ACCT3600 Lec 3 Audit Risk Assessment

Question 1

What is the AUDIT PROCESS?

Answer 1

1. Business risk
2. Audit risk
3. Key Account
4. Understated / Overstated
5. Key assertion

Question 2

What are the assertions about TRANSACTIONS AND EVENTS? (6)

Answer 2

1. Occurrence (Overstatement)
   — transactions and events that have been recorded or disclosed have occurred and pertain to the entity.
2. Completeness (Understatement)
   — all transactions and events that should have been recorded and all related disclosures that should have been included in the financial report have been included.
3. Accuracy
   — amounts and other data relating to recorded transactions and events have been recorded appropriately and related disclosures have been measured and described.
4. Cut-off
   — transactions and events have been recorded in the correct accounting period.
5. Classification
   — transactions and events have been recorded in the proper accounts.
6. Presentation
   — transactions and events are appropriately aggregated or disaggregated and clearly described and related disclosures are relevant and understandable.

Question 3

What are the assertions about ACCOUNT BALANCES?

Make giant table for assertions?

Answer 3

1. Existence (Overstatement)
   — assets, liabilities and equity interests exist.
2. Completeness (Understatement)
   — all assets, liabilities and equity interests that should have been recorded have been recorded and all related disclosures that should have been included in the financial report have been included.
3. Accuracy, Valuation and allocation
   — assets, liability and equity interests are included in the financial report at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measure and described.
4. Rights and obligations
   — the entity holds or controls the rights to assets, and liabilities are the obligation of the entity.
5. Classification
   — assets, liabilities and equity interests have been recorded in the proper accounts.
6. Presentation
   — assets, liabilities and equity interests are appropriately aggregated or disaggregated and clearly described and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.

Question 4

How does the assertion priorities differ between ASSETS / LIABILITIES / REVENUE / EXPENSE?

Answer 4

A = Overstate = Existence –> AVA

L = Understate = Completeness –> AVA

R = Overstate = Occurrence –> Accuracy

E = Understate = Completeness –> Accuracy

Question 5

How does the assertion priorities differ between LIABILITIES / CONTINGENT LIABILITIES?

Answer 5

Liability = Completeness

Contingent = Rights and obligations?

Question 6

Difference between CLASSIFICATION and RIGHTS AND OBLIGATIONS? e.g. for finance v operating leases

Answer 6

R/O unless wording suggests classification

Classification = processing error, something else was accidentally posted to PPE account.