[JAM]

For the life of me – I CANNOT seem to understand Management assertions for Account Balances, Transactions and Disclosures.

I have memorized PERCV / OCCCA / OCCA – I know WHAT makes up the assertions, but every time there is a questions involving what specific test tells you about an assertions I get it wrong.

How would you guys suggest I get a good understanding of these? Doing lots of MCQ’s just results in me continually getting them incorrect.

For instance – (question below) My rationale was “Confirmations tell you something exists (or doesn’t) and at what amounts, therefore existence and valuation?” Perhaps I was thinking wrong by using my understanding of confirmations as they relate to AR which is different than confirmations from a financial institution about investment securities?

In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client’s name, an auditor most likely gathers evidence in support of management’s financial statement assertions of existence and:

Incorrect A. valuation and allocation.

B. rights and obligations.

C. completeness.

D. classification and understandability.

You answered A. The correct answer is B.

Assertions about account balances at the period-end include the following:

•Existence: Assets, liabilities, and equity interest exists.

•Rights and obligations: The entity holds or controls the rights to assets, and liabilities are the obligation of the entity.

•Completeness: All assets, liabilities, and equity interests that should have been recorded have been recorded.

•Valuation and allocation: Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded.

By confirming with an outside agent, the auditor is gathering evidence that the investment securities exist and that they are owned by the entity or the entity has rights to those securities.

[Nessie]

The answer might be valuation, but it would not be allocation-a third party would not have anything to do with allocation. Let's say the person has a margin account at a discount stock brokerage.

The party under audit may state they own 1000 shares of Disney. However, upon further investigation, or confirmation, if the shares are in a margin account and the person under audit might have only paid 30% for the shares, then they don't really own the shares outright.

Also, if they bought the shares with a margin account, they have a liability for the other 70% of the value of the shares.

So there you have both rights and obligations. “A” is incorrect because allocation is not something an outsider would decide.

Or if you enquire about a bank account at a bank, you should always also ask if they have any borrowings at that bank.

AUD is tricky. You want the best answer out of the 4. “A” is only partially correct.

Better not to memorize- just think about the question for a moment.

REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
BEC?

Becker self-study, Becker Final Review & NINJA MCQS

[If I can, u can too!]

@JAMfromATL i had similar issue like you which got me 72 3 times until i spent more time to read about the assertions (and internal controls). read your book on the sections regarding assertions (could be internal control or audit evidence). i read the sections cover to cover and began to see how the assertions correlate to the testing methodology. hope this helps.

Licensed CPA since Apr 16
Order in sequence of passing
FAR-71,71,79
BEC-80
REG-72,77
AUD-56,72,72,72,80! Thank you, thank you, thank you Lord!
FAR/BEC/AUD: Becker & Yaeger lectures (Wiley & Ninja MCQs). REG: Becker lectures (Ninja MCQs).

[kibbymac]

@JAMfromATL, as far as getting a good understanding goes, nothing beats practice. If the MCQ aren’t helping, I would look to some other resources outside of your current study material. A quick google of “auditing assertions” shows a number of videos – I would try watching a few to see if the content is more digestible through that medium. Also, reading the actual standards/audit & accounting guides helped me when I was taking audit. Basically anything other than rote memorization based on an outline will help put the content into context for actual understanding purposes.

To answer your specific question above, the MCQ’s like to trip you up by using the phrase “most likely”. For investments specifically, confirmations can actually provide some evidence for 3/4 of the answer choices (depending on what you actually put in the confirmation letter): valuation & allocation, completeness, and rights & obligations (along with existence listed in the question). Here’s where the “most likely” comes into play for confirming investments: for the existence and rights & obligations assertions, confirmation with a third party is basically all you need to do to test that assertion. As in, put a check in the box, you’re done. For the valuation & allocation assertion, you’ll need to do additional testing to obtain evidence regarding investment classification, fair value (independent of the custodian), any impairments, etc. For completeness, you’ll need to perform subsequent testing on transactions to make sure any subsequent purchases/sales are accounted for in the correct period.

Based on the above, the evidence “most likely” gathered by the auditor is in support of rights & obligations.

Another way of getting to the answer would be to ask yourself what exactly is the question asking for? In this question, they are asking whether the agent is holding the securities in the client’s name, as opposed to asking a question about the amount, etc. I remember going through the MCQ and I would miss a lot just b/c I was skimming over the question and missing one or two key words that would've pointed to the answer.

AUD: 98 Feb 2016

[JAM]

@hokinizeu – You nailed it!

I'm AUD – 61, 73 and I am determined to pass this time. I performed weaker than others in this area.

After spending the last two hours really digging into the text and learning the fine articulations that set each assertion apart, I'm starting to get the hang of it. So simple and so effective! I guess my head thought since I already read it and tested – That there was nothing more for me in the text 🙂

[If I can, u can too!]

glad it helped. also when you're doing questions, try to read the relevant pronouncements (AU-C, PCAOB, AR etc). ninja put excerpts from the pronouncements in the bottom portion of answer explanation. oftentimes, you will learn about other related things. you can do it JAMfromATL!

Licensed CPA since Apr 16
Order in sequence of passing
FAR-71,71,79
BEC-80
REG-72,77
AUD-56,72,72,72,80! Thank you, thank you, thank you Lord!
FAR/BEC/AUD: Becker & Yaeger lectures (Wiley & Ninja MCQs). REG: Becker lectures (Ninja MCQs).

[Author]

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