ACCG340 Final: 4
19 Jun 2018
School
Department
Course
Professor
WK 4
Financial statement assertions - what make accounts correct
1. Top down audit approach (Business risk analysis and response)
2. Financial statement assertions - ASA 315.A111
a) About classes of
transactions
and events for the period under audit (Income statement
accounts): revenues (sales, COGS)expenses, net profit, P&L, bad debts
Assertion
Definition
Occurrence
Overstatement. Transactions and events that have been recorded have
occurred and pertain to the entity, e.g. sales
Completeness
Understatement. All transactions and events that should have been
recorded have been recorded.
Accuracy
Amounts
and other data relating to recorded transactions and events
have been recorded appropriately.
Cut-off
Transactions and events have been recorded in the
correct accounting
period
.
Classification
Transactions and events have been recorded in the
proper accounts
.
b) About account balances as at the
period end
(Balance sheet accounts): A, Lia, Equity,
Provision for D.D. àcontra-asset
Assertion
Definition
Existence à
occurrence
Overstatement. Assets, liabilities and equity interests exist.
Completeness à
completeness
Understatement. Track back to accounting record. All assets,
liabilities and equity interests that should have been recorded have
been recorded, e.g. Provisions
Valuation and
Allocation
Assets, liabilities and equity interests are
included
in the financial
report at appropriate
amounts
and any resulting valuation or allocation
adjustments are appropriately recorded.
Rights and
Obligations
The entity holds or
controls
the rights to assets, and
liabilities
are
the obligations of the entity.
c) About presentation and disclosure
Assertion
Definition
Occurrence,
rights &
Disclosed events, transactions and other matters have occurred and
pertain to the entity.
Assertion
Account
Financial.
Report
Business.(external.and.internal.
environment.factors)
Representations.made.by.management,.
explicit.or.otherwise,.that.are.embodied.
in.the.financial.report,.as.used.by.the.
auditor.to.consider.different.types.of.
potential.misstatements.that.may.occur
obligations
Completeness
All disclosures that should have been included in the financial
report have been included.
Classification &
understandabilit
y
Financial information is appropriately presented and described and
disclosures are clearly expressed.
Accuracy and
valuation
Financial and other information are disclosed fairly and at
appropriate amounts.
3. Auditor response to risk of material misstatement (WEEK 5)
a) Response at overall (financial report) level
b) Response at assertion level
i. Develop and undertake audit procedures related to specific assertions to reduce
risk of material misstatement for a specific assertion to an acceptable level
4. Assertions and audit objectives for inventory
à
Asset item
à
Balance sheet
Internal control - mid term!
1. Steps in the planning process
2. Internal control (IC)
IC is the process designed and
implemented by management
to address (minimise) identified
significant business risks that threaten the achievement of entity’s objectives in
relation to:
a) reliability of financial reporting – auditors concern about
Financial report Illustrative audit objectives
assertion
Existence !Inventories included in the balance sheet physically exist.
!Inventories represent items held for sale in normal course
of business.
Completeness !Inventory quantities as per the accounting records include
all products, materials and supplies owned by the company
that are on hand.
!Inventory quantities include all products, materials and
supplies owned by the company that are in transit or stored
at outside locations.
Rights and !The company has legal title or similar rights of ownership
obligations to the inventories.
!Inventories exclude items billed to customers or owned
by others.
Valuation and !Inventories are properly stated at cost (except when the
allocation net realisable value is lower).
!Slow-moving, excess, defective and obsolete items included
in inventories are properly identified and valued.
Document Summary
Financial statement assertions - what make accounts correct: top down audit approach (business risk analysis and response) Transactions and events that have been recorded have occurred and pertain to the entity, e. g. sales. All transactions and events that should have been recorded have been recorded. Amounts and other data relating to recorded transactions and events have been recorded appropriately. Transactions and events have been recorded in the correct accounting period. Transactions and events have been recorded in the proper accounts: about account balances as at the period end (balance sheet accounts): a, lia, equity, All assets, completeness liabilities and equity interests that should have been recorded have been recorded, e. g. provisions. Assets, liabilities and equity interests are included in the financial. Allocation report at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. The entity holds or controls the rights to assets, and liabilities are. Obligations the obligations of the entity: about presentation and disclosure.
