Management Assertions & Audit Objectives (Chapter 6)
3. Valuation or Allocation
4. Rights and Obligations
5. Presentation and Disclosure
2. Assertions about account balances at period end
3. Assertions about presentation and disclosure
Determines whether recorded transactions have actually occurred. (Have you recorded a sale that has never actually happened?)
Deals with potential overstatement. (Saying a sales transaction occurred when it actually hasn’t.)
Deals with whether all transactions that should be included in the journals have actually been included. (A sale has actually occurred, but it hasn’t been recorded.)
Deals with potential understatement. (Failing to record a sales transaction that has occurred.)
Addresses the accuracy of information for accounting transactions is one part of the accuracy assertion for classes of transactions. (The wrong selling price was used for billing, extension or adding errors occurred in billing, or the wrong amount was included in the sales journal.)
Deals with the accuracy of the transfer of information from recorded transactions in journals to subsidiary records and the general ledger. (Violations include recording a sales transaction in the wrong customer’s record, or at the wrong amount in the master file, which then causes the amounts in the sales and the general ledger to be inaccurate.)
Utilizing computers reduces the risk of inaccuracies caused by human errors, however the auditor must first establish that the computer is functioning properly.
Addresses whether transactions are included in the appropriate accounts.
(Misclassification examples: Recording cash sales as credit sales, misclassifying commercial sales as residential sales.)
The auditor’s counterpart to management’s cutoff assertion.
Failing to record a sale when it should be recorded.
(Example of a violation: Including an account receivable from a customer in the accounts receivable trial balance when there is no receivable from that customer.)
Deals with potential overstatement.
Deals with whether all amounts that should be included have actually been included.
(Example violation: Failure to include an account receivable from a customer in the accounts receivable trial balance when a receivable exists.)
Deals with potential understatement.
One part of the valuation and allocation assertion for account balances.
(Example violations: An inventory item on a client’s inventory listing can be wrong because the number of units of inventory on hand was misstated, the unit price was wrong, or the total was incorrectly extended.)
(Examples: Ensuring the accounts receivable listing, accounts are properly separated into short-term and long-term, and amounts due from affiliates, officers, and directors are classified separately from amounts due from customers.)
Another part of the valuation and allocation assertion for account balances.
Determines whether transactions are recorded and included in account balances in the proper period.
A third part of the valuation and allocation assertion for account balances.
Different from the timing transaction-related audit objective that deals with proper timing of recording transactions throughout the year, whereas the cutoff balance-related audit objective deals with transactions near year-end.
Ensures that the details on lists are accurately prepared, correctly added, and agree with the general ledger.
(Example: Individual accounts receivable on a listing of accounts receivable should be the same in the AR master file, and the total should equal the general ledger account.
A fourth part of the valuation and allocation assertion for account balances.
Concerned with whether an account balance has been reduced for declines from historical cost to NRV or when accounting standards require fair market value.
(Example: Considering the adequacy of the allowance for uncollectible accounts receivable and write-downs of inventory for obsolescence.)
A fifth part of the valuation and allocation assertion for account balances.
Liabilities must belong to the entity.
Rights are always associated with assets and obligations with liabilities.
The auditor’s counterpart to the management assertion of right and obligations for account balances.