Audit Foundations 1b:

Purchases -
Substantive
Facilitator Guide

Audit Foundations 1b: Purchases - Substantive / Facilitator Guide | 1

This document provides instructions to Facilitators of the Audit
Foundations 1b: Purchases - Substantive module. It informs
Facilitators how to prepare, what to prepare, and what to say and do
to facilitate the module effectively. Facilitators should also read
through the companion Course Administration Guide, which outlines
further information about the course and what requires advance
preparation.
This document is formatted for A4 paper.
Table of Contents
About this Module............................................................................................................................... 4
Module Overview.............................................................................................................................. 4
Module Outline................................................................................................................................. 5

Preparation Notes for Facilitators...................................................................................................... 6

Advance Preparation for Facilitators................................................................................................ 6
Facilitator Resources........................................................................................................................ 7
Participant Materials......................................................................................................................... 7
Module Dependencies...................................................................................................................... 7

Facilitation Instructions...................................................................................................................... 8
Topic 1: Introduction (20 min.).......................................................................................................... 8
Introduction (5 min.)........................................................................................................................ 8
Relevant Assertions Exercise (15 min.)........................................................................................11
Topic 2: Liabilities (135 min.).......................................................................................................... 14
Trade Payables vs. Accrued Expenses (11 min.)..........................................................................14
Trade Payables Sub-Ledger Reconciliation (7 min.).....................................................................18
Search for Unrecorded Liabilities (12 min.)...................................................................................21
Exercise Search for Unrecorded Liabilities (50 min.).................................................................27
Debrief - Search for Unrecorded Liabilities (10 min.)....................................................................29
Exercise Accrued Expenses (12 min.).......................................................................................31
Review eAudIT Procedure (10 min.)............................................................................................. 33
Exercise - Excel Tools/Techniques (11 min.).................................................................................35
Debrief - Excel Tools/Techniques (10 min.)...................................................................................36
CAATs and Excel (2 min.)............................................................................................................. 42
Topic 3: Wrap Up (15 min.)............................................................................................................. 44
Learning Journal (15 min.)............................................................................................................ 45

Appendix A: Excel Solution.............................................................................................................. 46

Audit Foundations 1b: Purchases - Substantive / Facilitator Guide |

 Appendix A: Excel Solution

About this Module

Module Overview
This module begins with an overview of the typical accounts associated with purchases, particularly
those for which participants may be asked to perform substantive audit procedures. Those accounts
include Cost of Sales, Selling and Distribution Expense, Administrative Expense, Trade Payables, and
Accrued Expenses, as they relate to the United Carbonations (UC) Financial Statements. The
Facilitator then leads a discussion on Liabilities, particularly Trade Payable and Accrued Expenses as
they relate to UC. The Facilitator explains the similarities and differences between these two liability
accounts as well as types of Accrued Expenses.
The Facilitator then introduces participants to the three substantive audit procedures that will be
discussed for the remainder of the module, including the relevant assertions addressed by each of the
procedures. The three procedures include: Trade Payables Sub-Ledger Reconciliation, Search for
Unrecorded Liabilities, and Identification and Testing of Accrued Expenses.
Participants will then spend time reviewing the audit procedures documented in eAudIT for the Trade
Payables Sub-ledger Reconciliation and comparing these procedures to those performed for the
Management Review of the Purchases Sub-ledger to General Ledger Reconciliation control during
the Purchases-Controls module. This leads into a discussion on dual purpose tests and the audit
evidence obtained from them.
The Facilitator then leads a discussion on how to perform a Search for Unrecorded Liabilities. The
Facilitator will walk the class through one example on how to perform a Search for Unrecorded
Liabilities before participants complete their next exercise.
In the next exercise, participants will assist the In-Charge Auditor (ICA) to perform a Search for
Unrecorded Liabilities for UC. Participants will document the results of their audit procedures in an
audit documentation template as obtained in eAudIT. In the debrief of this exercise, a participant will
walk the class through the results of his or her audit procedures using his or her own completed audit
documentation.
Next, participants are asked to perform an exercise in pairs to determine what documentation they
would need and what questions they might ask the client to perform a test of details for Accrued
Expenses. After the debrief of this exercise, participants are asked to identify other audit evidence
obtained for Accrued Expenses from audit procedures previously performed (i.e. Cumulative audit
evidence).
Last, the ICA will ask participants to review the Accrued Expense detail listing and identify all costs
associated with Utility Expense so that further audit procedures may be performed. This leads
participants into an Excel tools/techniques exercise in which they will work in their table groups and
brainstorm various tools/techniques they can use to improve the usability of the data provided to them
by the client. For the debrief of this exercise, the Facilitator and Co-Facilitator will demonstrate various
Excel tools/techniques to participants. The Facilitator will close this topic with a discussion on using
Computer Audit Assisted Techniques (CAATs) in Excel.
The module will close with a 15 minute Learning Journal activity.
 Appendix A: Excel Solution

Module Outline
# Topic Duration Learning Objectives Technical
Resources
1. Introduction 20 min. Identify the relevant assertions for the
significant accounts associated with
purchases.

2. Liabilities 135 min. Explain the difference between the purpose

of a test of operating effectiveness and the
purpose of a test of details, when both are
accomplished concurrently as a dual
purpose test.
For the Search for Unrecorded Liabilities
procedure, explain the objective of the
procedure and the steps to perform it and
document it.
Use the k-button in eAudIT to add a
procedure.
Enter an audit misstatement into the Tracker. Appendix A:
Excel Solution
Describe the objective of and how to
complete the Identification and Testing of
Accrued Expenses procedure including how
it is documented.
Explain the importance of thinking about
information you require to complete a
procedure and being clear on why you
require it.
Describe the use of Excel as a CAAT.
Apply Excel tips while performing an audit
procedure.

3. Wrap Up 15 min. List the key messages you have learned.

Describe how you will apply this learning on-
the-job.
Describe your specific development areas
and ideas for on-the-job development
activities for these topics.

Total Duration 170 min.

 Appendix A: Excel Solution

Preparation Notes for Facilitators

Please read the Course Administration Guide which contains important information about this
course.
The Co-Facilitator will be required to demonstrate Excel functionality while the lead Facilitator
guides the class discussion on Excel Tools.

Advance Preparation for Facilitators

The Co-Facilitator will be required to demonstrate eAudIT functionality while the lead Facilitator
guides the class through the following eAudIT activities:

Discussion Point United Carbonations Activity Facilitator Guide

Engagement build Page Number
Mapping to Audit United Carbonations 2.3.4 Mapping to Audit 9
Programs Build 2 Program

The Co-Facilitator will demonstrate on screen while the lead Facilitator guides the class discussion
on the following:

Discussion Point Facilitator

Guide
Page
Number
Excel Tools 36

Practice using Excel functionality, particularly the following tools/techniques:

- Converting Text to Columns
- Text Functions
- Conditional Formatting
- Auto Filter
Create two flipcharts for the Liabilities & Other Expenses: Relevant Assertions activity, similar to
the diagrams on page 11.
 Appendix A: Excel Solution

Facilitator Resources
In addition to the specific resources referred to throughout the guide, you will need to be familiar with
the following:
KAM Topic 6.0000: Analytical procedures and methods used to perform them
KAM Topic 7.0000: Audit documentation
KAM Topic 9.0000: Audit evidence
KAM Topic 15.0000: Computer assisted audit techniques (CAATs)
KAM Topic 55.0000: Substantive testing
KAM Topic 54.0000: Tests of details Substantive sampling
IAS 17: Leases

Participant Materials
The following materials are to be made available electronically:
United Carbonations Build 2
03_AF1b_PurchSub_PM_00_PSL
04_AF1b_PurchSub_PM_01_ICA E-mail
05_AF1b_PurchSub_EX_01_Accrued Expenses
06_AF1b_PurchSub_S_01_Search
06_AF1b_PurchSub_S_02_Accrued Expenses
09_AF1b_PurchSub_PSR_01_Excel Tools

The following materials are to be printed for participants:

Invoices for Search (Included in 04_AF1b_PurchSub_PM_01_ICA E-mail) one set per
participant.

