responses to audit risks/valuations

Question 1

Valuation risk

Answer 1

Inspect valuation reports and see if independant experts showed independance and competence. Could recalculate the figures. See if valuation was perfomed in accordance with the regulations ISA 540 which is emaine methods used in estimation

Question 3

What does the Existence (or Occurrence) assertion address?

Answer 3

It ensures that assets, liabilities, and equity interests recorded exist at a given date (Existence), and recorded transactions actually occurred during the period (Occurrence).

Question 4

Name two common audit procedures to test Existence of assets.

Answer 4

Physical inspection/count of tangible assets (e.g., inventory, fixed assets).

Third-party confirmations (e.g., receivable confirmations, bank confirmations).

Question 5

Which procedure helps confirm the Occurrence of recorded sales?

Answer 5

Vouching from the sales ledger entries back to underlying documents (e.g., customer purchase orders, shipping documents) ensures those sales truly took place.

Question 6

What is the Completeness assertion?

Answer 6

It checks that all transactions and balances that should be recorded in the financial statements are actually recorded, ensuring no omissions.

Question 7

Give two audit procedures to verify Completeness of liabilities.

Answer 7

Tracing from supplier invoices/receiving reports to the general ledger (to catch unrecorded payables).

Cut-off testing near year-end to ensure expenses/liabilities are recorded in the correct period.

Question 8

Which check helps ensure the completeness of numbered documents (e.g., invoices)?

Answer 8

Sequence checks (verifying no missing or duplicated invoice numbers).

Question 9

What does the Rights and Obligations assertion confirm?

Answer 9

That the entity owns or has the right to its recorded assets and is obligated for its recorded liabilities at the reporting date.

Question 10

List two audit procedures to verify ownership of recorded assets.

Answer 10

Inspect legal title deeds, lease contracts, or purchase agreements.

Confirm with lenders or counterparties that there are no undisclosed liens or joint ownerships.

Question 11

How can auditors confirm obligations for recorded debts?

Answer 11

By reviewing loan agreements, bank confirmations, and board minutes for any relevant covenants or security arrangements.

Question 12

What does Accuracy, Valuation, and Allocation ensure?

Answer 12

That accounts are recorded at correct amounts under the appropriate accounting framework and expenses/incomes are allocated to the correct periods.

Question 13

What is one common way to test Valuation of receivables?

Answer 13

Subsequent receipts testing: checking post-year-end cash collections to see if receivables are recoverable, or evaluating the allowance for doubtful debts (bad debt provision) for reasonableness.

Question 14

Name two procedures to verify Accuracy of calculations in the financial statements.

Answer 14

Recalculation of sums such as depreciation, interest, and amortization.

Analytical procedures (e.g., ratio analysis to spot anomalies in margins or expense patterns).

Question 15

What is the Cut-Off assertion about?

Answer 15

Ensuring that transactions (especially for revenue, purchases, and inventory) are recorded in the correct accounting period.

Question 16

Which procedure helps verify Cut-Off for sales revenue?

Answer 16

Inspecting shipping documents around period-end and matching them to invoice dates to confirm revenue is recognized in the proper period.

Question 17

Why is Cut-Off critical for inventory?

Answer 17

Because goods in transit or unrecorded receipts/dispatches near year-end can cause overstatement or understatement of both inventory and cost of sales.

Question 18

What does the Classification and Presentation assertion address?

Answer 18

That transactions and balances are correctly classified (e.g., current vs. non-current) and that they are adequately presented and disclosed under relevant accounting standards.

Question 19

Name a key audit procedure to ensure proper Classification of transactions.

Answer 19

Mapping general ledger accounts to the correct financial statement line items and reviewing each account to ensure transactions are posted to their correct category (e.g., capital vs. expense).

Question 20

How do auditors check Presentation and Disclosure compliance?

Answer 20

By using a disclosure checklist (aligned with IFRS/GAAP) to verify that all required information (e.g., accounting policies, related-party transactions) is included in the financial statements.