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Following are 10 pairs of assertions:

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(Inherent risk) Following are 10 pairs of assertions:

1. A. Existence or occurrence of inventory
B. Existence or occurrence of building.

2. A. Valuation or allocation of cash.
B. Valuation or allocation of deferred income taxes

3. A. Existence or occurrence of AP
B. Completeness of AP

4. A. Rights and obligations of accrued wages payable
B. Rights and obligations of liability under warranties

5. A. Presentation and disclosure of repairs and maintenance expense
B. Presentation and disclosure of telephone expense

6. A. Valuation or allocation of long-term investments
B. Valuation or allocation of land

7. A. Existence or occurrence of AR
B. Completeness of AR

8. A. Existence or occurrence of cash
B. Valuation or allocation of cash

9. A. Valuation or allocation of bad debts expense
B. Valuation or allocation of depreciation expense

10. A. Valuation or allocation of receivable due from affiliate
B. Valuation or allocation of note payable to bank

Required:

a. For each pair of assertions, indicate whether a) or b) would typically have the higher inherent risk and state why.

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Solution Preview

Following are 10 pairs of assertions:

1. A. Existence or occurrence of inventory
B. Existence or occurrence of building.

2. A. Valuation or allocation of cash.
B. Valuation or allocation of deferred income taxes

3. A. Existence or occurrence of AP
B. Completeness of AP

4. A. Rights and obligations of accrued wages payable
B. Rights and obligations of liability under warranties

5. A. Presentation and disclosure of repairs and maintenance expense
B. Presentation and disclosure of telephone expense

6. A. Valuation or allocation of long-term investments
B. Valuation or allocation of land

7. A. Existence or occurrence of AR
B. Completeness of AR

8. A. Existence or occurrence of cash
B. Valuation or allocation of cash

9. A. Valuation or allocation of bad debts expense
B. Valuation or allocation of depreciation expense

10. A. Valuation or allocation of receivable due from affiliate
B. Valuation or allocation of note payable to bank

Required:

a. For each pair of assertions, indicate whether a) or b) would typically have the higher inherent risk and state why.

Answer:

(Inherent risk) Following are 10 pairs of assertions:

1. A. Existence or occurrence of inventory
B. Existence or occurrence of building.
For existence or occurrence, our goal is to verify that the transactions existed in the current period. Inventory is always a high risk area, especially if there are weak internal controls. Inventory can ...

Solution Summary

Following are 10 pairs of assertions:

1. A. Existence or occurrence of inventory
B. Existence or occurrence of building.

2. A. Valuation or allocation of cash.
B. Valuation or allocation of deferred income taxes

3. A. Existence or occurrence of AP
B. Completeness of AP

4. A. Rights and obligations of accrued wages payable
B. Rights and obligations of liability under warranties

5. A. Presentation and disclosure of repairs and maintenance expense
B. Presentation and disclosure of telephone expense

6. A. Valuation or allocation of long-term investments
B. Valuation or allocation of land

7. A. Existence or occurrence of AR
B. Completeness of AR

8. A. Existence or occurrence of cash
B. Valuation or allocation of cash

9. A. Valuation or allocation of bad debts expense
B. Valuation or allocation of depreciation expense

10. A. Valuation or allocation of receivable due from affiliate
B. Valuation or allocation of note payable to bank

Required:

a. For each pair of assertions, indicate whether a) or b) would typically have the higher inherent risk and state why.

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