MODULE 17 Flashcards
What are Assertions?
Something that allows us to make sure the financial statements are properly recorded
What are the two types of assertions?
Transactional Assertions
Balances (Balance sheet) Assertions
What are the transaction Assertions, and explain them:
- Occurrence - Did the transaction actually occur?
- Completeness - Have we recorded all of our transactions
- . Accuracy - Have we recorded every transaction accurately? Have we used correct price/ quantity?
- Cut-off - Have we used the correct financial period
- Classification- Have transactions been used in the correct account?
- Presentation - How things look in the financial statements
What are the Balance Assertions, and explain them:
- Existence - Does the assets really exist?
- Rights and Obligations- Do I owe a liability therefore an obligation,, do I own an asset to have the right to record it?
- Completeness- Have we recorded everything?
- Accuracy, valuation and allocation - Are the balanced recorded at accurate amounts, have we valued assets correctly?
- Classification-Have balances been recorded in the proper accounts?
Presentation - are balances properly segregated, are they properly described?
Why are assertions important?
Because, if we can gather evidence to provide all assertions have been met, then the account Is free from material misstatement
What does sufficient and appropriate evidence mean?
Sufficiency - Measure of quantity of evidence
Appropriateness - is it relevant and reliable?
What are the 3 sources of reliability?
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
What 4 categories are there for evidence in nature?
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
How to determine sufficiency;
Level of materiality
The assessed ROMM of the figure being tested
The sources and quality of availability evidence