Accounting Question

Overview

Assertions are claims that financial statements such as a balance sheet, income statement, and statement of cash flows are accurate. These assertionsare tested by auditors. Auditors gains insight into client internal controls by performing a walk-through of a transaction cycle, such as the sales process. They combine their knowledge of the client’s internal controls with knowledge of any assertions found during an audit test to determine if adequate controls existed that would prevent misstatements. The auditor will look at each assertion and perform a test of controls to assess if risks are mitigated. If the presumed risks are high, the auditor will recommend using key internal controls. Key internal controls are those that must operate effectively to reduce the risk to an acceptable level. Secondary controls are those that help the process run smoothly but are not as essential as the key controls.

Directions

For this assignment, you will complete the Module Four Assertions Assignment Template found in the What to Submit section using the Module Four Audit Assertions List found in the Supporting Materials section. You will select assertions for three different process areas: cash, accounts payable and revenue. You will identify two assertions for each process area as well as identify one audit test that corresponds to each identified assertion. Then you will identify one key internal control that is linked to each identified assertion. The assigned textbook reading, specifically Chapters 11, 12, and 13, will help you determine what types of tests are recommended for assertions based on process types.

Specifically, you will complete the assertions to be tested column in the Module Four Assertions Assignment Template table. There are six assertions listed on the Audit Assertions List. Select two for each of the process types: cash, accounts payable, and revenue. You will have six unique assertions to work with in determining the tests and internal controls that apply. Specifically, you must address the following rubric criteria:

Identify two different assertions that apply to each process area.

Identify two tests that may be used to test the assertions for each process area. Note: This includes six total assertions.

1. Identify one key internal control that could be used to remediate the risk.

ACC 411 Module Four Assertions Assignment Template
Directions:
Complete this template by replacing the bracketed text with the relevant information.
1. Complete the Assertions to be Tested column in the table below using the Module Four Audit Program Assertions List. There are six
different assertions provided in the list. Find two assertions that can be used for each of the process types: cash, accounts payable, and
revenue. You will have six unique assertions to work with. NOTE: You may not use an assertion more than once.
2. Complete the Test for Assertions column in the table below.
3. Complete the Key Internal Control column in the table below.
Process Type
Cash
Accounts
Payable
Revenue
Assertions to be Tested
Tests for Assertions
Key Internal Control
[choose one from the list that applies]
[identify a test for this assertion]
[identify one key internal control]
[choose one from the list that applies]
[identify a test for this assertion]
[identify one key internal control]
[[choose one from the list that applies]
[identify a test for this assertion]
[identify one key internal control]
[choose one from the list that applies]
[identify a test for this assertion]
[identify one key internal control]
[choose one from the list that applies]
[[identify a test for this assertion]
[identify one key internal control]
[choose one from the list that applies]
[identify a test for this assertion]
[identify one key internal control]
ACC 411 Module Four Assertions List
Directions:
Use the following assertions to complete the Module Four Assertions Assignment Template.
1. Existence
• The existence assertion verifies that assets, liabilities, and equity balances exist as stated in
the financial statement. For example, if a balance sheet indicates inventory on hand for
$10,000, it is the job of the auditor to verify its existence.
• The same process is used when verifying accounts receivable balances. The auditor is tasked
with authenticating the accounts receivable balance as reported through a variety of means,
including choosing a particular accounts receivable customer and examining all related
activity for that customer.
2. Occurrence
• The occurrence assertion is used to determine whether the transactions recorded on
financial statements have taken place. Example: Authenticating accounts receivable
balances by determining whether a sale took place on the day specified.
3. Accuracy
• Accuracy looks at specific transactions and then checks the accuracy of the recorded entry
to determine whether the amounts are recorded correctly. In many cases, an auditor will
look at individual customer accounts, including payments, to verify that the amount
recorded as paid is the same as received from the customer.
4. Completeness
• Completeness helps auditors verify that all transactions for the period being examined have
been properly entered in the correct period.
• For example, an auditor may want to examine payroll records to make sure that all salaries
and wages expenses have been recorded in the proper period. This may include an
examination of payroll records, a payroll journal, an active employee list, and any payroll
accruals that were made and reversed in the period being examined.
• Inventory can also play a large role in the completeness assertion, with auditors looking at
inventory transactions that took place during a specific period by examining inventory levels
and corresponding sales numbers to determine that inventory was recorded properly.
5. Valuation
• The valuation assertion is used to determine that the financial statements presented have
all been recorded at the proper valuation.
• An auditor can examine the accounts receivable aging report to determine if bad debt
allowances are accurate.
• Inventory is another area that auditors may review to determine whether inventory is
properly valued and recorded using the appropriate valuation methods.
6. Cut-off
• The cut-off assertion is used to determine whether the transactions recorded have been
recorded in the appropriate accounting period. Payroll and inventory balances are often
checked for cut-off accuracy to determine that the activity that took place was recorded in
the appropriate period. This is particularly important for those accruing payroll or reporting
inventory levels.