Auditing Warranty Provisions

NotesPaper exam

Auditors should obtain sufficient audit evidence as to whether an accounting estimate is reasonable and that disclosure is appropriate.

Audit procedures

  1. Review and test the process used by management to develop the estimate

  2. Review contracts or orders for the terms of the warranty to gain an understanding of the obligation

  3. Review correspondence with customers during the year to gain an understanding of claims already in progress at the
    year end

  4. Perform analytical procedures to compare the level of warranty provision year on year, and compare actual to budgeted
    provisions.

  5. Re-calculate the warranty provision

  6. Agree the percentage applied in the calculation to the stated accounting policy of the Client

  7. Review board minutes for discussion of on-going warranty claims, and for approval of the amount provided

NotesPaper exam