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[Music] [Applause] I put out a call on my Facebook Channel today um for ideas on companies that we could use so that we could look into a bit more detail substantive testing and designing substantive tests so I've had a request for a whole lot more examples so thanks to one of my students Tim he suggested we look at the athletes foot so the athletes foot is similar to Foot Locker uh and a number of other Footwear retailers so they certainly sell running shoes I'm going to use the athletes for to do some examples today on some substantive tests so let's start with something really basic like how we would test sales so if I think about sales I know that I need to think about my transaction assertions so I'm going to start by listing those assertions first so ing to ASA 315 paragraph a 124 our assertions relating to sales will be a current making sure the Sals are all really real accuracy SES recorded at the correct amount completeness all sales are recorded classification all of our sales are recorded as the correct Revenue items and cut off transactions are recorded in the correct Financial period so let's get into looking at how we can Des write a procedure for each of these and I'm doing this using my list of nine procedures so I'll write these at the bottom here so I've got all of my procedures I've got vouching tracing recalculating analytical procedures inspecting documents and assets inquiries confirmation 1 2 3 four five six 7 eight reperformance oops that one doesn't quite fit in there and computerist audit techniques all right so with occurrence I know that occurrence is always going to be a vouching procedure so I've got four rules for Designing my substantive tests number one make sure that uh you're using the correct terminology number two make sure you use the right client information or names for documentation number three be specific so that somebody can follow what you're doing and number four make sure that you match it up to the correct substantive procedure so our curent is usually a vouching test I'm going to start by saying okay we're going to vouch now I don't really know too much about the athletes fo uh internal policies and procedures but I'm going to make some general ideas here so I'm going to vouch sales journal entries because we always start at the end journal entries and I've going to vouch it back to something else and it's not sufficient to Simply say supporting documents ation so if uh I'm looking at my sales journal entries I want to vouch them back to maybe a copy of the sales receipt this is a retail organization all right so there'll be some form of sales receipt there's not going to be any delivery documentation uh so we want to look at the sales receipt or potentially even a credit card or EFT s all right so the the cash register would have its own receipt and then perhaps proof of a credit card or electronic funds transfer so I can't go back to orders or anything like that because customers don't make orders but sales journal entries back to that cash receipt um because there's no deliveries so we can't look at any shipping documentations let's look at accuracy now I could use that same sample there but I will need to recalculate a sample of sales of of sales reconciling prices from the receipt spelling issue receipt to some sort of Master price list because I'm going to assume here that there is some sort of barcode scanning system so you scan a barcode of a shoe it gives you the price all right so reconciling prices from RE receipt to the master price list now let's look at completeness completeness is going to be using our uh tracing assertion sorry our tracing procedure there so I want to trace a sample of sales from cash register records to the journal entries now classification is going to be about the correct debits and credits so there what I'm going to do is um select a sample of journal entries and here to make sure they are going to the right debit and credit what I'm going to do is I'm going to match those journal entries I'm going to check the account used are correct based on the company's chart of accounts on the athlete foot chart of accounts so a chart of accounts is a list of all the account codes used within the software so an mob for example all assets start with 100 or liability start with 200 so we need to make sure that we're debiting the correct cash or credit card account uh code and the correct Revenue code and then same for the inventory right because remember the journal entries are going to be debit cash credit sales or revenue and then also at the same time we're going to have debit cost of goods sold credit our inventory right so we need to think about both of those now with my cut off cut off is about making sure that the transactions around the end of the financial year are all recorded in the correct period this shouldn't be too much of a problem here because when we sell a good we send it to the customer on the same day but we're going to probably block select sales 2 days prior and after the end of the financial year ensure goods were taken by customers by the year end and that's not likely to be a big problem where this is likely to come into some issue is with things like lwi where you might have some Goods received or partially paid for for uh and those can't be recognized of Revenue they need to be unearned Revenue so as you can see here what we've done is I've gone through each of the assertions relating to sales and I've used my procedures to calculate um some approximate uh to determine some substantive tests that we can use now remember I can use more of these I've just got some here um if I was also worried about occurrence another test I could do would be to compare inventory movement to sales records all right and that would be using my basic uh management accounting information so opening inventory plus inventory purchased um less inventory sold gives me closing inventory so if after got the opening the purchases and the closing then I can actually work backwards to figure out what the sales amount should be in terms of infantry and then I can actually compare that to what we see in our revenue account so there's our summary for sales auditing sales substantively at the athletes foot uh keep an eye out for more videos using the athlete where we might look at purchases and inventory [Music]