QQ5

[Sravanthi Y C]

Explain assertions with transaction testing, account balance testing & the use of assertions in obtaining audit evidece?

Thanks & Regards

[vervicy]

Assertions with transaction testing can be obtain by using sample testing, this is the application of audit procedures to less than 100 of the transaction item within a account balance or class of transaction. This will help the auditor to obtain and evaluate evidence about some characteristic on the items selected without testing the entire item; it also helps to form a conclusion concerning the population which makes up an account balance or class of transaction.
There are three (3) main method of sampling that should be considers are
:
- Random sampling; random numbers are used so that equal chance of testing

- Systematical section; item use Constance interval

- Haphazard section; this is similar to random section so that items
selected section have no pattern

Also a valuation testing is used for accounting balances this done by using computer testing for large balances and other items tested randomly. By using computer testing the
Auditor should analyzed and detected error in the sample by obtaining the
nature and causes, effect and general error of balances, this can be used by using computer assists audits testing (CATT) to test large account balance they are two types namely:
-Audit software this is used for substantive testing
And
-Test data for test of control.

Auditor uses the work of others to provide audit evidence, such as internal audit or external experts are used to obtain audit evidence factor to consider in using the reliance on balances in the financial statement. External valuators as used for item such as building owns by the company whether internal or external reliance are use by auditor must consider the following factor such as
- The scope of the work done
- Competence of the work done
And
- The objectivity of the work perform
With this specific areas will be tested mainly

Balances sheet such as;

-Inventories
-Receivables
-Payables
-Cash and bank
and non current assets.

[Sravanthi Y C]

Hi,

Vervicy has attempted nicely to answer the question, but I think the question is not interpreted in a correct sense. The question requires to focus on the assertions and the audit evidences to fulfil those assertions while testing the transactions and account balances.

To help you all to write the correct answer, following are some tips.


In giving out the answer first explain what assertion is and which the types of assertion are.
Explain the categories of assertions according to ISA 500, audit evidence.
Explain the process of transaction testing with the assertions such as occurrence, completeness, accuracy, cut-off, classification along with their evidence.
Explain account balance testing with the assertions like completeness, valuation and allocation, existence, rights and obligations and evidence for that. And finally explain how the auditor forms an opinion from the above evidences and assertions

The above topic is covered in section E with mnemonics which is easy to remember. Please refer to that.

[Hamdy Hafez]

Hi every body here really I miss you
but really I was very busy last month (work load , Islamic ocasion , some private issues regarding my family) but any way I want to do what I missed last days

so Mrs. Sravanthi , please count me in I'll come back again with my answer (soon)

[siddharth]

Assertions with transaction testing are activities that are to be checked in any transaction, the following are the assetions that are to be checked in transaction.

1. Occurrence
2. Completeness
3. Accuracy
4. Cut Off
5. Classification

I will explain the above assertions with an example of Sale transsaction

1. Occurrence – Do really sales occurred.

2. Completeness – Do all the sale transactions are included in Income Statement

3. Accuracy- Do quantity and Price are correctly taken for calculation.

4. Cut off – Does sale transaction have taken place within a period for which financial statements are prepared.

5. Classification- It should be accounted in Sales account and not in any other income account.

Assertions with account balance are activities that are to be checked in account balance, the following are the assetions that are to be checked with account balance.

1. Existence
2. Rights and Obligations
3. Valuation
4. Completeness

I will explain the above assertions with an example of Machinery

1. Existence – Do Machinery really exist?

2. Rights and Obligations – Do company owns the machinery or has only control over it (leases)

3. Valuation – Has depreciation has been correctly calculated according to the usage and life.

4. Completeness- Do all the machineries are included in statement of financial position.

Use of Assertions

1. It is used to choose the suitable audit procedure for various items in financial statements For eg. Inspection of asset for physical verification, confirmation of balance for accounts receivables etc.

2. the procedure can also be narrowed further on the basis of assertion under test. For eg. In a case of Property the following audit test are to be carried for different assertions.

a. Existence – Physical verification of the property

b. Valuation – agree to registration documents, revaluation reports etc.

c. Rights and Obligation – Check Title deeds

d. Cut off – Verify the registration or contract document for date of purchase

e. Completeness - Enquiry with management, lawyers etc.

[Dazy]

Hi Siddharth,

Your answer is very good. Your understanding of the concept is quite good. Your writing style is also appreciable.

I just want to comment on one thing. You can elaborate more on the last part of the question i.e. uses of assertions. You can include the following points:


Financial statements are prepared on the basis of assertion and on collecting the evidences on assertion; auditor can gain the assurance on them.

Based on that, auditor can form his opinion that the financial statements are fairly stated by which users’ confidence got enhanced. Users can rely on the audited financial statements and can take their decision.

Therefore, auditor should verify the evidence based on the assertions carefully.

[samtecks]

can you please count me in for this session. is it too late for me to post my answer to the above question?

[Sravanthi Y C]

HI Samtecks,

Welcome to GTG F8 Forum.

You can join the forum. This QQ session deals with the topics which we have in F8 from exam point of view. It is a session for improving our knowledge so you are always welcome.
Please see the answers given by our members and you also answer them.
It is a sharing of knowledge.
I would like to see you as an active member.:yes: