Accounting Auditing Principles

Conducting Audits

• The most efficient way to conduct audits is to obtain a combination of assurance for each class of transactions and for the ending balances in the related accounts.

Transaction Related Audit Objectives

• Several audit objectives must be met before the auditor can conclude that the transactions are properly recorded.
• These objectives are called transaction-related audit objectives.

Management Assertions

• Management assertions are implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements.
• Assertions are directly related to the financial reporting framework (U.S. GAAP or IFRS) that forms the criteria for recording and disclosing accounting information in financial statements.

Categorization of Assertions

• International auditing standards (IASs) and U.S. GAAS classify assertions into three categories:
• Assertions about classes of transactions and events for the period under audit.
• Assertions about account balances at period end.
• Assertions about presentation and disclosure.

Assertions about Classes of Transactions

• Occurrence: Concerns whether recorded transactions actually occurred during the accounting period.
• Completeness: Addresses whether all transactions that should be included in the financial statements are in fact included.
• Accuracy: Addresses whether transactions have been recorded at correct amounts.
• Classification: Addresses whether transactions are recorded in the appropriate accounts.
• Cutoff: Addresses whether transactions are recorded in the proper accounting period.

Assertions about Account Balances

• Existence: Deals with whether assets, liabilities, and equity interests included in the balance sheet actually existed on the balance sheet date.
• Completeness: Addresses whether all accounts and amounts that should be presented in the financial statements are in fact included.
• Valuation and Allocation: Deals with whether assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts.
• Rights and Obligations: Addresses whether assets are the rights of the entity and whether liabilities are the obligations of the entity at a given date.

Assertions about Presentation and Disclosure

• Occurrence and Rights and Obligations: Addresses whether disclosed events have occurred and pertain to the entity.
• Completeness: Deals with whether all required disclosures have been included in the financial statements.