Auditing

2 Pages 623 Words

The topic I will be discussing tonight is management’s assertions about the financial statements representing their company. According to the textbook these assertions can be divided into to five broad categories. These categories are existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. An auditor’s develops objectives, which vary from one engagement to another, depending on the entity’s business and the accounting practices distinctive to its industry.
In the existence or occurrence assertion, management asserts that all recorded assets, liabilities, and equities disclosed in the financial statements actually existed at the balance sheet date. Management also asserts that all recorded transactions occurred during the period ending on the balance sheet date. The auditor’s objective is to test whether the assertions made by management are appropriate. For example, when auditing inventory an auditor’s objective is to determine if the inventory existed at the balance sheet date, if the recorded inventory purchases in fact occurred, and if sales transactions in the income statement represent the exchange of goods or services for cash or other consideration. This can be tested by observing the client’s physical count of inventory, confirming the off-premises inventory with public warehouses, and by using inventory cutoff tests to be sure purchases and sales are recorded in the correct accounting period.
In the completeness assertion, management asserts that all transactions occurred during the period were recorded. This assertion is the most challenging for the auditor because he or she must discover any transactions that were not recorded but should have been and vise versa. For example, when auditing inventory the auditor will use the same tests used in the existence assertion. The auditor will observe physical inventory, confirm off-premises invento...