Module Dependencies
The Audit Foundations modules on which this module depends are:
Level 1a:
Property, Plant, & Equipment
Human Resources
Treasury
Level 1b:
Purchases - Controls
 Appendix A: Excel Solution

Facilitation Instructions

Topic 1: Introduction (20 min.)

Introduction (5 min.)

SAY
Like many significant accounts discussed in previous modules, you are likely to perform substantive
audit procedures over those significant accounts associated with purchases. As such, the focus of this
module will be how to perform and document audit procedure over those significant accounts you are
likely to audit, or Trade Payables and Accrued Expenses.
As a note, the substantive audit procedures you will perform over Trade Payables and Accrued
Expenses will be documented in eAudIT at the Purchases Audit Program.

SAY
Shortly, we will discuss the significant accounts, relevant assertions, and risks associated with the
Purchases Audit Program. But before we do, lets gain a better understanding as to why this module is
important to you as an Audit Assistant.
 Appendix A: Excel Solution

SAY
Above all, you will perform and document substantive procedures in the Purchases Audit Program
and in this module, we will teach you how!
Second, when we audit liabilities, we are more concerned about what was not recorded than what
was recorded as of period end. The substantive audit procedures we perform to detect missing
liabilities are those most often performed by an Audit Assistant. In other words, you are the audit team
member most likely to identify those liabilities which the client has not recorded as of period end.
Identifying such misstatements is crucial to the audit process.
Also, in this module, we will discuss the use of Excel as a Computer Assisted Audit Technique (CAAT)
as well as some Excel tips and tricks that may assist you when performing substantive audit
procedures.

This slide has 3 builds.

ASK
To begin, can someone tell me a significant account in United Carbonations, or UCs, Purchases
Audit Program?
Expected responses include:
Trade (or Accounts) Payables
Accrued Expenses
Cost of Sales
Selling and Distribution Expense
Administrative Expense
Facilitator Note: Continue to solicit one response from each table until all five of UCs
significant accounts are mentioned so that many in the classroom may participate.
SAY
Build 1
Great job! UCs significant accounts which have been mapped to the Purchases Audit Program
include the liability accounts Trade Payables and Accrued Expenses and the expense accounts Cost
of Sales and Other Expenses or the significant accounts most directly associated with the purchase
of goods and services.
Also, understand that while it is common for engagement teams to associate these accounts with the
purchases process and audit program, significant accounts mapping will vary from engagement-to-
engagement.
Build 2
Facilitator Note: Request that the Co-Facilitator navigate to the following eAudIT activities
for the class. Ask participants to navigate to these activities along with the Co-Facilitator.
 Appendix A: Excel Solution

In United Carbonations Build 2, please navigate to Activity 2.3.4 Mapping to Audit Program. When you
are working on client engagements you can double check which significant accounts your
engagement team has linked to a particular audit program by reviewing this activity.
DO
Allow participants a moment to navigate to Activity 2.3.4 Mapping to Audit Program.
Build 3
SAY
Now, please navigate to the purchases lead sheet which is attached to the Purchases Audit Program
at Activity 3.2.210.3.0010 Purchases lead sheet. As you know, lead sheets provide a link between our
audit work, the trial balance and the financial statements.
As discussed, we will specifically discuss the substantive audit procedures which address the relevant
assertions for Trade Payables and Accrued Expenses. The substantive audit procedures we may
perform over Costs of Sales are discussed in the Sales-Substantive module.
Please note that sometimes our clients will map a significant account to a financial statement caption
for purposes of financial reporting that the audit team will map differently for purposes of the audit. For
example, you will notice that the significant accounts Depreciation and Personnel Expense have been
mapped by our client to Selling and Distribution Expense and Administrative Expense, respectively.
However, as these significant accounts are more directly associated with the Property Plant &
Equipment and Human Resources Audit Programs, the audit team chose not to map these accounts
to the Purchases Audit Program within UCs eAudIT file. Also, as these expense accounts were
discussed in earlier modules, they will not be a focus in this module.
ASK
What questions do you have at this time about the purchases lead sheet?
SAY
Keep this lead sheet on hand as you will refer to it again during this module.
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Relevant Assertions Exercise (15 min.)

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SAY
Before we begin to perform audit procedures over these significant accounts, lets first become
familiar with the relevant assertions for Liabilities and Other Expenses.
Please take one minute to write onto a piece of paper CEAVOP. Next to each relevant assertion,
write whether you think it is or is not a relevant assertion for Liabilities and Other Expenses.
DO
Allow participants a moment to do this. Meanwhile, and if not already done during Facilitator prep,
create two flipcharts similar to the diagrams below.

Other Expenses

C-

E-

A-

V-

O-

P-

Trade Payables &

Accrued Expenses
C-

E-

A-

V-

O-

P-
 Appendix A: Excel Solution

SAY
When you have finished, I would like each of you to come to the front of the room and on this flipchart,
place a checkmark next to those assertions you believe are relevant to Trade Payables/Accrued
Expenses and Other Expenses.
DO
Allow participants another moment to document their answers onto the flipcharts.
SAY
The majority of the class has selected C as a relevant assertion for these significant accounts.
ASK
Can someone tell me why completeness may be a relevant assertion for both the liabilities and the
related expenses?
Answer: Because there is a risk that management may not have recorded all its liabilities and
the related expenses as of period end such that liabilities and expenses are materially
misstated.
SAY
Good work. Completeness is likely to be a relevant assertion for these significant accounts as we are
concerned with what is missing as of period end.
DO
Circle the C on the Trade Payables & Accrued Expenses and Other Expenses flipcharts.
ASK
What about the existence assertion? Why may this be a relevant assertion for Trade Payables,
Accrued Expenses and Other Expenses?
Answer: Because the client may have incorrectly accounted for liabilities as of the end of the
reporting period. In other words, the liabilities recorded as of the end of the reporting period,
or December 31, 20X3, may not exist as of that date.
ASK
Correct! Does anyone have something to add?
DO
Circle the E on the Trade Payables & Accrued Expenses and Other Expenses flipcharts.
ASK
What about the accuracy assertion why is this also a relevant assertion?
Answer: The Accuracy assertion is relevant because liabilities and the related expenses may
have been classified and allocated to the inappropriate account, resulting in a material
misstatement.
DO
Circle A on the Trade Payables & Accrued Expenses and Other Expenses flipcharts.
ASK
Lets look at the remaining assertions. Why is the Valuation assertion not considered a relevant
assertion for Accrued Expenses?
Answer: Valuation is not a relevant assertion as there is little to no subjectivity or estimation
uncertainty required to arrive at an Accrued Expense. As such, Accrued Expenses are,
generally, not considered to be estimates but rather, a calculation for the purpose of our audit.
 Appendix A: Excel Solution

ASK
Would anyone like to argue that O or P are relevant assertions for Trade Payables and Accrued
Expenses?
Facilitator Note: Participants may suggest that Rights and Obligation or O and
Presentation & Disclosure or P are relevant assertions for these significant accounts.
Similar to our discussion over the V assertion, O is generally not a relevant assertion for
these significant accounts as there is little uncertainty that these obligations actually exist.
Generally, for liabilities arising in the normal course of business, we will not identify P as a
relevant assertion for the significant accounts in the Purchases Audit Program as there are no
specific audit procedures to be performed over the financial statement presentation of/related
disclosures for these significant accounts. Also, any procedures that might be performed over
related disclosures will be sufficiently addressed in eAudIT Activity 4.6.3 Financial Reporting
Process, which will be introduced to participants in a later module.
SAY
Build 1
You all did a great job in determining that the relevant assertions for Trade Payables, Accrued
Expenses and Other Expenses are completeness, existence and accuracy.
ASK
What relevant assertions address the risk of understatement?
Answer: Completeness and Accuracy.
ASK
What questions do you have on relevant assertions for these significant accounts?
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Topic 2: Liabilities (135 min.)

