Appendix A: Primary Substantive Procedures (PSP) by Account [S11_Exhibit 1]
As we are designing our audit procedures, consider the fact that we perform Primary Substantive Procedures (‘PSP’) on all audit engagements for all significant accounts, regardless of the combined risk assessments.
The PSPs are applicable to all industries and financial reporting frameworks and are based on a standardized set of significant accounts, which includes a standard naming convention and the global working paper index (for example, C: Cash,
including bank balances). Each PSP includes a title that describes the objective of the procedure. In addition, the most relevant assertions have been indicated for each of the respective procedures.
PSPs describe the nature of the procedures to be performed. As part of the
development of our audit procedures, we also include the timing and extent of the PSPs. However, the timing and extent of the primary procedures performed will be affected by our combined risk assessments. Some of the primary procedures may be performed as tests of controls as well as substantive procedures (known as dual-purpose tests).
PSPs on their own will not necessarily provide all of the audit evidence we need on a particular assertion for a significant account. Therefore, our audit procedures also include other substantive procedures we believe are necessary to appropriately respond to our combined risk assessment. In addition, when developing our audit procedures we consider the applicability of any Illustrative Sector Specific Substantive Procedures that are available.
* Balance Sheet and Profit Loss Legend Balance Sheet (B/S) E = Existence V = Valuation C = Completeness
R&O = Rights & Obligations P&D = Presentation and Disclosure
Profit Loss (P/L) O = Occurrence M = Measurement C = Completeness
P&D = Presentation and Disclosure Index Significant Account and Primary Substantive Procedures Cash, including Bank Balances Bank confirmations: RELEVANT ASSERTIONS* B/S P/L E V C R&O P&D O M C P&D X X X X X C 1 Obtain a complete list of bank accounts (debit and credit balances) as well as related loan and similar contracts. Obtain, at a minimum, bank confirmations for all major depository and disbursement accounts, and bank accounts closed during the year and other accounts as appropriate, based on the nature of the accounts (e.g., we may decide not to confirm some imprest bank accounts, pass-through bank accounts, or non-operating bank accounts with limited activity) to confirm the relationship with the bank including contingencies, liens, pledges, restrictions on the client’s assets, guaranteed amounts etc. Document in the workpapers the rationale for the selection of bank accounts for confirmation. 2 Bank reconciliations: Examine the client’s bank reconciliation as of year-end, including cash-in-transit accounts (e.g., in subledgers), to verify the proper reconciliation of bank statements and general ledger accounts. 3 Cash cutoff: Test cutoff of cash receipts and cash disbursements for transfers between different bank accounts at the balance sheet date. 4 Cash valuation: X X X X X X Test appropriate valuation of cash and cash equivalents (including overdrafts) in foreign currencies. RELEVANT ASSERTIONS* B/S P/L Index Significant Account and Primary Substantive Procedures D 1 Marketable Securities E V C R&O P&D O M C P&D X Verification of existence and ownership: X Verify the existence and ownership of recorded securities through confirmation or examination of evidence of ownership (e.g., stock certificates, bank statements, broker statements). 2 Detailed confirmation review: X X X X Review confirmation replies for evidence of the existence of marketable securities, and of liens, pledges or other security interests in marketable securities. 3 Market valuation: Inspect market quotations or other evidence of current value of marketable securities, including those in foreign currencies. 4 Valuation in accordance with accounting X policies: Test that marketable securities are carried in accordance with the client's accounting policies or applicable financial reporting framework. X X X RELEVANT ASSERTIONS* B/S P/L Index Significant Account and Primary E V C R&O P&D O M C P&D Substantive Procedures E Accounts Receivable trade 1 Agreement of subledger with general ledger: Agree receivables subledger to the general ledger control account and investigate large and unusual reconciling items. 2 Confirmations and subsequent cash receipts: Verify the existence of accounts receivable trade through confirmation, examination of subsequent cash receipts, or other alternative procedures, as appropriate. Consider using the audit risk tables or EY MicroSTART to determine the extent of the sample or document the rationale for the sample selection in the workpapers. 3 Rollforward procedures: If accounts are verified at an interim date, review the ‘rollforward’ of activity from the interim date to the balance sheet date in a manner responsive to our combined risk assessment and compare level of activity with prior periods. Investigate unusual items; consider confirming (at the balance sheet date) significant new accounts and those accounts with significant increases or decreases between the interim date and the balance sheet date. 4 Accounts receivable cutoff: X X X X X X X X X X X Perform analytical procedures to identify peaks in sales volume in the last few days or weeks of the year and test cutoff by inspecting sales register, billings, shipping documents and other supporting documents before and after the year end date. Where we perform substantive procedures at an interim date, we perform cutoff testing at that date also. 5 Allowance for doubtful accounts: X X Evaluate the adequacy of the allowance for doubtful accounts. 6 Other adjustments to accounts receivable: Evaluate the adequacy of other adjustments to accounts receivables, such as rebates, credit memos, discounts. 7 Accounts receivable in foreign currencies: Test appropriate valuation of accounts receivables in foreign currencies. 8 Credit balances and unusual items: Inquire about or review the list of credit balances and investigate large items. X X X X X X RELEVANT ASSERTIONS* B/S P/L Index Significant Account and Primary Substantive Procedures F Inventories 1 Observation of physical inventories: Observe the taking of physical inventories. Verify that client count instructions are followed and that inventories owned by others are separated. Perform appropriate test counts and trace test counts to the inventory compilation. 2 Confirmation of inventories held by others: If significant, confirm inventories held by others at the physical inventory date and trace confirmed quantities to the inventory compilation; consider observing these physical inventories as well. E V C R&O P&D O M C P&D X X X X X X X