Management Assertions PDF

Management Assertions Advance Auditing MOS4463 Management Assertions In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding: Recognition, measureme...

Management Assertions Advance Auditing MOS4463 Management Assertions In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding: Recognition, measurement, presentation and disclosure of the various elements of financial statements and related disclosures.  Management Bias In general management always have incentive to: – Overstate net income: Overstating revenue & understating expenses. – Overstatement of net assets: Overstating assets & understating liabilities.  Assertions used by the auditor to consider the different types of potential misstatements that may occur fall into the following three categories and may take the following forms: (a) Assertions about classes of transactions and events for the period under audit: (i) Occurrence — transactions and events that have been recorded have occurred and pertain to the entity. Revenue: (ii) Completeness — all transactions and events that should have been recorded have been recorded. Expenses: Bad debt expense (AFDA, Inventory Valuation), Research Liabilities: Law suits, provisions (warranty, air miles, unused coupons) (iii) Accuracy — amounts and other data relating to recorded transactions and events have been recorded appropriately. (iv) Cutoff — transactions and events have been recorded in the correct accounting period. – If the revenues & expenses are recorded in correct period; Premature recognition of revenue; and Deferral of expenses to next period. (v) Classification — transactions and events have been recorded in the proper accounts Current verses Long /Current Ratio Gain verses Revenue/Gross Margin  (b) Assertions about account balances at the period end: (i) Existence — assets, liabilities, and equity interests exist. – Accounts Receivables (ii) Rights and obligations — the entity holds or controls the rights to assets, and liabilities are the obligations of the entity. – Consignment Inventory – Leases (iii) Completeness — all assets, liabilities and equity interests that should have been recorded have been recorded. – Tax Liabilities – Environmental Liabilities (iv) Valuation and allocation — assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. Valuation of Assets - Overstatement – Capitalized Development Cost – Accounts Receivables (AFDA) – Inventory (Obsolescence Allowance) – Soft Assets – Intangibles – Deferred Cost – Government Grant – Any asset effected by an Estimate Valuation of Liabilities: – Provisions – Tax liabilities – Environmental liabilities  (c) Assertions about presentation and disclosure: (i) Occurrence and rights and obligations — disclosed events, transactions, and other matters have occurred and pertain to the entity. (ii) Completeness — all disclosures that should have been included in the financial statements have been included. (iii) Classification and understandability — financial information is appropriately presented and described, and disclosures are clearly expressed. Current verses Long Term. Operating expense verses Non operating/discontinued/unusual. (iv) Accuracy and valuation — financial and other information are disclosed fairly and at appropriate amounts.