider include:

• Emphasizing to the audit team the need to maintain professional


skepti cism in gathering and evaluati ng audit evidence.
• Assigning more experienced staff or those with special skills or using
experts.
• Providing more supervision.
• Incorporati ng additi onal elements of unpredictability in the
selecti on of audit procedures to be performed.
• Making general changes to the nature, ti ming or extent of audit
procedures
M A I N TA I N P R O F E S S I O N A L
S K E P T I C I S M

PROFESSIONAL SKEPTICISM means the auditor makes a criti cal


assessment, with a questi oning mind of the validity of evidence
obtained and is alert to evidence that contradicts or brings into
questi on the reliability of documents or representati ons by the
responsible party. This is an important atti tude that an auditor must
maintain throughout the audit, recognizing the possibility that a
material misstatement due to fraud could exist.

(PSA 200 paragraph 12)


• This helps in determining whether the audit evidence obtained is
enough to assure that the fi nancial statements are not materially
misstated.
• In auditi ng the fi nancial statements of the Lakeside Company, the
audit engagement team of the Abernethy and Chapman must att ain
professional skepti cism to provide a reasonable assurance through
expressing an opinion on the fairness on the fi nancial statements.
A s s i g n i n g m o re ex p e r i e n c e d s t a f

• Auditor ’s expert is an individual or organizati on possessing


experti se in a fi eld other than accounti ng or auditi ng, whose work in
that fi eld is used by the auditor to assist the auditor in obtaining
suffi cient appropriate audit evidence.
• An auditor ’s expert may be either an auditor ’s internal expert (who
is a partner or staff, including temporary staff, of the auditor ’s fi rm
or a network fi rm), or an auditor ’s external expert.

(Ref: Para. A1-A3)


• If the work of an expert is necessary in examining the suffi ciency
and appropriateness of the audit evidences obtained in auditi ng a
fi nancial statement, the auditor must determine the use of experts.

Like in the case of the Abernethy and Chapman, since the fi rm is


new in the industry of the audio equipment, it needed the work of
an expert in determining the fairness of the fi nancial statements of
the Lakeside Company.
Pro v i d i n g M o re s u p e r v i s i o n

SUPERVISION is a workplace acti vity in which a manager oversees the


acti viti es and responsibiliti es of employees he manages. According
to PSA 220 paragraph A15 , Supervision includes matt ers such as:

• Tracking the progress of the audit engagement.


• Considering the competence and capabiliti es of individual members
of the engagement team, including whether they have suffi cient ti me
to carry out their work, whether they understand their instructi ons,
and whether the work is being carried out in accordance with the
planned approach to the audit engagement.
• Addressing signifi cant matt ers arising during the audit engagement,
considering their signifi cance and modifying the planned approach
appropriately.
• Identi fying matt ers for consultati on or considerati on by more
experienced engagement team members during the audit
engagement.
Supervision is an important job functi on for managers at all
levels throughout a company. Coaching, training and employee
development are among the common responsibiliti es assumed by a
supervisor.

As of the situati on of the fi rm of Abernethy and Chapman, it is


important that Dan Cline, audit partner must administer all the
transacti ons, including supervising the works of the associates and
managers for the eff ecti ve and effi cient manner of auditi ng the
fi nancial statements.
Ad d i t i o n a l e l e m e n t s o f
u n p re d i c t a b i l i t y

AU-C 240.A42 states that incorporati ng an element of


unpredictability in the selecti on of the nature, ti ming, and extent of
audit procedures to be performed is important because individuals
within the enti ty who are familiar with the audit procedures
normally performed on engagements may be bett er able to conceal
fraudulent fi nancial reporti ng .
This can be achieved by, for example:

• Performing substanti ve procedures on selected account balances


and asserti ons not otherwise tested due to their materiality or risk.
• Adjusti ng the ti ming of audit procedures from that otherwise
expected.
• Using diff erent sampling methods .
• Performing audit procedures at diff erent locati ons or at locati ons on
an unannounced basis.
M a k i n g g e n e r a l c h a n g e s
Making general changes to the nature, ti ming or extent of audit
procedures (e.g., performing substanti ve procedures at period end
instead of at an interim fate, or modifying the nature of audit
procedures to obtain more persuasive audit evidence).

