MODULE 17

Question 1

What are Assertions?

Answer 1

Something that allows us to make sure the financial statements are properly recorded

Question 2

What are the two types of assertions?

Answer 2

Transactional Assertions

Balances (Balance sheet) Assertions

Question 3

What are the transaction Assertions, and explain them:

Answer 3

1. Occurrence - Did the transaction actually occur?
2. Completeness - Have we recorded all of our transactions
3. . Accuracy - Have we recorded every transaction accurately? Have we used correct price/ quantity?
4. Cut-off - Have we used the correct financial period
5. Classification- Have transactions been used in the correct account?
6. Presentation - How things look in the financial statements

Question 4

What are the Balance Assertions, and explain them:

Answer 4

1. Existence - Does the assets really exist?
2. Rights and Obligations- Do I owe a liability therefore an obligation,, do I own an asset to have the right to record it?
3. Completeness- Have we recorded everything?
4. Accuracy, valuation and allocation - Are the balanced recorded at accurate amounts, have we valued assets correctly?
5. Classification-Have balances been recorded in the proper accounts?

Presentation - are balances properly segregated, are they properly described?

Question 5

Why are assertions important?

Answer 5

Because, if we can gather evidence to provide all assertions have been met, then the account Is free from material misstatement

Question 6

What does sufficient and appropriate evidence mean?

Answer 6

Sufficiency - Measure of quantity of evidence

Appropriateness - is it relevant and reliable?

Question 7

What are the 3 sources of reliability?

Answer 7

Auditor generated - Created by processes

Client generated- Included Accounting Records, internal documents etc. Which are all under control of directors

Third party/ externally generated - Bank statements

Question 8

What 4 categories are there for evidence in nature?

Answer 8

Natural Evidence- The auditor physically witnesses the event or the asset

Created evidence - for e.g invoices, letters from clients banks

Rational Argument - Evidence through applying logic, for e.g checking the reasonableness of a depreciation figure

Testimonial evidence Spoken evidence, such as conversations

Question 9

How to determine sufficiency;

Answer 9

Level of materiality
The assessed ROMM of the figure being tested
The sources and quality of availability evidence