[FSCPA]

Hi all, I am studying Audit right now using the Becker review program. The first 3 chapters were relatively easy, I did the lectures, took notes, and completed the homework (usually scoring in the 70s range). However, I just finished taking notes for ch 4 and while I felt it was a little harder than the previous 3 chapters, I didn’t feel too overwhelmed. I went through the first 40 or so questions and I’m scoring in the 20-30% range.. not sure what is going on. There are a lot of questions regarding assertions of management as well as actual controls/substantive testing. I thought I was feeling pretty confident, but now I am getting extremely nervous. I have never done any type of controls/substantive testing and I feel like I’m guessing on almost every question. Does anyone have any tips/tricks?

[tensors22288]

FSCPA,

Not to sound picky by saying this, but just wanted to correct something you mentioned. You said:

“When I read about the assertions, they make complete sense, like confirms gives you comfort over rights and obligation as well as valuation.”

I was extremely confused by assertions at first as well, so I wanted to correct what you mentioned to help avoid the same mistake I did. Confirmations DO NOT confirm the valuation assertion. Although that may seem contradictory, they only provide assurance over existence, and rights and obligations.

For instance, imagine that you are a retailer that purchased inventory from the company being audited. You have a $100,000 AP on your books that you owe to audited company. You receive a positive confirmation saying that you owe $90,000. Now, if you are that company, are you likely to report to the auditors that the audited company made a mistake and that they only have $90,000 recorded as their AR from you? (completeness) Not likely. Therefore, by replying to the confirmation, you are telling the auditor that this payable DOES indeed exist, and that the company has a right to receive that money. In addition, an auditor has no way of knowing if the retailer has the funds available to pay the payable. So it may only be valued at $50,000, because the company may be insolvent (valuation).

So that is a long winded way of saying confirmations are ONLY for rights/obligations and existence. I hope that helps and it took me a while to catch on to that. It is also mentioned on Becker page A4-37,

Dan

FAR: Took 7/1/10 VA: 90
REG: Took 8/2/10 VA: 96
AUD: Took 8/31/10 VA: 96
BEC: 10/10/10

[Author]

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