Audit & Assurance: Assertions

Question 1

Assertions for Account Balances (Balance Sheet)

Answer 1

Existence
Rights & obligations
Completeness
Accuracy, valuation and allocation
Classification
Presentation

Question 2

Assertions for Classes of Transactions (Income Statement)

Answer 2

Occurrence
Completeness
Accuracy
Cut-off
Classification
Presentation

Question 3

You are working on the audit of Smith’s Shovels Inc. Your audit manager has assigned you the revenue section and has asked you to obtain the last five shipping documents for the year. You are to trace these shipping documents to the related invoices and to the general ledger. Which of the following assertions, with respect to revenues, is best addressed by this procedure?

_accuracy, valuation and allocation
_accuracy
_cut-off
_occurrence

Answer 3

Cut off

Question 4

You are working on the cost of sales section for a farming client, John’s Cow Farm. You have been examining invoices for the purchase cost of cow feed to ensure that the correct amount is recorded in the general ledger. Which assertion are you addressing with this procedure?

Answer 4

accuracy

Question 5

You are auditing the inventory of International Potash. The company stores a significant amount of potash inventory off-site at third-party warehouses. The audit manager would like you to send inventory confirmations to a sample of these off-site, third-party warehouses. The confirmation requests that the third-party warehouse indicate the quantity of inventory held. For the inventory account, which of the following assertions would be covered by this procedure?

Answer 5

existence

Question 6

A bank confirmation tests which of the following assertions?

Answer 6

existence

Question 7

You are performing an audit engagement. One of the procedures that you are scheduled to perform is to inspect the aged accounts receivable listing and identify for follow-up all balances that are older than 90 days. Which financial statement assertion are you providing assurance over by performing this procedure?

Answer 7

accuracy, valuation and allocation

Question 8

Blake Hudson is the audit senior on the Blueberry Limited engagement. Blueberry Limited manufactures and distributes a full range of electronic educational toys for young children. This is a challenging industry to operate in due to quickly evolving technology with high development costs. When costs incurred to develop new products meet the six criteria for internally generated intangible assets, they are capitalized on the statement of financial position (SFP). Blake is developing the audit program for deferred development costs and is currently designing procedures to address the accuracy, valuation and allocation assertion.

Which procedure best addresses accuracy, valuation and allocation of deferred development costs?

Answer 8

Inspect supporting documents for expenditures capitalized in the deferred development costs account.

Question 9

You are auditing the property, plant, and equipment account on XYZ Widgets Inc.’s balance sheet. You have noted the following inherent risks regarding the entity’s equipment:

The selling price of the inventory made directly from the equipment has decreased.
The equipment is kept in the basement of the entity’s main office. There have been multiple floods in the past two years.
Which assertion is primarily impacted by these inherent risks?

Answer 9

Accuracy, valuation and allocation