Unit 6 Flashcards
What are the 5 classes of assertion transactions?
- Occurrence: Transactions and events that have been recorded have occured and pertain to the entity.
- Completeness: 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 appropriatley
- Cut-off: Transactions and events have been recorded in the correct accounting period.
- Classification: Transactions and events have been recorded in the proper accounts.
When is occurrence most important?
When there is a risk of overstatement. (Revenues)
When is completeness most important?
When there is a risk of undersatement. (expenses)
When is accuracy most important?
When there is a higher risk of inaccuracy. (Foreign exchange transactions)
When is cut-off most important?
When transactions are near the year- end.
When is classification most important?
Always.
What are the 4 balance sheet (account balance) assertions/Auditor gathers evidence that?
- Existence: Assets, liabilities, and equity interests exist.
- Rights and obligations: Entity holds or controls the rights to assets, and liabilities are obigation of the entity.
- Completeness: All assets, liabilities and interests that should be recorded have been recorded.
- Valuaton and allocation: Assets, laibilties and equity interest are include in financial report at appropriate ammounts. Any valuation or allocation adjustments are properly recorded.
When is existence most important?
When there is a risk of overstatement. (Assets)
When is right and obligations most important?
When there is a risk that items are held but not owned. (Inventory on consignment)
When is completeness most important?
When there is a risk of understatement. (Unrecorded loans)
When is valuation and allocation most important?
When there is a risk of over or understatement. (Inventory at lower cost and NRV, adequacy of doubtful debts or other provisions)
What are 4 assertions over presentation and disclosure? (Not as heavily tested as other assertions)
- Occurence, rights and obligations: Disclosed events, transactions and other matters have occurred and pertain to the entity.
- Completeness: All disclosures that should have been included in the financial statements report have been included.
- Classification and understandibility: Financial information is appropriatley presented and described and disclosures are clearly expressed.
- Accuracy and valuation: Financial and other infromation are disclosed fairly and at appropriate amounts.
Account Balance assertion:
Existence =
Completeness =
Valuation and allocation =
Rights and obligations =
Class of transations assertion:
= Occurrence = Completeness = Accuracy = = Cut-off = Classification
