[red_rose]

Hello all,

I’m having a hard time understanding which assersions go with what. I know account bal assertions are: existence, completeness, R&O & valuation. Classes of Transactions are: accuaracy, occurence, completeness, cutoff & classification. but when i do the MC questions, im getting them wrong. Here’s an example question:

During an audit of an entity’s equity accts, the auditor determines restrictions on RE resulting from loans, agreements & law. The audit procedure is intended to verify mgt’s assertion of:

A. existence/occurrence

B. completeness

C. valuation

D. Presentation/disclosure

i was thinking rights & obligations but that wasn’t an answer choice. So i chose C. valuation. Correct answer is D

What clicked for you to understand and pass? im taking this exam next month & want to nail the assertions. Thanks!

[mystical guy]

I remember auditing equity and debt and I saw that there were restrictions on debt/equity like – maintain your debt at no more than 10% of net income. Those must be disclosed in the notes, therefore, you know that when you see words like, “auditor determined restrictions/contractual obligations of the entity”, it has to do with presentation and disclosure, or rights and obligations. You cannot get the value of debt/equity just from looking at restrictions. That's why “valuation” is tempting but not correct. Usually, debt covenants give you limits but not value, if you know what I mean?

In auditing our financial statements, I made sure we disclosed plants and other assets in notes. Still falls under rights and obligations.

What clicked for me was understanding the difference between the “occurrence”, “existence” and “completeness” assertions.
To test completeness of inventory transactions, sample inventory tags and trace them to the ledger.
To test occurrence of inventory, sample inventory transactions in ledger and trace them the actual inventory.
To test existence of inventory – sample transaction and find the physical asset.

The others will come to you through practice.

CPA - Since 2015
CISA - Smashed 2012
CIA - Passed 2015

[red_rose]

@mysticalguy Thank you! I only did internal audit many years ago & it's very different from public (well at least in my experience). It was more compliance-based so I didn't to actually check inventory. I guess my position was more of completeness testing. I will keep practicing 🙂

[Anonymous]

whenever question state any assets pledge with any liability then it is related with the Presentation and disclosure assertion .
for valuation and presentation & disclosure assertions I suggest to look into the financial statement (balance sheet ). sometimes it helps to answer specially when you dealing with the valuation and p&d assertion .
EX when question state about the allowance for the bad debt then it usually relate with the valuation assertion .
because we actually deduct the allowance from account receivable but when an account receivable pledge with any loan then we just state this fact in the face of financial statement or in the notes , so it relate with the presentation and disclosure assertion.

[mystical guy]

@red_rose – no problem. Feel free to keep posting Audit questions for someone to help or give you some kind of explanation. Sometimes when I see someone's explanation I understand better than the course/books.

I'm in IT Audit, now, but I recall some concepts from my days in Financial IA. Keep going 😉

CPA - Since 2015
CISA - Smashed 2012
CIA - Passed 2015

[Author]

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