SAY
We will now discuss audit procedures we may perform to obtain sufficient and appropriate audit
evidence of Trade Payables and Accrued Expenses.
Before we go further, lets first confirm our understanding as to how Trade Payables differ from
Accrued Expenses.
You will not need eAudIT at this time, so please place your laptop lids down.

Trade Payables vs. Accrued Expenses (11 min.)

SAY
While Trade Payables and Accrued Expenses share similarities, there is an important difference
between these two significant accounts.
Trade Payables arise when goods or services are supplied to an entity for which a vendor invoice is
subsequently received and for which no payment has been made as of the end of the reporting
period.
Accrued Expenses are similar to Trade Payables in that they relate to amounts due for goods or
services already supplied to an entity.
They differ not because of the nature of the transaction but because, as of the end of the reporting
period (or December 31, 20X3 for UC), the amounts involved are not known. This is primarily because
the vendor invoice for the goods or services has not yet been received.
Lets look at an example to better illustrate the difference between these two liability accounts.
 Appendix A: Excel Solution

SAY
Lets assume that your friend buys you a concert ticket for your favorite band. You have promised to
reimburse him for the cost. After he buys the ticket, your friend forwards to you the e-mail confirmation
which includes your electronic ticket and the price of your ticket. In other words, your friend has
provided you an invoice for the cost of the concert ticket.
You both attend the concert in late December.
It is now January and you have not yet paid your friend. If you were a company with a 31 December
year-end, you could record a Trade Payable between you and your friend as the invoice (the email
with price details) has been received.
Instead lets now assume that it is late December and your friend asks if you would like to attend a
concert with him later today. He says that he has already paid for the tickets and will sort out what you
owe him at a later date.
You both attend the concert that same evening.
It is now January and your friend has not yet e-mailed or mentioned the cost of the concert ticket to
you, but you know, that you need to reimburse your friend money. If you were a company, you would
be unable to record a Trade Payable as you do not have the invoice, or the email with price details,
and instead you would record an accrued expense for the price of the ticket in December when the
services were rendered regardless of when the invoice is received.
ASK
How would you determine the amount of your accrued expense as of period end?
Expected responses include:
Research ticket prices online.
Consider the price of a recent concert ticket you purchased for a comparable concert/venue.
SAY
Exactly right! While some research is required to arrive at your accrued expense, the estimation
uncertainly is little to none. Although your friend has not yet provided you an invoice for the ticket, in
all likelihood you have a very good idea of what you owe him as of period end.
ASK
What questions do you have about the difference between an Accrued Expense and a Trade
Payable?
SAY
Now that you have a better understanding as to the difference between these two types of liability
accounts, lets discuss Accrued Expenses in greater detail.
 Appendix A: Excel Solution

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SAY
As discussed, Accrued Expenses are expenses that were incurred as of the end of the reporting
period but were not entered into Trade Payables because an invoice has not yet been received.
Amounts for accrued expenses are calculated based on information available. For example, the
invoice for electricity usage in November might be an appropriate basis to determine the accrual for
the December usage.
ASK
Considering the list of Other Expenses we arrived at earlier, what types of Accrued Expenses would
you expect UC to have recorded as of December 31, 20X3?
Expected responses include:
Accrued utilities expense
Accrued rental expense
Accrued repairs and maintenance expense
Accrued office and administrative expense
Accrued insurance expense
Accrued property tax expense
Goods received not invoiced
SAY
Build 1
Great job! Every time an accrual is recorded, so is its corresponding expense; thus, if we have an
understanding of UCs expenses, we inherently have gained an understanding of the types of Accrued
Expenses we would expect to see recorded in UCs financial statements as of period end.
Also, note the account goods received not invoiced. This is an accrued expense account that
captures all goods that the entity has received, so a goods received note has been recorded, but the
corresponding invoice has not yet been received.
ASK
Think back to our previous module, Purchases-Controls. Does anyone remember why the receipt of
an invoice is important to the UC purchases process?
Answer: Once the invoice is received, the automated 3-way match is performed in SAP. If key
information in all three documents match, the invoice is approved for payment.
SAY
Correct! The invoice is required for the automated 3-way match. When goods are received before the
invoice, which is often the case, companies like UC will record the receipt of goods in inventory and a
corresponding accrual in the account Goods Received Not Invoiced. In simplest terms, inventory is
received and an accrual is established.
 Appendix A: Excel Solution

DO
Write the following entry onto a flipchart:
Dr. Inventory
Cr: Accrued Expenses for Goods Received Not Invoiced
SAY
Once the invoice is received, the account is reversed and the client records a new liability in Trade
Payables.
DO
Write the following onto a flipchart:
Dr: Accrued Expenses for Goods Received Not Invoiced
Cr: Trade Payables
As the invoice has been received, the Trade Payable can be recorded and the Accrued Expense is no
longer needed, therefore a debit is recorded to clear this account. The double entry that we have
discussed so far impacts the Statement of Financial Position. The expense in the Statement of Profit
or Loss and Other Comprehensive Income is recorded when the inventory, or product, is sold to a
customer. At this point, the client will record the expense in Cost of Sales and remove the item from
their inventory.
DO
Write the following onto a flipchart:
Dr. Cost of Sales
Cr. Inventory
ASK
What questions do you have on how Goods Received Not Invoiced relate to Accrued Expenses?
SAY
Keeping a record of Goods Received Not Invoiced is important for companies like UC because it
allows them to track goods received for which vendor invoices remain outstanding.
However, for purposes of this case study, UC has only one catch-all Accrued Expense account in
which all accruals, including Goods Received Not Invoiced, are recorded as of period end.
ASK
What other questions do you have on Accrued Expenses at this time?
Lets now discuss those substantive audit procedures we may perform to obtain sufficient and
appropriate audit evidence of the CEA of Trade Payables and Accrued Expenses as of December 31,
20X3.
 Appendix A: Excel Solution

SAY
This slide lists the three substantive audit procedures you will perform to obtain evidence of the CEA
of UCs Trade Payables and Accrued Expenses as of December 31, 20X3. We will discuss each of
these procedures in detail for the remainder of the module.
The first procedure that we will discuss is the Trade Payables Sub-ledger Reconciliation. This
substantive audit procedure provides audit evidence as to the CEA of Trade Payables.
The second audit procedure we will discuss is the Search for Unrecorded Liabilities, which provides
audit evidence of the CA of Trade Payables and Accrued Expenses.
Last, we will discuss Identification and Testing of Accrued Expenses procedure. This substantive audit
procedure provides audit evidence of the CEA of Accrued Expenses.
You will obtain a better understanding of how each of these audit procedures provide audit evidence
for these relevant assertions as we progress through our discussion of each procedure in greater
detail.
First, lets discuss the Trade Payables Sub-ledger Reconciliation substantive audit procedure.

Trade Payables Sub-Ledger Reconciliation (7 min.)

SAY
As discussed, the Trade Payable Sub-ledger Reconciliation is one substantive audit procedure we
may perform to obtain evidence of the CEA of Trade Payables.
ASK
When else did we see the Trade Payables Sub-ledger Reconciliation?
Answer: In the previous module Purchases-Controls when we completed the tests of
operating effectiveness that Samantha Mark had started. One of the tests of operating
effectiveness required that we obtain and perform procedures over the October and
December Trade Payables Sub-ledger Reconciliations.
SAY
Great answer! Samantha Mark obtained the December Trade Payables Sub-ledger when she
performed the tests of operating effectiveness (TOE) over the Management Review of Purchases
Sub-ledger to General Ledger Reconciliation control. If you recall, she documented the results of her
procedures at Activity 3.1.20.2.4 Management review of purchases sub-ledger to general ledger
reconciliation.
 Appendix A: Excel Solution

SAY
At this time, everyone pair up with someone at your table. I would like one member of the pair to open
the TOE procedures at Activity 3.1.20.2.4 Management review of purchases sub-ledger to general
ledger reconciliation. The other member of the pair can open the substantive audit procedure at
Activity 3.2.210.4.1 Trade payables sub-ledger reconciliation. Together, determine how the test of
operating effectiveness differs from the substantive audit procedures to be performed over the Trade
Payables reconciliation. Also, determine what additional procedures we need to complete for
purposes of our substantive audit procedure, Trade Payables Sub-ledger Reconciliation.
Take five minutes to review eAudIT and to answer these questions.
DO
Allow participants five minutes to perform this exercise.
ASK
What did you notice about the TOE procedures as compared to the substantive audit procedures?
Answer: They are quite similar. However, slight differences are as follows:
TOE procedures: Obtain evidence of review, determine if the review was completed in a
reasonable timeframe and confirm if proper segregation of duties are in place.
Substantive audit procedures: Select reconciling items and vouch to supporting
documentation.
SAY
The two procedures do share similarities, but there are slight differences. For purposes of our TOE,
we pay more attention to managements review of the document. In other words, we want to know
that the management review control is operating effectively.
For purposes of our substantive audit procedures, we pay more attention to the accuracy of the
information contained in that report, including reconciling differences. In other words, we want to know
that the accounting is correct and accurate for purposes of financial reporting.
ASK
Now that you are familiar with the two procedures, is there anything else you need do to complete the
substantive audit procedure, Trade Payables Sub-ledger Reconciliation?
Answer: Nothing. For UCs audit, as there are no reconciling items in the December 20X4
reconciliation requiring follow-up, it appears Samantha performed all necessary substantive
audit procedures over the reconciliation when she performed the TOE for the Management
review of the purchases sub-ledger to general ledger reconciliation control.
Facilitator Note: If participants answer this correctly (i.e. We need to document the results of
our substantive audit procedures at Activity 3.2.210.4.1 Trade payables sub-ledger
reconciliation) simply affirm their answer and skip the next SAY.
 Appendix A: Excel Solution

SAY
That is partially correct. Samantha did complete all necessary substantive audit procedures when she
performed her TOE. However, she did not document in eAudIT at Activity 3.2.210.4.1 Trade payables
sub-ledger reconciliation that these substantive audit procedures were performed and the results
obtained.
For dual purpose tests, such as this, we conclude on the results of our procedures at both the
respective TOE and substantive testing eAudIT activities, even though all control and substantive
audit procedures were performed over the reconciliation at the same time. In other words, we
conclude on the effectiveness of the control at Activity 3.1.20.2.4 Management review of purchases
sub-ledger to general ledger reconciliation and that the anticipated audit evidence was obtained/no
misstatements were identified as a result of testwork at Activity 3.2.210.4.1 Trade payables sub-
ledger reconciliation.
At this time, please navigate to Activity 3.2.210.4.1 Trade payables sub-ledger reconciliation and
conclude on the results of this substantive audit procedure. Also, make a note to inform
reviewers/readers that the procedures performed to arrive at these conclusions were obtained during
controls testing and documented at Activity 3.1.20.2.4 Management review of purchases sub-ledger
to general ledger reconciliation.
DO
Allow participants two minutes to conclude on the substantive audit procedure at Activity 3.2.210.4.1
Trade payables sub-ledger reconciliation.
ASK
What questions do you have at this time?
SAY
As we said earlier, this substantive audit procedure provides evidence for the CEA of Trade Payables.
Your In-Charge Auditor, or ICA, and/or Manager will determine if performing substantive audit
procedures over this reconciliation will provide sufficient and appropriate evidence over the CEA of
Trade Payables in combination with all the other audit procedures we perform to provide cumulative
audit evidence over trade payables. If so, no further testwork is deemed necessary. If not,
engagement teams will perform additional substantive audit procedures to obtain sufficient and
appropriate audit evidence to address these relevant assertions.

SAY
A Search for Unrecorded Liabilities is a common substantive procedure that engagement teams may
perform to obtain this additional, necessary audit evidence for Trade Payables. Additionally,
engagement teams will often perform a Search for Unrecorded Liabilities if they do not test controls
or, if controls were tested and determined to be ineffective.
As mentioned earlier, this audit procedure also provides evidence for the C and A of Accrued
Expenses.
As an Audit Assistant on the UC engagement team, lets assume that Tony, your ICA, has asked you
to perform a Search for Unrecorded Liabilities for UC. You inform Tony that you have never performed
a Search for Unrecorded Liabilities and may need some help to get started.
 Appendix A: Excel Solution

As a result, Tony decides it will be most helpful to walk you through the steps you may perform to
conduct a Search for Unrecorded Liabilities.

Search for Unrecorded Liabilities (12 min.)

SAY
The first step in this procedure is to obtain the details of invoices that were received, recorded or paid
after period end.

This slide has 3 builds.

To obtain evidence of invoices received, we may choose to obtain an Open Invoice Listing
which lists all vendor invoices received by the client but not yet recorded as a liability. We
inspect the Open Invoice Listing for indication of material liabilities that the client is
expected to have recorded as of the end of the reporting period. The risk is that
management received a substantial invoice in 20X3 and has neither made payment nor
recorded the liability in the SAP general ledger.
Build 1
One way to obtain evidence of invoices recorded after the period end is to inspect the Trade
Payable (or Accounts Payable) Aging Report at the date of the audit, or at February 20X4
in the case of UC. This report details what vendors the company owes, to whom, and for
how long. We will see an example of this report shortly.
We may inspect the year-to-date Trade Payable Aging Report and compare to the December
31, 20X3 Trade Payable Aging Report for evidence of new liabilities which did not exist at
year-end.
Build 2
ASK
Can anyone think of what documents you may inspect to obtain details of invoices paid after period
end?
Answer:
Subsequent bank statements (e.g. January and February 20X4).
20X4, year-to-date check/wire registers.
 Appendix A: Excel Solution

Build 3

This slide has 4 builds.

SAY
Lets get back to our steps to perform a Search for Unrecorded Liabilities.
Build 1: Step 2
The second step we perform is to select specific transactions listed in these documents for further
testwork and ask that management provide supporting documentation such as an invoice, contract,
legal agreement, etc. Which transactions to select for further testwork is a decision to be made by
your ICA.
Build 2: Checkmark
Build 3: Step 3
The third step in the Search for Unrecorded Liabilities procedure is to inspect the invoice and
determine if the invoice relates to goods received or services rendered during 20X3 or 20X4.
If the invoice relates to 20X3, we would expect that the client to record a liability as of the end of the
reporting period.
If the invoice does not relate to 20X3, it is expected to be excluded from Liabilities as of the end of the
reporting period.
Build 4: Checkmark
If you perform these steps in this order, you will have performed a Search for Unrecorded Liabilities.
ASK
What questions do you have on how to perform a Search for Unrecorded Liabilities?
SAY
Now that we have an understanding of the steps to perform this procedure, Tony suggests that you
two walk through an example together.
 Appendix A: Excel Solution

SAY
As mentioned, the first step in a Search for Unrecorded Liabilities is to obtain details of invoices
received, recorded, or paid subsequent to year-end.
In our example, lets assume the audit team obtained the January and February 20X4 bank
statements from the client.
Since a bank statement is an external report that contains information produced by a financial
institution, we do not need to perform additional completeness and accuracy testing on the bank
statement.
The second step in a Search for Unrecorded Liabilities is to select transactions for testwork. In our
example, the audit team arrived at their selection by inspecting the January and February 20X4 bank
statements for significant, unusual, or unique transactions.
If you can look to the slide, you will notice that one of the cash disbursements selected for further
testwork is check #19075 for CU102,500. This selection was made by the audit team from the
February 20X4 bank statement.
ASK
Does anyone have any questions on step one or two before we proceed?

