Which assertion does the objective that transactions and events have been recorded in the correct accounting period relate to?
ISA 315:A129 identifies a number of assertions made in financial statements and categorises them by their effect on transactions, balances and disclosures within the financial statements. The auditor must obtain audit evidence to support the assertions made so
they can also be considered as audit objectives. The specific objectives in respect of the audit of intangible assets are as follows. Financial statement area Objective Assertion Audit procedures Intangible assets, Goodwill To ensure the assets exist and are owned by the entity at the balance sheet date. E Additions, Internally generated intangible assets Intangible assets, Goodwill Need help? Get subscribed!To subscribe to this content, simply call 0800 231 5199 We can create a package that’s catered to your individual needs. Or book a demo to see this product in action. Paragraph 13(n)(i) of ISA 200 defines inherent risk as being ‘the susceptibility of an assertion ... to a misstatement that could be material ... before consideration of any related controls’. The first point to note is that this is a risk of misstatement that is ‘inherent’ to an assertion, regardless of any controls that are in place. Factors
affecting inherent risk can be internal or external, and are often documented in the permanent file (as described in Background information). Second, in order to understand the susceptibility of an assertion to misstatement, we need to understand what an assertion is. To subscribe to this content, simply call 0800 231
5199 We can create a package that’s catered to your individual needs. Or book a demo to see this product in action. Image source: Getty Images When financial statements are prepared, the preparer is asserting the fundamental accuracy of those statements. Learn what the various audit assertions are and how they can impact your business. Assertions are claims made by business owners and managers that the information included in company financial statements -- such as a balance sheet, income statement, and statement of cash flows -- is accurate. These assertions are then tested by auditors and CPAs to verify their accuracy. Auditors use a variety of assertions when performing an audit. Image source: Author Overview: What are audit assertions?Whether you’re with a Fortune 500 company, a nonprofit, or are a small business owner, any time you prepare financial statements, you are asserting their accuracy. Audit assertions, also known as financial statement assertions or management assertions, serve as management’s claims that the financial statements presented are accurate. When performing an audit, it is the auditor’s job to obtain the necessary evidence to verify the assertions made in the financial statements. Whether you’re using accounting software or recording transactions in multiple ledgers, the audit assertion process remains the same. Types of assertionsThere are numerous audit assertion categories that auditors use to support and verify the information found in a company’s financial statements. 1. ExistenceThe existence assertion verifies that assets, liabilities, and equity balances exist as stated in the financial statement. For example, if a balance sheet indicates inventory on hand for $10,000, it is the job of the auditor to verify its existence. The same process is used when verifying accounts receivable balances. The auditor is tasked with authenticating the accounts receivable balance as reported through a variety of means, including choosing a particular accounts receivable customer and examining all related activity for that particular customer. Bank deposits may also be examined for existence by looking at corresponding bank statements and bank reconciliations. Auditors may also directly contact the bank to request current bank balances. 2. OccurrenceThe occurrence assertion is used to determine whether the transactions recorded on financial statements have taken place. This can range from verifying that a bank deposit has been completed to authenticating accounts receivable balances by determining whether a sale took place on the day specified. 3. AccuracyAccuracy looks at specific transactions and then checks the accuracy of the recorded entry to determine whether the amounts are recorded correctly. In many cases, an auditor will look at individual customer accounts, including payments. to verify that the amount recorded as paid is the same as received from the customer. 4. CompletenessCompleteness helps auditors verify that all transactions for the period being examined have been properly entered in the correct period. For example, an auditor may want to examine payroll records to make sure that all salaries and wages expenses have been recorded in the proper period. This may include an examination of payroll records, a payroll journal, an active employee list, and any payroll accruals that were made and reversed in the period being examined. Inventory can also play a large role in the completeness assertion, with auditors looking at inventory transactions that took place during a specific period by examining inventory levels and corresponding sales numbers to determine that inventory was recorded properly. Completeness, like existence, may examine bank statements and other banking records to determine that all deposits that have been made for the current period have been recorded by management on a timely basis. Auditors may also look for any deposits in the bank that have not been recorded. 5. ValuationThe valuation assertion is used to determine that the financial statements presented have all been recorded at the proper valuation. For instance, the reporting of a company's accounts receivable account does not provide a guarantee that the customer will pay the accounts receivable amount owed. In this case, an auditor can examine the accounts receivable aging report to determine if bad debt allowances are accurate. Inventory is another area that auditors may review to determine that inventory is properly valued and recorded using the appropriate valuation methods. 6. Rights and obligationsRights and obligations assertions are used to determine that the assets, liabilities, and equity represented in the financial statements are the property of the business being audited. In other words, if your small business is being audited, the auditor may ask for proof that the cash balance of your bank account belongs to the business. Auditors may look at other assets as well to determine whether they are the property of the business or are just being used by the business. Liabilities are another area that auditors will review to determine that any bills paid from the business belong to the business and not the owner. 7. ClassificationThe classification assertion addresses the financial statements themselves. Are the statements presented properly in an acceptable format? Do they include all of the necessary information and related disclosures? Are they easy to understand? For example, accounts payable notes payable and interest payable are all considered payables, but they are all very separate entities and should be reported as such. For example, notes payable transactions should never be classified as an accounts payable transaction, with the same being true for interest payable transactions. It is the auditor’s responsibility to determine that these items are properly disclosed in the financial statements. 8. Cut-offThe cut-off assertion is used to determine whether the transactions recorded have been recorded in the appropriate accounting period. Payroll and inventory balances are often checked for cut-off accuracy to determine that the activity that took place was recorded in the appropriate period. This is particularly important for those accruing payroll or reporting inventory levels. The audit assertions above are used in three different categories.
FAQs
Audits don’t have to be scaryYour financial statements are your promise or your assertion that everything contained in those statements is accurate. The job of an auditor is to test those assertions for accuracy. Unless you’re an auditor or CPA, you’ll never have to worry about testing audit assertions, and if you continue to enter financial transactions accurately, you won’t have much to worry about during the audit process. However, knowing what these assertions are and what an auditor will be looking for during the audit process can go a long way toward being better prepared for one. Which financial statement assertion means that transactions and events have been recorded in the correct accounting period?(iii) Accuracy – amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described. (iv) Cut–off – transactions and events have been recorded in the correct accounting period.
Which accounting assertion is to ensure that transactions have been recorded in the proper account?The cut-off assertion is used to determine whether the transactions recorded have been recorded in the appropriate accounting period.
Which of the following are the assertions for transactions and events?Transactions and events. Occurrence — the transactions recorded have actually taken place.. Completeness — all transactions that should have been recorded have been recorded.. Accuracy — the transactions were recorded at the appropriate amounts.. Cutoff — the transactions have been recorded in the correct accounting period.. What is the completeness assertion?Completeness. This assertion attests to the fact that the financial statements are thorough and include every item that should be included in the statement for a given accounting period.
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