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a) List four audit .procedures you would perform on credit notes issued to customers upon return of goods b) Explain why it is important for an auditor...

a) List four audit .procedures you would perform on credit notes issued to customers upon
return of goods
b) Explain why it is important for an auditor to send a bank letter to his client's bank.
c) Summarize any six procedures that are undertaken by an auditor while obtaining
confirmation from a client's bank.

Answers

Kavungya
a) The audit procedures over credit notes would include the following: Select a sample of
credit notes and check as follows:
• With correspondence and other supporting evidence.
• Check approval of duly authorised officials.
• Check entries in the stock records for despatch.
• Check entries in records of goods returned.
• Check calculations and additions.
• Check entries in day book and verify correctly analysed, see that VAT where
chargeable has been properly dealt with.
• Check postings to the debtor's ledger.
• Reconciliations with the client statement.

b) Importance of the bank letter
• The bank letter is important because it is an independent confirmation of a number of
important matters in the client's financial statements. It confirms cash and bank balances
which may well be a significant asset.
• It .provides confirmation of customer's assets held as security, customer's other assets (as
custodian) and contingent liabilities. Auditors also ask the bank to give details of other
banks and branches that the respondent bank is aware have a relationship with the client.
• Confirms the internal control system effectiveness of the banking.

(c) Procedure of getting bank's confirmation
• The banks will require explicit written authority from their client to disclose the
information requested.(consent)
• Draft the letter
• The auditor's request must refer to the client's letter of authority and the data thereof.
Alternatively, it may be countersigned by the client or it may be accompanied by a
specific letter of authority.
• Confirm the banks accounts maintained.
• In case of joint account letter of authority signed by all parties will be necessary.
• Such letters of authority may either give permission to the bank to disclose information
for a specific request or grant permission for an indeterminate length of time.
• The request should reach the branch manager at least two weeks in advance of the client's
year end and-should state both that year end and the previous year end date_
• The auditors should themselves check that the bank answers all the questions and where
the reply is not received direct from the bank, be responsible for establishing the
authenticity of the reply.
• Make conclusions.
Kavungya answered the question on May 14, 2019 at 13:48

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