Audit Evidence: Specific Audit Areas Flashcards
(6 cards)
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
