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Audit Assertions: Identify the Assertion for the Issues Listed

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(Assertions) In planning the audit of a client's financial statements, an auditor identified
the following issues that need audit attention.

1. The allowance for doubtful accounts is fairly presented in amount.
2. All accounts payable owed as of the balance sheet date are included in the financial
statements.
3. All purchase returns recorded in the general ledger are valid.
4. There is a risk that purchases made in the last week of the month might be recorded in
the following period.
5. The client may have factored accounts receivable.
6. The client has used special-purpose entities to finance a building. Neither the building
nor the debt is included in the financial statements.
7. A retail client values its inventory using the retail method of accounting.
8. A construction client uses the percentage of completion method for recognizing revenues.
9. A client has a defined benefit pension plan and does not have competent employees to
write footnote disclosures.
10. A client acquired a subsidiary company and paid a high amount of goodwill when the
stock market, and resulting values, were at all-time highs.
11. A client financed the acquisition of assets using preferred stock that pays a 3 percent
dividend and must be redeemed from the shareholders next year.

Required

Identify the assertion for items 1 through 11 above.

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Solution Preview

1. The allowance for doubtful accounts is fairly presented in amount.

**Presentation & Disclosure

2. All accounts payable owed as of the balance sheet date are included in the financial
statements.

** Completeness

3. All purchase returns recorded in the general ledger are valid.

** Rights & Obligations

4. There is a risk that ...

Solution Summary

The solution identifies the audit assertion for the issues listed.

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