This slide has 1 build.

SAY
The third step in this procedure is to obtain and inspect the invoice which corresponds to that
transaction.
When we inspect the supporting invoice, we want to determine if this invoice relates to goods received
or services rendered in 20X3. Since this is a service invoice from UCs gas & electric provider,
Poptown Gas & Electric, you will notice two dates: the Invoice Date and the Service Period.
Build 1
 Appendix A: Excel Solution

ASK
Which date are we concerned with and why?
Answer: The Service Period as this is the period in which services were rendered and in
which a liability is expected to be recorded.
SAY
Yes! For this invoice, ignore the Invoice Date as it is simply the date that the invoice was printed.
Focus on the Service Date or the period in which services were rendered and thus, the period in
which a liability is expected to have been recorded by the client.
Think back to the concert example we discussed earlier. Assume your friend finally sent you an e-
mail with cost and payment details in late January. While the e-mail is dated January, this has no
relevance to the period in which the services were rendered, which was December in our example.
ASK
Does anyone have any questions before we continue?
SAY
There is one more point I want to make on this slide before we proceed. Always maintain your
professional skepticism when inspecting transaction listings and corresponding documentation. While
your focus here is on dates and invoice amount, also be aware of anything that may appear strange,
unusual, or outside the normal course of your clients business. Remember, you are the audit team
member most likely to inspect transaction listings and corresponding documentation. As such, it is
important that you immediately raise any concerns you have with your ICA when performing liabilities
testwork.

This slide has 5 builds.

ASK
Before we move on lets answer the following questions together.
First, does the invoice relate to 20X3 or 20X4?
Answer: 20X3
ASK
Why?
Answer: Because this is the period in which services were rendered.
SAY
Build 1
Yes! The utility bill relates to gas and electric services rendered in 20X3.
ASK
Build 2
 Appendix A: Excel Solution

Now that we know this, do we expect the full invoice amount, or CU102,500, to be recorded as a
liability as of December 31, 20X3?
Answer: Yes. The full amount relates to 20X3.
Build 3
ASK
Build 4
How do we know if the amount was recorded as a liability as of December 31, 20X3?
Answer: Inspect the Trade Payables Aging Report or the Accrued Expense Detail Listing as of
December 31, 20X3
SAY
Build 5
Yes the amount is expected to be recorded in one of these account balances at year end.
Since the invoice was received so close to year-end, there is a chance that the Accounts Payable
Department received the invoice in time to book the entry into Trade Payables prior to the close of
Decembers records in January. If they did not, we would expect the client to record an accrual to
account for this 20X3 utility expense.
 Appendix A: Excel Solution

SAY
Lets first inspect the Trade Payables Aging Report for evidence that this invoice was properly
recorded as a liability as of December 31, 20X3.
In our review of this report, we identify the vendor and invoice # which corresponds to the invoice we
received. We also see that the entire invoice amount or CU102,500 was recorded at December 31,
20X3.
If we did not see the liability recorded here, we then look to the Accrued Expense listing at December
31, 20X3.
If even then we do not see evidence that the liability was recorded as of December 31, 20X3, first
speak to your ICA who will then speak with the client. Exhaust all possibilities and have the necessary
client discussions before concluding that an audit misstatement exists.

This slide has 1 build.

SAY
Since I mentioned the Accrued Expense listing, lets quickly discuss Accrued Expenses as it may
relate to this same invoice.
Take another look at the Invoice Date and Service Dates. The invoice is dated January 5 and the
service period ends on December 24, 20X3. UC is not likely to receive next months invoice until
February 5, 20X4. In other words, as of December 31, UC is likely to have rendered gas and electric
services for December 24 to December 31 but will not have received the invoice which addresses that
service period.
ASK
How, then, does UC account for the gas and electric services rendered between December 25 and
December 31?
Answer: UC shall accrue for services rendered for the seven days between December 25 and
December 31.
 Appendix A: Excel Solution

SAY
That is exactly correct! UC is to calculate what it costs to receive gas and electric services for the last
seven days in December.
Build 1
One way to do this is to take the current months bill and prorate it for seven days. Regardless of how
they arrive at this calculation, it is up to the client to determine an appropriate amount and to record
the accrual and corresponding expense in the proper reporting period.
You will later see that UC has in fact recorded an Accrued Expense for CU24,000 to account for these
seven days in December in which gas and electric services were received.
ASK
What questions do you have regarding this example or how to perform a Search for Unrecorded
Liabilities?

Exercise Search for Unrecorded Liabilities (50 min.)

SAY
You will have ample opportunity to practice performing a Search for Unrecorded Liabilities on your
own in our next exercise.
Before you begin the exercise please complete the exercise preparation requirements in the United
Carbonations Build 2 eAudIT file, as shown on this slide.
While this is an individual exercise, you are encouraged to help each other if someone at your table
need assistance.
You have five minutes to do this.
Facilitator Note: Walk around the classroom and be available to assist. Also, confirm that all
participants have successfully completed these tasks before moving on to the next slide.
 Appendix A: Excel Solution

SAY
This slide outlines the procedures you will perform in the Search for Unrecorded Liabilities exercise.
This slide is also available in your participant materials.
Lets review what you are expected to do in this exercise.
First, you will read an e-mail from your ICA which provides detailed instruction and the supporting
documents you will need to perform a Search for Unrecorded Liabilities for UC. Refer to PM_01_ICA
E-mail in your participant materials.
You will then assist the ICA perform a Search for Unrecorded Liabilities. The ICA has already selected
payments from the January and February 20X4 bank statements for further testwork for you.
Following the ICAs instruction, you will perform the final procedure of the search. In other words, you
will inspect the evidence obtained from the client and determine if the invoice has been properly
recorded as a liability of December 31, 20X3. You will document the results of your procedures in the
audit documentation template that you downloaded.
If you have any questions, you may speak with Tony, your ICA. In other words, you may speak with
me. However, I encourage you to review all client documentation and invoices obtained prior to
bringing your questions to the attention of the ICA, as you are likely to answer some of your own
questions as you work through your assignment in its entirety.
As a final note, be prepared to discuss your findings and conclusions with the class. I will ask one of
you to present the results of your procedures and your completed audit documentation template, to
the class during the debrief of this exercise.
You have approximately 50 minutes to perform this exercise.
DO
As participants are working through this exercise, identify a few participants who appear comfortable
in the work they are performing and the documentation of their results. Consider asking one of these
participants, prior to the exercise debrief, if he/she would be comfortable presenting his/her solution to
the class.
Allow participants 50 minutes to perform this exercise.
Facilitator Note: Refer to S_01_Search to assist in guiding participants and debriefing this
exercise.
 Appendix A: Excel Solution

Debrief - Search for Unrecorded Liabilities (10 min.)

