Management assertions and procedures

Question 1

Reviewing last quarter’s revenue a significant upswing in sales towards end of December which did not exist previously

Answer 1

Cutoff

1) Inspection and Examination
2) Cutoff

Question 2

Allowance for uncollectable accounts as a percentage of A/R has decreased even though sales skyrocketed over the prior year

Answer 2

Valuation/Allocation/Accuracy

1) Independent Recalculations/Estimates
2) Review of Subsequent Events

Question 3

After reviewing balance sheet - Inventory balance has skyrocketed over prior year

Answer 3

Existence and occurance

1) Inspection and Examination
2) Vouching
3) Observation

Question 4

Reviewing working capital - increase in current ratio due to significant decrease in current liabilities. Current assets remained unchanged

Answer 4

Completeness (understated liabilities)

1) Tracing
2) Review of Subsequent events

Question 5

When reviewing A/R sub ledger - the company sold accounts to a factoring agency but never removed it from the books

Answer 5

Rights and Obligations

1) Inspection and Examination
2) Confirmation
3) Review of Subsequent Events

Question 6

After reviewing documentation - lawsuit reveals company may owe settlement to plantiff

Answer 6

Understandability and classification

1) Inquiry