F the total of the amounts on the accounts receivable

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Unformatted text preview: t of the detail tie-in objective and is part of the valuation or allocation assertion. 6-24 6-26 (continued) SPECIFIC BALANCERELATED AUDIT OBJECTIVE MANAGEMENT ASSERTION COMMENTS g. All accounts on the list arose from the normal course of business and are not due from related parties. 3. Valuation or allocation Concerns the classification of accounts receivable and is therefore a part of the classification objective and the valuation or allocation assertion. Some people believe that like item e., it is a part of presentation and disclosure. h. Sales cutoff at yearend is proper. 3. Valuation or allocation Cutoff is a part of the cutoff objective and therefore part of the valuation or allocation assertion. 6-27 a. Management assertions are implied or expressed representations by management about the classes of transactions and related accounts in the financial statements. AU 326 identifies five assertions about classes of transactions which are stated in the problem. These assertions are the same for every transaction cycle and account. General transaction-related audit objectives are essentially the same as management assertions, but they are expanded somewhat to help the auditor decide which audit evidence is necessary to satisfy the management assertions. Accuracy and posting and summarization are a subset of the accuracy assertion. Specific transaction-related audit objectives are determined by the auditor for each general transaction-related audit objective. These are done for each transaction cycle to help the auditor determine the specific amount of evidence needed for that cycle to satisfy the general transaction-related audit objectives. b. and c. The easiest way to do this problem is to first identify the general transaction-related audit objectives for each specific transactionrelated audit objective. It is then easy to determine the management assertion using Table 6-3 (p. 158 in text) as a guide. 6-25 6-27 (continued) b. SPECIFIC TRANSACTIONRELATED AUDIT OBJECTIVE MANAGEMENT ASSERTION c. GENERAL TRANSACTIONRELATED AUDIT OBJECTIVE a. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded. 3. Accuracy 8. Accuracy b. Cash disbursement transactions are properly included in the accounts payable master file and are correctly summarized. 3. Accuracy 9. Posting and summarization c. Recorded cash disbursements are for goods and services actually received. 1. Occurrence 6. Occurrence d. Cash disbursement transactions are properly classified. 4. Classification 10. Classification e. Existing cash disbursement transactions are recorded. 2. Completeness 7. Completeness f. Cash disbursement transactions are recorded on the correct dates. 5. Cutoff 11. Timing 6-28 SPECIFIC PRESENTATION AND DISCLOSURE-RELATED AUDIT OBJECTIVE MANAGEMENT ASSERTION a. All required disclosures about fixed assets have been made. 2. Completeness b. Footnote disclosures related to fixed assets are clear and understandable. 4. Classification and understandability c. Methods and useful lives disclosed for each category of fixed assets are accurate. 3. Accuracy and valuation d. Disclosed fixed asset dispositions have occurred. 4. Occurrence and rights and obligations 6-26 6-29 a. The first objective concerns amounts that should not be included on the list of accounts payable because there are no amounts due to such vendors. This objective concerns only the overstatement of accounts payable. The second objective concerns the possibility of accounts payable that should be included but that have not been included. This objective concerns only the possibility of understated accounts payable. b. The first objective deals with existence and the second deals with completeness. c. For accounts payable, the auditor is usually most concerned about understatements. An understatement of accounts payable is usually considered more important than overstatements because of potential legal liability. The completeness objective is therefore normally more important in the audit of accounts payable. The auditor is also concerned about overstatements of accounts payable. The existence objective is also therefore important in accounts payable, but usually less so than the completeness objective. 6-27 6-30 AUDIT PROCEDURE BALANCERELATED AUDIT OBJECTIVE a. Examine a sample of duplicate sales invoices to determine whether each one has a shipping document attached. b. Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger. TRANSACTION RELATED AUDIT OBJECTIVE (9) Occurrence (6) Detail Tie-In c. For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct customer account in the accounts receivable subledger. (14) Posting and summarization 6-15 d. Inquire of the client whether any accounts receivable balances have been pledged as collateral on long-term debt and determine whether all required information is included in the footnote d...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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