ASK
How did you find that exercise? How did you approach the tasks to be completed?
Ensure the following points are discussed:
Liabilities may have been recorded in the Trade Payables or Accrued Expenses.
Efficiency of using audit documentation templates to document audit procedures performed
and results obtained.
SAY
Lets look at the results of the procedure in more detail. Can I have a volunteer to connect their laptop
to the projector?
Facilitator Note: If you have already identified a participant who agreed to present his/her
findings, then you will instead inform the class that [Participant] has kindly volunteered to lead
this discussion.
DO
For the debrief of this exercise, ask the volunteer to connect their laptop to the projector and walk the
class through the results of their procedures, as documented in the audit documentation template.
Allow time for Q&A.
Facilitator Note: The debrief to this exercise will be a participant lead, facilitated discussion.
Allow the participant to present the results of his/her procedures in the audit documentation
template and in eAudIT (particularly documentation of the audit misstatement in the Tracker)
to the class but also ensure that all key learning points in the bullets listed follow are
discussed.
Ensure the following points are discussed:
Participants are expected to identify that for the City of Poptown invoice, the amount paid
in January and selected for testing by the ICA represents only half of the liability recorded
at December 20X3.
Participants may conclude that the City of Poptown invoice for CU775,509 was not
properly recorded as a liability as of December 31, 20X3. This is not correct. The 20X3 tax
bill was properly recorded as an Accrued Expense as of December 31, 20X3. The Accrued
Expense recorded amounts to CU778,000 and was most likely calculated based on prior
years tax bill, adjusted for inflation. As the difference between the tax bill and
managements calculation is below AMPT, no further audit procedures are required.
Participants are to make this note in their testwork files (i.e. In the audit documentation
template).
Participants will identify an audit misstatement for the invoice related to vendor Umbrella
Insurers. A portion of the total bill relates to 20X3 but was not recorded as a liability as of
December 31, 20X3. As a result, an audit misstatement for CU134,123 was identified. As
the audit misstatement exceeds AMPT, the participant will document the misstatement in the
Tracker.
 Appendix A: Excel Solution

Two invoices from the vendor Savvy Bottlers were selected for testing by the ICA. The
liability for the invoice dated December 4, 20X3 was recognized appropriately as a Trade
Payable as of period end, indicating that the 3-way match had taken place. The invoice
dated January 4, 20X4 was properly recorded as an Accrued Expense as of December 31,
20X3, as while the corresponding goods were received for this item in 20X3, the invoice was
not received in time to revise the entry from Accrued Expenses to Trade Payables (i.e. The
3-way match could not be completed as of the period end). Therefore, this particular item
represents a Goods Received Not Invoice accrual.

SAY
At this time, I would like each of you to take three minutes to review the solution to the audit
documentation template you used in this exercise as compared to your own documentation. The
exercise solution may be found in S_01_Search in your participant materials.
DO
Allow participants three minutes to compare and contrast the solution to their own documentation.
 Appendix A: Excel Solution

SAY
Lets now move onto our final substantive audit procedure, or Identification and Testing of Accrued
Expenses.

Exercise Accrued Expenses (12 min.)

SAY
To begin, you will work in pairs and brainstorm how you might substantively audit Accrued Expenses.
Refer to the exercise instructions on this slide. In your pairs, answer the following questions:
What documentation do you need from the client to audit Accrued Expenses, considering
both initial and follow-up requests?
Why do you need that documentation?
What questions might you ask the client regarding these documents?

Please open EX_01_Accrued Expenses in your participant materials. Each pair may
document their conclusions from this exercise in this document. However, you will notice
that the first item has been completed for you. Lets walk through this example together.

When we perform detailed testwork over Accrued Expenses, one item we may request from
the client is prior years accrued expense schedule as of December 31, 20X2.
ASK
Why might we want this detail from the client?
Answer: We can scan this detail for any indication of accrued expenses that occurred in the
past that would be expected to recur in the subsequent period, or 20X3.
SAY
Exactly right. For example, if UC had a significant accrual in prior year for real estate taxes owed, we
would expect to see a similar accrual as of December 31, 20X3.
 Appendix A: Excel Solution

ASK
What relevant assertion does this procedure address?
Answer: Completeness.
ASK
Very good! Last, what questions might we ask the client regarding the Accrued Expense schedule as
of prior period end?
Answer: Why an accrual was recorded as of prior period end that is not recorded as of
current period end.
SAY
Exactly right! If this is the case, then we would speak to the client to learn more.
ASK
What questions do you have on how to perform this exercise?
SAY
You will now have 10 minutes to complete the remainder of this exercise in pairs. You may
choose someone to work with at your table.

You will not need eAudIT for this exercise.

Be prepared to discuss your findings and conclusions with the class

DO
Allow participants 10 minutes to perform this exercise before you proceed to the debrief.
Facilitator Note: After participants have had time to complete the exercise, conduct a brief
debrief using the solution to this exercise or S_02_Accrued Expenses. Following the debrief,
inform participant that they may access S_02_Accrued Expenses in their participant
materials.
 Appendix A: Excel Solution

Review eAudIT Procedure (10 min.)

This slide has 1 build.

SAY
I want you all to navigate to Activity 3.2.210.4.4 Identification and testing of Accrued Expenses in
United Carbonations Build 2 for the test of details procedure over UCs Accrued Expenses. Please
read the procedures documented at this activity.
DO
Allow participants two to three minutes to read this eAudIT activity.
ASK
Build 1
What do you notice between your read of this activity and the exercise you just performed?
Answer: They are one in the same.
SAY
Correct!
You have demonstrated that you understand how to identify the risks associated with an account, the
relevant assertions for an account, and the specific procedures you believe will address those risks
and assertions. Thus, you understand the basic framework for designing a successful, appropriate
audit procedure for all accounts no matter their risk and complexity.
Facilitator Note: If a participant raises the point that this substantive audit procedure
resembles a trend analysis or data analysis rather than a test of details, affirm the
participants observation but explain that the procedures we perform to substantively audit
Accrued Expenses are actually a combination of both data analysis and specific item testing.
In other words, this is a hybrid audit procedure that combines both a substantive analytical
procedure and a test of details. While this is the case, the audit procedure is sufficiently and
appropriately documented as is, in their eAudIT files.
Lets now consider the list of Prepared by Client, or PBC, items already received from the client.
ASK
Do we already have any of the documents you identified in this last exercise?
Answer: Yes. We obtained the Accrued Expense Detail as of December 31, 20X3 when we
performed the Search for Unrecorded Liabilities.
 Appendix A: Excel Solution

SAY
That is right. We already have the Accrued Expense Detail as of December 31, 20X3.
We may assume the engagement team performed the appropriate procedures over all other
documents identified in the previous exercise. At this time, we will focus specifically on the audit
procedures we may perform over this document, or the Accrued Expense Detail as of December 31,
20X3.
Please open the Accrued Expense Detail 20X3 Excel file, which your ICA provided to you in an e-
mail during the Search for Unrecorded Liabilities exercise.
Once you open that document, take a few minutes to scan the Accrued Expense detail.
As a group, determine if we have already obtained audit evidence over any of these accruals from the
previous substantive procedures we performed over purchases. As a hint, pay particular attention to
the vendor names listed in this detail.
Document your findings onto your groups flipchart.
DO
Allow participants five minutes to discuss, arrive at, and document their conclusions onto their
flipcharts.
ASK
Did any table identify an accrual or accruals in which we already obtained audit evidence? Consider
invoices that we obtained and inspected previously.
Answer: Yes.
We obtained and inspected the corresponding invoice for the Poptown Gas & Electric
utility bill when we performed our Search for Unrecorded Liabilities (we also recalculated the
accrual as a class),
We obtained and inspecting the corresponding invoice for the Savvy Bottlers goods
received not invoice accrual when we performed our Search for Unrecorded Liabilities, and
We obtained and inspected the corresponding invoice for the City of Poptown tax bill when
we performed our Search for Unrecorded Liabilities.
SAY
Great job! We already obtained some audit evidence over certain accruals. This is important as since
we have this information, there is no need to again ask the client for it. Also, in some engagements,
this evidence may be enough to sufficiently and appropriately test the completeness, existence and
accuracy of Accrued Expenses at year-end. In other words, only incremental, additional audit work
may be required.
This is an example of obtaining corroborating audit evidence from information performed in previous
audit procedures. Understanding how accounts within a process interact is integral to understanding
your clients business and the work you perform.
 Appendix A: Excel Solution

On the contrary, if you identify audit evidence from previous control or substantive audit procedures
that is contradictory, immediately raise this to the attention to your ICA as contradicting audit evidence
cannot be ignored and is to be addressed and documented in our audit files.
ASK
Now knowing this, have we also already obtained audit evidence to support related expenses?
Answer: Yes. We have audit evidence for the related expense for each of these accruals.
SAY
That is correct! Remember, that when an accrual is recorded, we debit Expense, credit Accrued
Expenses. Thus, when we obtain audit evidence for an Accrued Expense, we inherently obtain audit
evidence for its related Expense. For example, since we have already obtained the 20X3 tax bill and
have vouched the recorded amount in Accrued Expense to the supporting invoice, we shall also
determine if the proper amount of tax expense was recorded in Administrative Expenses as of and for
the period ended December 31, 20X3.
ASK
What questions do you have at this time?

