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Management Assertions Homework Management Assertions Your first step in learning to audit is to understand and be able to identify management...

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Management Assertions Homework Management Assertions Your first step in learning to audit is to understand and be able to identify management assertions for events and transactions. You will need to be able to relate these to account balances and other financial statement disclosures. You must be able to recognize what is being asserted by management before you can use audit procedures to test the assertions. Therefore, you must be able to communicate in writing what you know in your head. Written communication is essential to the audit process. Basically, an auditor plans and performs an audit to gather evidence that will support or not support these management assertions for every account balance disclosed and footnote disclosure made in the set of financial statements. You will use these assertions to organize your audit objectives (why you do the procedures that you do). Existence and Occurrence Rights and Obligations Completeness Valuation and Allocation Presentation and Disclosure Directions: For the items below, A. Identify and explain what management is asserting to the public that the auditor must test. There may be more than one assertion in the statement made by management, so be sure to explain why you chose each assertion that is identified. B. Show the balance sheet effect and the income statement effect of the management assertion by identifying the account balances affected on each financial statement. Example: The bond issues were authorized by the entire board of directors. Assertion: Existence because the bond transactions would not exist for the company if the company had not authorized the event. Assertion : Rights and Obligation because the bonds transactions represent a true obligation of the company. Balance Sheet Effect: Asset: Cash account due to proceeds from initial sale of bonds and payment of bond expense and principle over time Liabilities : Bonds payable, current portion of bonds payable, bond expense payable Perhaps a contra account such as bonds discount or premium that must be amortized to show net realizable value of bond, and the required footnote disclosure Income Statement Effect : Bond interest expense
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Problems: 1. The new piece of equipment has arrived and is being used in production of goods. Assertion(s): Balance Sheet Effect: Income Statement Effect: 2. The accounts receivables were not sold nor are they used as collateral. Assertion(s): Balance Sheet Effect: Income Statement Effect: 3 . The lease is an operating lease. Assertion(s): Balance Sheet Effect: Income Statement Effect: 4. The assets were purchased for cash and a mortgage from the bank at this amount. Assertion(s): Balance Sheet Effect: Income Statement Effect: 5. All liabilities have been included and non have been left out. Assertion(s): Balance Sheet Effect: Income Statement Effect: 6. We have the appropriate amount of life insurance for the owner/CEO and fire insurance for the building. Assertion(s): Balance Sheet Effect: Income Statement Effect: 7. We own inventory that is located in the warehouse maintained by another company. Assertion(s): Balance Sheet Effect: Income Statement Effect: 8. Any inventory that has not been shipped to a customer is ours. Assertion(s): Balance Sheet Effect: Income Statement Effect: 9. Sales commission is based on a set percentage of sales per sales rep.
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Problems:
1. The new piece of equipment has arrived and is being used in production of goods.
Assertion(s):a) Existence and occurrence since equipment actually exists.
b) Presentation and...

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