Assertions & procedures Flashcards
Existence
Do assets/ liab exist?
Balance sheet
Results in overstatement
Completeness
Have all entity’s assets,liab and equity been recoded?
Results in understatement
Rights and obligations
Does entity have legal claim or control of asset?
Are the liabilities the obligation of the entity?
Ie consignment inventory, assets pledged as security on debt, ar that has been sold
Valuation
Have assets, liab and equity been recoded at the correct amount?
Measurement of account ie for estimates: Allowance for AR, warranty accrual, amort accrual etc
Balance assertions
Existence
Completeness
Right/ obligations
Valuation
Transaction assertions
Occurrence Completeness Accuracy Cut off Classification
Occurrence
Have the revenues and expenses occurred?
Results in overstatement
Completeness (transaction)
Have entity’s revenues and expenses all been recorded?
Results in understatement
Accuracy
Have expenses and revenues been recorded accurately
Measurement
Cutoff
Have the expenses and revenues been recorded in correct period?
Classification
Have expenses and revenues been classified to appropriate accounts?
I/s accounts only - can’t be an expense s/b capital etc
Presentation assertions
Occurrence Rights and obligations Completeness Classification Understandability Accuracy Valuation
Types of procedures
Inspection Observation Inquiry External confirmation Recalculation Reperformance Analytical procedures
Cash procedures
Bank confirmation
count cash on hand
Confirm bank balance on bank stmt to latest bank rec
Review vs audit procedures
No inspection Less observation Few external confirmation No recalculation No reperforming Lots of inquiry Lots of analytical
How to write a procedure
RISK ie inventory could be stolen
ASSERTION ie existence of inventory
PROCEDURE ie sheet to floor count . How to perform it
A.R Procedures
Risk of overstatement:
- Positive confirmations to customers
- obtain subsequent bank statements to see payment of AR outstanding at year end
- Look at plus 90 A.R determine if paid after year end. If not discuss with management about writing off
- Review board mins and loan agreements to determine if any AR is pledged as collateral on debt
Cash
Risk is overstatement = existence
A/R
Risk is overstatement = existence and valuation
Inventory
Risk is overstatement = existence and valuation
PPE
Risk is overstatement = existence and valuation
AP
Risk is understatement = Completeness
Sales & COGS
Sales is overstatement = Occurrence, accuracy, cutoff
COGS is understatement = Completeness, accuracy, cutoff
Expenses
Risk is understatement = Completeness & cutoff
If following up on old AR you are testing which assertions
Valuation
Best procedure for valuation of AR
Subsequent testing