Exercise - Excel Tools/Techniques (11 min.)

SAY
In addition to the audit evidence already obtained, your ICA would like to perform a few additional
procedures to obtain sufficient and appropriate audit evidence for the completeness, existence and
accuracy of Accrued Expenses. To do this, we first select a sample of accruals for further testwork.
To prepare for the remaining audit procedures to be performed, your ICA asks that you assist in
completing the following procedures:
First, confirm that the accrued expense detail total agrees to the purchases lead sheet as of
December 31, 20X3.
Second, he asks that you identify all utility expense accruals for further testwork.

Everyone now take another look at the Accrued Expense Detail 20X3 Excel file.
ASK
Does anyone have any concerns regarding the ICAs requests?
Answer: Yes. The Excel file is not in a user friendly format.
SAY
That is correct. It would be difficult to use this Excel file to perform these procedures in its current
format. As a result, the purpose of this exercise is to identify three or four Excel tools/techniques that
can be used to improve the usability of this data.
You can assume that the ICA already spoke to the Accounts Payable, or AP, Clerk who confirmed that
this is the best form of data he could provide to support Accrued Expenses as of December 31, 20X3.
 Appendix A: Excel Solution

You have 10 minutes to work in your table groups to determine which Excel tools/techniques may be
used to improve the usability of this data. Before you begin to manipulate the data, copy and paste the
Accrued Expense Detail 20X3 Excel tab into a new tab, so that you may maintain the original client
prepared document.
Also, if you have any questions regarding this Excel file, you may speak to the AP Clerk, or in other
words, one of the Facilitators.
ASK
Does anyone have any questions regarding this exercise before we begin?
DO
Allow participants precisely 10 minutes to complete this exercise.
Facilitator Note:
It is expected that participants will have some pre-existing knowledge on how to use certain
Excel tools and techniques. However, the goal of this exercise is not that they arrive at the
solution, but rather that they share ideas on how to improve the usability of data in Excel or,
in other words, practice using CAATs in Excel.
Also, participants may ask the AP Clerk (i.e. The Facilitators) how to best identify utilities
expense using the data provided. If they ask this question, provide participants with the
following response.
For the string of characters that begins with two numbers then a letter, etc., look to the fifth
and sixth digit, which are the two letters which represent the type of accrual recorded to this
account. All utility expense accruals are identified with the letters UT. The other accrual
types, if you are interested are as follows:
GA = Selling, distribution, and administrative expenses
CO = Cost of sales (i.e. Goods received not invoiced)
PT = Property taxes and other expenses owed to lessors
FE = Professional fees
Participants might instead ask for a list of their utility vendors. If this occurs, respond as
follows: I do not have a list on file, as we have quite a few. Perhaps if you explain what you
are trying to do, I will be better able to assist you.
Both Facilitators are to be available to respond to participant inquiries on the Accrued
Expense Detail 20X3 Excel file.
Facilitators shall refer to Appendix A: Excel Solution for a possible solution to this exercise
and to assist in their preparation for the Excel tools/techniques demonstration to follow.

Debrief - Excel Tools/Techniques (10 min.)

SAY
At this time, the Co-Facilitator and I will demonstrate the Excel tools/techniques you could have used
to address the ICAs request. After this demonstration, we will have time to share your ideas on how to
improve the usability of this data in Excel, if not otherwise discussed during the demonstration.
Facilitator Note: Request that the Co-Facilitator demonstrate the steps to be performed. Ask
participants to navigate along with the Co-Facilitator during the demonstration.
ASK
To begin, what is our first issue with the clients data?
Answer: We cannot easily sum all Accrued Expenses as there is multiple data in one Excel
cell.
 Appendix A: Excel Solution

SAY
Correct! We need to somehow divide this one cell, or Column B, into three unique columns. To do
this, we may use the Text to Columns Excel tool.

SAY
The Text to Columns Excel tool allows users to separate
the contents of one Excel cell into multiple columns.
This may help you during an audit when you receive a client
document that is not usable in its current format and we
want to perform testwork on it, as was the case with our
Accrued Expense Detail 20X3 Excel file.
Lets demonstrate how to use this Excel tool using the
original Accrued Expense Detail 20X3 Excel file.

This slide is hidden.

DO
Prompt the Co-Facilitator to use this Excel tool in the original Accrued Expense Detail 20X3 Excel
file. Guide your Co-Facilitator with the step-by-step procedures listed on this hidden slide. Ask that all
participants follow along on their laptops:
Work in the original Accrued Expense Detail 20X3 Excel file.
High-light column B.
Select the Data Ribbon.
Select Text to Columns.
Select Fixed width and click Next.
Under Data preview create two break lines at desired position.
This next screen lets you set the Data Format for each column, if preferred. We may click
Finish.
Optional: Format Cells in Column D such that they are all in Accounting format, with two
decimal places.
Sum all amounts in Column D using the sum function. Total Accrued Expense is equal to
CU2,110,986, which agrees to the lead sheet without exception.
ASK
How many of you agreed total Accrued Expense per this Excel file to the purchases lead sheet?
Facilitator Note: Assume that not all participants will raise their hands.
SAY
It is essential that we first confirm that the supporting documentation we obtain from our client is
complete prior to performing testwork on it.
 Appendix A: Excel Solution

Without performing this initial procedure, we would not know that the detail listing we have obtained
from our client actually relates to the end of the reporting period.
If you have not already done so, please now confirm that the total per the Accrued Expense detail
agrees to Accrued Expenses as of December 31, 20X3 per the purchases lead sheet.
DO
Allow participants one minute to do this before proceeding with the Excel demonstration.

SAY
Now that we know that our Accrued Expense Detail 20X3 Excel file agrees to the purchases lead
sheet, lets address the ICAs second request and demonstrate how we may efficiently identify all
accrued utility expenses.
If you spoke with the AP Clerk, you learned that UC identifies its utility expense accruals with the
letters UT. These two letters may be found within the string of characters currently listed in Column.
We will now work to extract this data.
We will use one of Excels Text Functions to do this.
Text functions allow users to modify the formatting and appearance of data to make it more suitable
for the type of analysis you may wish to perform.
This may help you in an audit to isolate text or numbers in a string of data.
Text functions to modify data include the following:
LEFT, which allows users to isolate numbers or text from the left side of a text string into a
new cell.
RIGHT, which allows users to isolate numbers or text the right side of a text string into a
new cell.
MID, which allows users to isolate text from the middle of a text string into a new cell, and
CONCATENATE (con-cat-e-nate), which allows users to combine text from multiple cells
into one cell.
Lets demonstrate how to use the MID text function using our Excel file.

This slide is hidden.

 Appendix A: Excel Solution

DO
Prompt the Co-Facilitator to use this Excel tool in the same Excel file. Guide your Co-Facilitator with
the step-by-step procedures listed on this hidden slide. Ask that all participants follow along on their
laptops:
Work in the same Excel file.
Click in cell E1.
Type: =mid(C1,5,2). 5 represents your start character, counting from the left. 2 represents
the number of characters you would like to extract.
GA will appear for an accrual that relates to general and administrative expenses.
Drag formula down Column E and end at cell E 58.

