3. Engagement Acceptance, Planning & Risk

Question 1

What are the Financial Statement assertions?

Answer 1

a. Completeness
b. CutOFF
c. Valuation, Allocation, Accuracy
d. Existence and Occurrence
e. Rights and Obligations
f. Understandability and Classification

Question 2

As the acceptable level of detection risk decreases, the assurance provided from substantive tests should increase. Consequently, the auditor should do one or more of the following:

Answer 2

“NET”

1) change the nature of substantive tests from a less effective to a more effective procedure,
2) change the timing of the substantive tests, such as performing them at year-end rather than at an interim date, or
3) change the extent of substantive tests, such as using a larger sample size.