Flashcards in Lecture 5 Deck (21):
Representations by management, explicit or otherwise, embodied in financial statements
Auditors use assertions to
Reduce audit risk to acceptably low level
3 categories of assertions (ISA 500)
- Classes of transaction eg revenue, costs (PL captions > CEAP
- Account balances eg assets and liabilities (BS items) > CEAVOP
- Presentation and disclosure eg all financial statement notes > CEAVOP
Is population complete? Right number of transactions? Risk of understatement
Does transaction/ balance exist or is population overstated?
Is the £ amount included in the accounts correct?
Does amount included in accounts have right value?
Obligation & rights
Do FSs reflect company's rights and obligations?
Are FSs appropriately presented, and disclosures expressed clearly?
Assertion rule creditors
No valuation aspect, what you owe = what you owe
Assertion rule cash
No valuation aspect
Assertion rule P&L items
Historic items have no valuation and ownership aspect
Assertion rule C & E
Can't both be significant risks for 1 item
Significant risks =
Areas where auditor considers material misstatement may exist either through fraud or error (identified and assessed risk)
Significant risk according to ISA 315
Assessed at assertion level for all categories of assertion. To test assertions we decide which are signif and do more work on these.
If significant risk account.. (2)
- Partner must sign off
- Must test controls
Areas which give rise to significant risk (3)
- Complex transactions/ outside normal course business
- Related party transactions
- Areas with significant judgment
ISAs indicate revenue..
Should have signif risk due to risk of fraud
Lists all account balances, presentation and disclosure items and classes of transactions. Identifies audit approach to take.
To work out what to test
Use planning document and planning matrix