[hopefulcpa28]

I’m using Becker and they posted few updates on their page, PCAOB being the huge one.

Apparently assertions are CVERD instead of COVERU aka there’s no “cut-off.” I’m little confused as far as specific assertions go.

For example, does this mean “cut-off” isn’t part of transaction assertion as it was before? Becker posted PCAOB update, but didn’t go through A3 and A4 pointing out the new update affects each assertion.

Please help, I’m so confused!!

Thanks in advance!

[Anonymous]

I think cut-off is now a combination of “completeness” and “existence”.

Cut-off:

Something is recorded in the current period, but belongs in the next period = Existence.

Something should have been recorded in the current period, but was recorded in the next period = Completeness.

[Yvonne570]

COVER – U are the assertions made by management (Completeness/cutoff/valuation/existance and occurance/rights and obligations/understandability and classifications) – very important and has not changed at all.

CVER – Same assertions; however, are relevant to assets, liability and equity.

COVEU – assertions used when testing transactions

CVRU – assertions used when testing disclosures

The changes, effective 6/1/11 are not geared towards the above steps. It's towards compilation and review services. Nothing has changed with the assertions.

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[hopefulcpa28]

No, I believe they have changed…cut off isn't part of it anymore, like the previous posting explained. I think the concept is the same, but names have changed. For example, there is presentation & disclosure which is similar to Understandability & Classification.

As far as review & compilation goes, what changed? I guess compilation requires disclosure of lack of independence…? What else changed? Ahh help!!

Thanks for the explanation, CPABear!

[Yvonne570]

I took the test recently —- and rest assured, it has not.

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[Yvonne570]

Cut off is a component of completeness and existance assertions.

Part of testing details, which all play a part.

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[Yvonne570]

Sorry hopeful cpa. Forgot to mention the new changes for compilation and review.

Immediately rip out the pages of your Becker book for the sections pre 6/2011. This will confuse you as there are a lot of changes with this report.

Now about cut off – think of it like this. Companies may end up overstating or understating expenses/income in the “cut off” period – i.e. month end is a major time. ***Cut off is an “audit test” to support management's assertion.

Let me know if you need any more help. It's pretty overwhelming but eventually, you will absorb this.

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[hopefulcpa28]

Oh right. I never read those pre June stuff, and have read the post information. Whew, I was so scared for a minute. Thank you for clearing that up!

Couple questions: What did you mean by your post, “I took the test recently —- and rest assured, it has not.”

Cut off, I understand the concept…but was just confused as to whether this was a separate assertion after the changes? So basically, that assertion still exists, but not as individually, but rather it's part of “existence and occurance.”

Am I right?

Such silly changes, do they live to confuse us?

Thanks for all your help, Yvonne570. Good Luck on FAR!

[Yvonne570]

Cutoff is not an assertion. It's a test that auditors do to back up the assertions of existence and completeness. I think that's where the confusion is. They have tests of details, such as tracing, vouching, and cutoff (gather evidence from bank statements) or verify bank statements, etc post closing to validate the completion assertion – often occurs with expenses and AP. Revenue cycle is impacted by the cutoff.

Assertions are separate and auditors perform these tests to obtain evidence to support their opinion – managements “assertions”.

PCAOB talks about this in the timing of tests of account balances and incorporating the cut off, which is not an assertion but a test to back up the assertion. When you get into the testing details, you may notice how this interrelates.

Now I better get back to FAR study. LOL. Having so much fun with that:)

https://pcaobus.org/Standards/Auditing/Pages/AU313.aspx

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[hopefulcpa28]

Thank you so much, much appreciated!! Good Luck on FAR.

So here's what I think, let me know if I'm wrong…I'm thinking way too much into this:

On A3-16, there are six main financial statement assertions listed: Completeness, Cut-off, Valuation Allocation & Accuracy, Existence & Occurrence, Rights & Obligation and Understandability & Classification

Further, they break down each above assertion in “relevant assertions:”

Transaction & Events: Completeness, Cutoff, Accuracy, Classification, and Occurrence

Account Balances: Completeness, Rights & Obligations, Allocation & Valuation, Existence

Presentation & Disclosure: Completeness, Understandability & classification, Rights & obligations, Valuation & accuracy.

PCAOB update posted by Becker state that f/s assertions can be classified as follows: Completeness, Valuation or allocation, existence and occurrence, rights & obligations, presentation & disclosure.

Btw, they further break down each assertions with its auditing procedures. For example,

Completeness: Tracing, Observation, & Analytical procedures

Valuation, Allocation, & Accuracy: Footing, cross footing, recalculation, re-performance, Inspection

My question was so is cut off not part of transaction & events anymore?: Well, answer is yes, it is…it's part of existence and occurrence which is defined as, “Assets or liabilities of the company exist at a given date, and recorded transactions have occurred during a given period (similar to cut off in my opinion).

Phew, am I making any sense? I really have to break down each topic and see how it all fits in together…like a totem pole!

[Yvonne570]

Thanks for bringing out that specific page, and I can see where it is confusing:) My bad for missing that (and shame on Becker for this). From the overall financial statement, this pertains; however, notice how each type of transaction is not a risk factor for all of the assertions.

Sales and assets are a risk factor for existence – hence vouch.

Expenses and liabilities are risk factors for completeness – trace.

Get to know each type of account and which assertion pertains to each and which procedure to apply to each. Here's specific information from the PCAOB, hopefully will help. Learn the “relevent” assertions for each cycle and you should be good. – which were always the case with PCAOB but not sure why becker included that test procedure – perhaps to get a word together:)

Assertions are representations by management that are embodied in financial statement components. They can be either explicit or implicit and can be classified according to the following broad categories:

•Existence or occurrence

•Completeness

•Rights and obligations

•Valuation or allocation

•Presentation and disclosure

https://pcaobus.org/Standards/Auditing/Pages/AU326.aspx#ps-pcaob_5172795a-e5aa-4071-b548-25ca3fce5768

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[hopefulcpa28]

Perfect!! Now it's all clear…thanks for taking time to respond to my questions. Thanks for the link as well!!

Thank you Thank you Thank you!!

Good Luck!

[Yvonne570]

No problem. And good luck to you. 🙂

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[Anonymous]

Ok, so I see in the guidance PCAOB Auditing Standards No 15 where it says the assertions are

•Existence or occurrence

•Completeness

•Valuation or allocation

•Rights and obligations

•Presentation and disclosure

But AU 326.12.14 promulgated by the AICPA still describes the different assertions for classes of transactions, account balances, and presentation and disclosure. Cutoff is an assertion for auditing classes of transactions.

Seems like we have two different sets of guidance promulgated by two different bodies PCAOB, and AICPA.

So maybe for the auditing of public entities, the auditor would follow Auditing Standard No 15, and for non-public entities, the auditor would follow AU 326?

[Anonymous]

I like to use the mnemonic PERCiVAL – think Percival the assertive manager..

Management Assertions

Presentation and disclosure

Existence

Rights and Obligations

Completeness

Valuation and Allocation

[hopefulcpa28]

Yeah, they have two…AICPA and PCAOB one. So it hasn't changed for non-issuers, just has (minor) for issuers.

I don't think it makes a huge difference!

[Author]

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