High-value Assertions

Question 1

What is the objective of testing the Completeness assertion as it relates to test of controls?

Answer 1

Confirming that all control activities/procedures that are designed to ensure that all transactions are recorded to the ledger are operating effectively.

Only testable for a single control in contrast to test of details where completeness can be tested at every step in the accounting cycle.

Question 2

What is the objective of testing the Completeness assertion as it relates to test of details?

Answer 2

Confirming that all transactions that occurred related to a current year were captured in the FS.

The assertion can be made at every step of a cycle and is testable and verifiable at every step in the accounting cycle

Question 3

What procedures are used to test the Completeness assertion for test of details?

Answer 3

TRACING transactions from earlier points in the cycle to later points (includes RECONCILIATION from subledgers to general ledgers)

CUTOFF testing

Question 4

What procedures are used to test the Completeness assertion for test of controls?

Answer 4

INSPECTION of samples

OBSERVATION of control procedures

INQUIRING about how controls operate and relevant policies

REPERFORMANCE of control activities

Question 5

What assertion do confirmations test for relating to Accounts Receivable and WHY?

Answer 5

AR Confirmations test EXISTENCE.

The risk of AR is OVERSTATEMENT so independently confirming the balance proves that the balance exists.

Question 6

What assertion do confirmations test for relating to Accounts Payable and WHY? Also, why are they rarely used for AP?

Answer 6

AP Confirmations test COMPLETENESS

The risk of AP is UNDERSTATEMENT so confirming a balance proves that transactions have been captured in the FS.

AP confirmations are rarely performed used because to confirm completeness, auditors would need to confirm with all vendors, including those not on the client’s vendor list, which is impractical. Clients who understate AP may withhold vendor information, making confirmations less effective.

Question 7

What is the difference between the Completeness and Cutoff assertions?

Answer 7

Completeness Assertion
Focus: Are all transactions that should be recorded actually recorded?
Concern: Missing or omitted transactions.

Cutoff Assertion
Focus: Are transactions recorded in the correct accounting period?
Concern: Timing errors—transactions recorded too early or too late.

Question 8

What procedures are used to test the Existence assertion for test of controls?

Answer 8

INSPECTION of samples

OBSERVATION of control procedures

INQUIRING about how controls operate and relevant policies

REPERFORMANCE of control activities

Question 9

What procedures are used to test the Existence assertion for test of details?

Answer 9

PHYSICAL INSPECTION / EXAMINATION / OBSERVATION of assets and procedures

CONFIRMATION of AR

VOUCHING transactions from later points in the cycle to earlier points

Question 10

What procedures are used to test the Valuation, Allocation, and Accuracy assertion for test of controls?

Answer 10

INSPECTION of samples

OBSERVATION of control procedures

REPERFORMANCE of control activities

Question 11

What procedures are used to test the Valuation, Allocation, and Accuracy assertion for test of details?

Answer 11

FOOTING

RECALCULATION

RECONCILIATION of supporting schedules

INSPECTION of documents support transactions