[Anonymous]

Guys I am sitting for Aud in about 3 weeks and having a real hard time understanding Financial assertions. The following question is from Becker:

Question CPA-06713.B

Which of the following procedures would be most appropriate for testing the completeness

assertion as it applies to inventory?

a. Tracing inventory items from the tag listing back to the physical inventory quantities.

b. Scanning perpetual inventory, production, and purchasing records.

c. Examining paid vendor invoices.

d. Performing cutoff procedures for shipping and receiving.

Can some one explain why should the answer be D?

Is there any easy way or trick to grasp better understanding on these assertions? Please help!

[SeattleAccountant]

Completeness deals with being recorded in books (basically we would want to make sure that asset we know exists is really recorded or properly recorded ) via tracing (going upward from physical asset and verifying that it is indeed recorded in books).

Now, question posted is a bit tricky but not bad and have to be dealt with by eliminating choices or actually thinking about what completeness deals with. Completeness deals with not only being recorded but also being properly recorded i.e. in appropriate period = this is a give away that we deal with proper cutoffs related to inventory, thus answer is D.

Let's look why it is not choice A, although it is tempting to select that one upon initial examination. Tracing deals with completeness and directional testing (going upward) from the asset to the listing/JE, NOT the other way around like choice A has (from listing to physical). Thus, trick here was to notice that although tracing does apply to completeness, it is not correct statement as presented in A.

The other 2 options don't do much for completeness and thus, immediately eliminated.

Again, both cutoff and tracing (correct one) are related to completeness. Look for those words and know direction of testing for tracing (upward), vouching (downward), etc.

Hope that helps 🙂

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[Anonymous]

Hey thanks a lot. Could you please give me the flow of Tracing/Vouching?

As in, for tracing: Source doc>JE>Ledger>Trial Bal>FS

For Vouching from right to left? Correct me please if i am wrong.

[SeattleAccountant]

@cpa_man

Yes, that's correct. I'm used to upward/downward but other ways work great as long as you get the direction of flow right.

https://ddw3183.blogspot.com/2008/09/vouching-vs-tracing.html or short vid, just ignore her accent, but pay attention to explanation. Good luck on your exam!

https://www.youtube.com/watch?v=9LW5r9N8_nQ

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[Anonymous]

@SeattleAccountant: Thanks again. Do you have anything detailing on the other assertions, most importantly rights & obligation? I did not mind her voice at all 🙂

[SeattleAccountant]

I don't have specific one for rights and obligations by itself but these are very intuitive.

Obligations: we want to do is to make sure that obligations (like lawsuits, warranties, etc) are recorded or/and disclosed in footnotes in order to avoid misleading/dishonest F/S. Risk of understatement exists (due to possible hiding of these obligations).

Rights: we want to make sure that assets do belong rightfully to us (we hold title), revenues are our – we are entitled/earned them. Risk of overstatement exists (due to possible exaggeration/false claims).

Note that both understatement of obligations and overstatement of rights leads to “padded” F/S.

extra source: https://finance.mapsofworld.com/financial-report/statement/assertions.html

See video below discussing all management assertions by Blair Cook: https://www.youtube.com/watch?v=1ZScXtzafl4

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[Anonymous]

thanks mate…:)

[Author]

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