Assertions in Auditing - Financial Statements
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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 Summary
Assertion in auditing financial statements are discussed.
Solution Preview
The five assertions:
Existence
Completeness
Valuation
Rights & Obligations
Presentation & Disclosure
1. The allowance for doubtful accounts is fairly presented in amount.
Valuation
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 ...
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