Assurance - Planning - Assertions & Procedures

Question 1

Explain the assertions that auditors can use

Answer 1

• Assertions - determining each account in the I/S or B/S or notes of disclosure
• In design procedures and addressing if through classes of transaction
• Account balance and related disclosure (B/S account)
• Classes of transaction and event, related disclosure

Question 2

What are the six assertions for the B/S, provide how they are used and the substantive procedures. CAS 330

Answer 2

1. Existence - Does asset, liability, or equity exist, overstatement
   Procedure - Send A/R confirmation to customer asking them to confirm the amount owed
2. Rights and Obligation - Does the entity have a legal claim or right to asset? Ex. consignment-rev
   Procedures - Inspecting loan agreement and recalculating bank covenant to ensure client is in compliance
3. Completeness - Have all the entity assets, liabilities & equity been recorded
   Procedures - a floor-to-sheet test count of inventory (Reperformance)
4. Accuracy, valuation, Allocation - Have the assets, liabilities, and equity of the entity been included in F/S
   Procedures: Examining subsequent receipt of A/R balance than 90 days (Inspection)
5. Classification - Have assets, liabilities, and equity of the entity been recorded in proper account? Ex. Repair is exp. should be capitalized
   Procedures - Reviewing A/R sub-ledger for customers with significant credit balances and inspecting if they would be appropriate
6. Presentation - Have the assets, liabilities, and equity been appropriately, aggregated/disaggregated
   Procedure - Sending confirmation legal letter, examining claims, and identifying provision or contingent liabilities

Question 3

What are the six assertions for the B/S, provide how they are used and the substantive procedures

Answer 3

1. Occurrence - Have the revenue/ expenses occurred? Violation leads to overstatement
   Procedures - Performance of payroll J/E by vouchering payroll expenses per G/L to support payroll documentation
2. Completeness - Have the entity revenue/ expenses been recorded? Leads to understatement
   Procedures - Inspecting sales invoices and tracing sales invoices to G/L to ensure sales are recorded
3. Cut off - Have the entity revenue and expenses been recorded to the correct period? Understatement
   Procedures - Inspecting shipping documents to verify the date of inventory shipment around the period (Inspection)
4. Accuracy - Have the entity revenue/ expenses been recorded correctly. Affect measurement of account
   Procedures - Recalculating interest exp. using confirmed interest rates (Confirmation/ performance)
5. Classification - Have the entity’s rev or exp. been classified to the appropriate account on I/R and expenses
   Procedures - Reviewing G/L and supporting documentation for the appropriate classification of expense account
6. Presentation - Have entity revenue and expenses been appropriately aggregated or disaggregated and have disclosure relevant
   Procedures - Obtaining and reviewing contracts with customers by inspecting the details to determine if revenue related to those contracts has been appropriately disaggregated into entity
   (Inspection)

Question 4

What are the three aspects of planning a procedure? and Explain all three

Answer 4

CAS 330
What is needed to plan procedures is: Nature, Extent, and Timing
Nature - audit procedure based on: 1. Purpose - test of detail or substantive procedure
2. Type - method to gather evidence (CIIROAR)

Timing - is important to determine when procedures should be performed to cover the audit evidence
Consider Entity control, information available, nature of risk, the timing of preparation of F/S

Extent - signifies the quantity that is to be gathered - using audited data analytics ADA

Question 5

What are the two types of procedures and explain when to use them

Answer 5

Types of control: 1. Test of detail - design to evaluate the operating effectiveness in preventing detection
- Examining entity test of control, looking for deviation
2. Substantive procedures - substantive analysis procedures based on two categories.
Test of detail - selecting it within a populating on account testing
Substantive procedures - procedures designed to evaluate financial information through analysis of reasonable relation.

Question 6

What are three things to know when designing procedures

Answer 6

1. Explain WHAT the risk is related to particular account and assertion
2. Design a procedure to address the relevant risk
3. Clearly explain HOW to perform the procedures
   VOVOPP