According to PSA 330 par. A4 , the auditor ’s assessment of the identi fi ed


risks at the asserti on level provides a basis for considering that
appropriate audit approach for designing and performing further
audit procedures.
The auditor may determine that:

• Only by performing tests of controls may the auditor achieve an


eff ecti ve response to the assessed risk of material misstatement for
a parti cular asserti on;
• Performing only substanti ve procedures is appropriate for parti cular
asserti ons and, therefore, the auditor excludes the eff ect of controls
from the relevant risk assessment.
• A combined approach using both tests of controls and substanti ve
procedures is an eff ecti ve approach.

In additi onal, PSA 330 paragraph A5-A7 states that the nature of
an audit procedure refers to its purpose (i.e., test of controls or
substanti ve procedure) and its type (i.e., inspecti on, observati on,
inquiry, confi rmati on, recalculati on, reperformance, or analyti cal
procedure).
• Nature of the audit procedures is of most importance in responding
to the assessed risks.
• Timing of an audit procedure refers to when it is performed, or the
period or date to which the audit evidence applies.
• Extent of an audit procedure refers to the quanti ty to be performed,
for example, a sample size or the number of observati ons of a
control acti vity.

The response at asserti on level will determine the nature, ti ming


and extent of audit procedures.
R E S P O N S E AT A S S E RT I O N
LEVEL
As per PSA 330 par. 6, the auditor shall design and perform further
audit procedures whose nature, ti ming, and extent are based on and
are responsive to the assessed risks of material misstatement at the
asserti on level. Designing and performing further audit procedures
whose nature, ti ming, and extent are based on and are responsive to
the assessed risks of material misstatement at the asserti on level
provides a clear linkage between the auditors’ further audit
procedures and the risk assessment.
TEST OF CONTROLS
Audit tests could be done in two ways, concurrently or independently,
based on the scope of such assessed risk:

(a) Test of Controls


(b) Substanti ve Testi ng.

The purpose of both is to allow the auditor to collect suffi cient


appropriate audit evidence to be able to conclude with reasonable
assurance that the fi nancial statements (FS) are free of material
misstatement.
According to PSA 330 (Redraft ed),

The auditor shall design and perform tests of controls to obtain


suffi cient appropriate audit evidence as to the operati ng
eff ecti veness of relevant controls when:

(a) The auditor ’s assessment of risks of material misstatement at the


asserti on level includes an expectati on that the controls are
operati ng eff ecti vely; or
(b) Substanti ve procedures alone cannot provide suffi cient appropriate
audit evidence at the asserti on level.
Moreover, test of controls is done in variety of ways, but taking
up only one acti on could not provide the most appropriate and
suffi cient audit evidence.

As per PSA 330 (Redraft ed) , Further, although some risk


assessment procedures may not have been specifi cally designed as
tests of controls, they may nevertheless provide audit evidence
about the operati ng eff ecti veness of the controls and, consequently,
serve as tests of controls.
For example, the auditor ’s risk assessment procedures may have
included:

• Inquiring about management ’s use of budgets.


• Observing management ’s comparison of monthly budgeted and actual
expenses.
• Inspecti ng reports pertaining to the investi gati on of variances
between budgeted and actual amounts.
• Reperformance or recalculati on
The ti ming and extent of undergoing a test of controls varies
depending on how the control risks are assessed and relies parti ally
on professional judgment with an objecti ve to accumulate the most
suffi cient evidence in order to relay a reasonable conclusion to the
client's asserti on.
And based on the list of control acti viti es presented on the table above,
Abernethy and Chapman tested those controls as follows:

1. Unauthorized shipments
• Personnel such as producti on manager - identi fying supplies or
merchandise orders
• Finance manager - for authorizing such orders and providing
disbursements for payment
• The shipping company where the client is in contract with -
separately inquired
2. Goods properly shipped not billed - same test above could be done
but greater emphasis was put in inquiring the shipping company in
order to understand the reason why the order was not billed.

