Evaluate the matters (e.g.

materiality, risk, relevant accounting standards, audit evidence)

relating to:
i) inventory

Inventory

Value at

Lower of cost and net realisable value

Remember to take future costs away from selling price and NOT add to costs

Questions relating to the physical inventory count:

1. Are all items marked when counted?

2. Does a management carry out test checks?
3. Are stock sheets pre-numbered and prepared in ink?
4. Is a complete set of stock sheets available covering all categories of inventory?

Syllabus D3a)

Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence)
relating to:
iv) changes in accounting policy

Changes in accounting policy

Change comparatives also

Changes in accounting estimates

Just change this year and not comparatives

Syllabus D3a)

Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence)
relating to:
v) taxation (including deferred tax)
The basic idea

Deferred tax is all about matching.

If the accounts show the income, then they must also show any related tax.

This is normally not a problem as both the accounts and taxman often charge amounts in the
same period

The problem occurs when they dont.

We saw how the accounts may show income when the performance occurs, while the taxman
only taxes it (tax base) when the money is received.

In this case, as financial reporters we must make sure we match the income and related expense.

So this was a case of the accounts showing more income then the tax man in the current year
(he will tax it the following year when the money is received).

So we had to bring in more tax ourselves by creating a deferred tax liability

Hopefully you can see then that the opposite also applies:

Principal audit procedures recoverability of deferred tax asset

1. Obtain a copy of current tax computation and deferred tax calculations and agree figures
to any relevant tax correspondence and/or underlying accounting records.
2. Develop an independent expectation of the estimate to corroborate the reasonableness of
managements estimate.
3. Obtain forecasts of profitability and agree that there is sufficient forecast taxable profit
available for the losses to be offset against.
4. Evaluate the assumptions used in the forecast against business understanding.

In particular consider assumptions regarding the growth rate of taxable profit in light of
the underlying detrimental trend in profit before tax.

5. Assess the time period it will take to generate sufficient profits to utilise the tax losses.

If it is going to take a number of years to generate such profits, it may be that the
recognition of the asset should be restricted.

6. Using tax correspondence, verify that there is no restriction on the ability of Company to
carry the losses forward and to use the losses against future taxable profits.
Syllabus D3a)

Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence)
relating to:
vi) segmental reporting

IFRS 8 Determining Reporting segments

Identifying Business and Geographical Segments

An entity must look to its organizational structure and internal reporting system to
identify reportable segments.

In fact, the segmentation used for internal reports for the board should be the same for
external reports

Only if internal segments are not along either product/service or geographical lines is
further disaggregation appropriate.

Primary and Secondary Segments

For most entities one basis of segmentation is primary and the other is secondary (with
considerably less disclosure required for secondary segments)
To decide which is primary, the entity should see whether business or geographical
factors most affect the risk and returns.

This should be helped by looking at entitys internal organisational and management

structure and its system of internal financial reporting to senior management.