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Unformatted text preview: Lecture 5 • Audit assertions o The different ways an account can be wrong I tems omitted Non-existent items included I tems in wrong account I tems recorded at wrong amount o Are properties of the following must be t rue for the account balance, set of transactions and disclosure in financial statements to be correctly stated. An account balance Set of transactions A disclosure in financial statements • Classes of transactions and events (income statement + cash flow statement) o To be correctly stated, each of the following assertions must be tested: Occurrence : looking for items in accounts that never actually happened (e.g. revenue that never happened was recorded) Completeness : looking for things that did happen but never recorded in account (e.g. expense not recorded) Accuracy : figures are correct and other related data are correct (e.g. sale of $100 shouldn’t be recorded as $90 or $110) Cut-off : make sure dates are correct, transactions recorded in right accounting period (e.g. delay expense or bring forward sales, can be deliberate or just be the nature of transaction) Classification : checking only transactions have been recorded in right accounts (e.g. sale of PPE should not be recorded in sale account) • About account balances at the period end (balance sheet items) Existence: Assets, liabilities and equity interests actually exist. E.g. If claim PPE exist, then you can physically check. If they claim to have it, they must actually have it Rights & obligations: What they own must be their’s. E.g. For PPE to be on balance sheet, it must exist and be owned, not leased. Also IP, brand names can make it hard to determine who actually owns it. Completeness: All assets, liabilities and equity interests that should have been recorded have been recorded. Valuation and allocation: I tems recorded at appropriate amounts and subsequent revaluation and allocation adjustments are appropriately recorded. • About presentation and disclosure Occurrence and rights and obligation: Things that are disclosed to have happened (e.g. signed new contract after balance date actually happened) Completeness: All disclosures that should be included have been included Classification and Understandability: Financial info is appropriately presented and described (NCA and CA classification)...
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This note was uploaded on 10/04/2011 for the course ACCT 3708 taught by Professor - during the Three '11 term at University of New South Wales.
- Three '11