3. Bills sent but goods not shipped - same procedure as above but
document examinati on is done appropriately checking whether data
draft ed therefor is correctly included.
4. Bills not properly prepared, recorded - same as above but the
fi nance manager and his records was thoroughly inquired and
examine, respecti vely, to understand the reason for such.

5. Periodic summaries not prepared or not prepared correctly -


examinati on of various documents and recalculati ons of values
stated in the summaries will provide a suffi cient evidence in
assessing the presence of risk in such acti vity.
6. Risk of embezzlement, deposit into improper accounts - those who
have access to the company's funds should be inquired individually
to assess the eff ecti veness of performing their specifi c
responsibiliti es.

7. Credit memoranda not recorded - examining the record of the


fi nance manager about its accurateness should be done initi ally to
trace the transacti on involved.
8. Account write-off s not properly recorded - observing how the
enti ty's accountant handles transacti ons aff ecti ng the receivables in
the company's record could be done promptly to assess the risk
indicated therein.

9. Cash receipts lost or stolen - inquiring the immediate higher level


management assigned in monitoring those who are responsible for
securing and maintaining the transacti ons receipt.
10. Cash receipts recorded incorrectly in the accounti ng system -
inquiring the personnel assigned in recording the company's
transacti ons together with examining the documents related.

11. Reconciliati on insuffi cient to detect and deter lost or stolen


receipts and to ensure receipts are properly recorded - in order to
discover of there is an incorrect data included therefore and
evaluate the reasons for such deviati on.
Step 4
Re a s s e s s L e v e l o f C o n t ro l R i s k
The preliminary assessment of control risk determines that there
is a low level of risk of material misstatements as to the internal
controls of Lakeside Company. With this stated, Abernethy and
Chapman will conduct an evaluati on on whether the internal
controls are designed and operati ng as contemplated in the
preliminary assessment of control risk.
Thus, the fi rm would resort to the following for dealing with the
accounts and disclosures in line with the assessment of the level of
control risk.

1. Determine whether the immediate recording of the incoming order is


done by observing how the distributorship sales are made. It is
stated in the company's internal controls that the sales are recorded
on a prenumbered sales invoice .
2. Conduct an inquiry to Mr. Rogers regarding his basis on accepti ng
new customers. The basis will be evaluated if it somehow aff ects the
relati ons of Mr. Rogers to possible customers of the company.

3. Conduct an inquiry to George Miller on how he maintains the


accounts receivable subsidiary ledger. An inquiry to the Controller's
offi ce will also be sent to verify any informati on regarding the
management of the company's receivable accounts.
3. Confi rmati on to the credit customers of the company . By comparing
the balances on the subsidiary ledgers and informati on from such
credit customers, the possible misstatements on the company's
accounts may be addressed.

4. Observati on on how the inventory department handles the shipping


of the of the merchandise.
5. Performing vouching procedures by examining the bill of lading and
the records on the inventory sales journal. A tracing procedures will
also be conducted for the establishment of the completeness of the
inventory sales journal.

6. Recalculati on of the pricings on the sales invoice by matching the


amounts with the updated price list.
7. Re-performance of the reconciliati on of the balances with the bank
statements.

8. Tracing procedures to be control conducted with the cash remitt ance


list and of cash receipts journal.
Step 5
Determining the Nature, Extent
a n d Ti m i n g o f S u b s t a n t i v e Te s t s
• EFFECTIVENESS OF THE INTERNAL CONTROLS remains to be in the
low risk category . Thus, the substanti ve tests will be composed of
lower sample sizes and interim testi ng.

• HANDLING OF THE SUBSIDIARY LEDGER ACCOUNTS OF THE


ACCOUNTS RECEIVABLE is a signifi cant risk thus, a specifi c
substanti ve test will be conducted for such risk .

The procedures of confi rmati on with the company's credit customers


will be conducted to cater for this case.
TH ANK YOU !