Audit Evidence: Specific Audit Areas Flashcards
What are the four assertions generally applicable to account balances?
1) Existence
2) Completeness
3) Rights and obligations
4) Valuation and Allocation
What is existence?
Existence- regarding validity of recorded items (DIRECTION: Go from accounting records to supporting documents)
- Confirmations- Concerned with overstatement of accounts (cash accounts receivable, inventory, or investment securities)
- Observation- Especially for inventory or investment securities hold by the entity
- Inspect underlying documents- alternate procedures to AR or PPE accounts
What is the completeness assertion?
Completeness- Regarding commission (Direction: Supporting documents to the accounting records)
- Cutoff tests- Trace from supporting source documents back to the accounting records looking for omissions. To fail to record something that should have been recorded.
- Analytical procedures- These are applicable to audit area.
What is the rights and obligations assertion?
restrictions related to their assets or to the obligations for their liabilities.
- Inquire of applicable client personnel: About compensating balances with banks, the use of specific assets
Examine authorization of transactions- reading board members
What is the valuation and allocation assertion?
Related to the appropriateness of dollar measurements in accordance with GAAP.
- Recalculate account balances (verify the client’s calculation)
- Trace to subsequent cash receipts or disbursements journal and to bank statements
What are substantive procedures usually performed in every individual area?
- Agree the financial statements elements to the underlying accounting records
- Scan the entity’s journal entries and ledgers for unusual items
- Make appropriate inquiries of management and other personnel
- Perform specific analytical procedures- consider historical trends and events within the industry