SAY
Next, lets identify only those accruals which represent accrued utility expense.
We will use Excels Conditional Formatting tool to do this.
Conditional formatting may be used to control a cells font color, fill color, and board settings based on
the selected cells contents or the contents in another cell.
This Excel tool may help you in an audit to select a specific item sample or to help track PBC
requests.
Lets apply the use of this Excel tool in our example.

This slide is hidden.

DO
Prompt the Co-Facilitator to use this Excel tool in the same Excel file. Guide your Co-Facilitator with
the step-by-step procedures listed on this hidden slide. Ask that all participants follow along on their
laptops:
Work in the same Excel file.
High-light Column E.
Click the Conditional Formatting icon in the Home Ribbon.
 Appendix A: Excel Solution

Select Highlight Cells Rules and then Text that contains....

Type UT for those accruals which relate to utility costs. You may change the fill color if you
prefer.

SAY
Now that we have identified all utility expense accruals, lets delete all the other data.
While many of you may have used the sort function to do this, I am going to instead show you how to
use Auto Filters to sort this data.
Auto Filter allows users to work with a subset of data in a range of cells or a table column.
You may use this Excel tool in your audits to filter data by significance, data, text, or for blank cells.
This may prove particularly useful when sorting data for journal entry testing (which is discussed in
another module in greater detail) and when preparing a file for IDEA/MUS.
Lets use Auto Filter in our example.

This slide is hidden.

DO
Prompt the Co-Facilitator to use this Excel tool in the same Excel file. Guide your Co-Facilitator with
the step-by-step procedures listed on this hidden slide. Ask that all participants follow along on their
laptops:
Work in the same Excel file.
Insert a row above Row 1.
Provide each column with a heading as follows: Account #, Vendor, Identifier, Amount, Type.
Highlight the entire worksheet.
Under the Data Ribbon, select Filter.
In Column E, you may now sort the column by accrual type. Sort by UT only.
 Appendix A: Excel Solution

ASK
What questions do you have on these various text functions?
ASK
Does anyone have any other Excel tools/techniques they would like to share with the class, particular
to this set of data and the ICAs requests?
DO
Allow five minutes for participants to share any additional Excel tools/techniques they may have with
the class. Participants are free to demonstrate these techniques to the class.
SAY
Also, while we only discussed how these Excel tools could be used to address the ICAs request, they
may also be used in conjunction with a variety of audit procedures. The key here is that you learn
how to use these Excel tools so that you may effectively apply these techniques to increase audit
efficiencies and usability of data in Excel when those moments arise.

SAY
In your participant materials, you will find a Performance Support Resource titled PSR_01_Excel
Tools. This document links to a number of short, practical videos that demonstrate the use of the
following Excel tools:
Creating and Formatting Pivot Tables
Converting Text to Columns
Lookup and Reference Functions (e.g. VLOOKUP)
Conditional Formatting
Text Functions (e.g. RIGHT, MID, LEFT, CONCATENATE)
Audit Filters
Table Formatting
Paste Special
Subtotal
IF Functions
The four Excel tools with red stars are those which we demonstrated moments ago. Many of those
remaining will be discussed in later modules.
 Appendix A: Excel Solution

CAATs and Excel (2 min.)

SAY
Before we leave this topic, I would like to make one final, important note on Excel.
Recall that we used multiple Excel tools and techniques to enhance the usability of the data contained
in the Excel file. In other words, we used Computer Assisted Audit Techniques, or CAATs, in Excel to
format and manipulate this data for better use in our audit. As this is the case, we document the use of
CAATs in Excel in eAudIT.
Please return to Activity 3.2.210.4.4 Identification and testing of accrued expenses. You will notice that
the audit team has selected yes to the question Do you plan to use CAAT in the performance of this
procedure? Additionally, the audit team completed an additional field regarding the CAAT procedure,
including the pre-processing of data performed; the source and type of data in which CAAT
procedures were performed and the procedures performed to verify the completeness, accuracy and
integrity of data received.
This is an example of the appropriate way to document the use of CAATs in Excel in eAudIT. Keep
this in mind when performing your audits.
ASK
While we are on the topic of CAATs, what other tool might you have used to improve the usability of
this data?
Answer: IDEA.
SAY
Correct! You may also use the CAAT tool IDEA to manipulate and to improve usability of this data for
purposes of the audit. Whether to use Excel or IDEA to address the ICAs request is really a matter of
preference and efficiency.
ASK
What questions do you have on the use of Excel as a CAAT?
SAY
Now that we have selected accruals for further testwork, we will provide this listing to the AP Clerk so
that he can obtain the supporting documentation we would need such as invoices and proof of
subsequent payment to perform our audit procedures. We would then perform similar audit
procedures to vouch these accrued expense items to supporting documentation, as you did for the
items selected for the Search for Unrecorded Liabilities. In other words, we would determine the
period in which the accrual relates and if the accrual is appropriately recorded in the correct reporting
period. For purposes of this case study and our training, we will not be performing that additional
testwork at this time.
 Appendix A: Excel Solution

Topic 3: Wrap Up (15 min.)

SAY
Lets discuss some key learning points from this module.

SAY
First, you need to consider the results of controls testing performed before you begin to perform
substantive audit procedures. As you learned in your review of the Trade Payables Sub-ledger
Reconciliation, most substantive audit procedures were performed by Samantha over the December
Reconciliation in conjunction with the test of operating effectiveness of managements review of the
same reconciliation. Identifying this dual purpose test prevented you from over-auditing the December
reconciliation or, in other words, from performing additional, unnecessary audit procedures.
 Appendix A: Excel Solution

Second, you want to be certain that you understand the objective of the substantive audit procedures
that you perform. For example, it is important to understand that the purpose of the Search for
Unrecorded Liabilities is to determine if liabilities are complete and accurate as of the end of the
reporting period. By understanding the audit procedures you perform and the relevant assertions
addressed you will know the relevance of the tasks you perform and how they fit into the audit
process as a whole.
Next, keep in mind the connection between the Statement of Financial Position and the Statement of
Profit and Loss and Other Comprehensive Income. Understanding that documentation and audit
evidence obtained from testing accounts on the Statement of Financial Position will also provide audit
evidence for the Statement of Profit and Loss and Other Comprehensive Income, is essential to
achieving audit efficiencies.
Last, dont forget that Excel is an efficient and effective tool that you may use to assist you in your
audit work. Remember, you can refer to the PSR on Excel Tools in your participant materials at any
time for further instruction and guidance on how to use various Excel functionalities.
We will now close the module with a Learning Journal reflection and discussion activity.

Learning Journal (15 min.)

SAY
You now have five minutes to update your Learning Journal with key learning points - from both this
module, Purchases-Substantive and the previous module, Purchases-Controls - and ideas for
applying them to your upcoming engagements.
Facilitator Note: Participants will discuss key learning points from both this module and
Purchases-Controls as audit evidence was obtained during the Purchases-Controls module
that had an impact on the extent of substantive audit procedures performed in this module,
Purchases-Substantive.
After those five minutes, identify a partner and spend 10 minutes discussing the following in pairs:
What are the key learning points from this module and the last, or Purchases-Substantive
and Purchases-Controls?
How can you apply these key learning points to your upcoming engagements?
DO
Write these two questions onto a flipchart for participant reference. Allow participants five minutes to
work individually. After five minutes, move participants along to the pairs portion of this Learning
Journal activity. Walk about the classroom to ensure participants are remaining on task.
 Appendix A: Excel Solution

Appendix A: Excel Solution

This Excel document represents a possible solution to the Excel Tools/Techniques exercise and is
meant to assist Facilitators in their preparation for the Excel demonstration to follow. The Excel
document is included separately in the Facilitators materials as 01A_AF1b_PurchSub_App A_Excel
Solution.
 Appendix A: Excel Solution

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