Linking Assertions and Evidence Essential elements of Chapters 6 and 7 combined

Transaction-Related Assertions AssertionManagement is asserting that…Type of evidence typically used to test Occurrence All transactions and events that have been recorded have actually occurred and pertain to the entity Inspection of records and documents. Sample from journal entries and look for documents capturing the economic event. Completeness All transactions and events pertaining to the entity that have occurred have been recorded. Inspection of records and documents. Sample from documents capturing the economic event and look for corresponding journal entries. Accuracy— accuracy Amounts and other data related to transactions and events have been recorded appropriately. Inspection of records and documents. Compare amounts on all documents associated with a transaction (e.g., same amount ordered as approved, picked in warehouse, shipped, and billed). Accuracy— posting and summarization Totals have been accurately calculated and are consistent between journals, related ledger accounts, and financial statement balances. Reperformance and Recalculation. Total the journal for the period and follow the balance through to the ledger accounts and financial statements. Classification Transactions and events have been recorded in the proper accounts. That is, they meet the appropriate criteria to be recorded as they are. Inspection of records and documents (and other types of evidence). Determine whether the economic substance of the transaction or event meets the accounting definition as recorded. CutoffTransactions and events have been recorded in the correct accounting period. Inspection of records and documents (sometimes confirmation). Pay special attention to dates and terms on documents close to year end.

Balance-Related Assertions AssertionManagement is asserting that…Type of evidence used to test the assertion. Existence Assets, liabilities, and equity interests exist. That is, all recorded amounts represent items of economic substance that actually exist. Confirmation and/or Inspection of tangible assets. For assets with a physical existence (like inventory), count a sample and compare to records. For assets that don’t have a physical existence (like receivables) get information directly from the independent third party. Completeness All assets, liabilities, and equity interests that should have been recorded have been recorded. Analytical procedures. Comparisons using financial (and sometimes non- financial) amounts to determine reasonableness of the amount. Sometimes this is all you can do. Valuation— Overall Assets, liabilities and equity interests are recorded in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are properly recorded. Various. Analytical procedures. Inspection of records and documents, inspection of tangible assets, recalculation. This assertion often requires considerable judgment. Valuation— Accuracy Amounts are calculated correctly and reflect the actual nature of the agreement Recalculation. Auditors can recalculate depreciation, inventory valuation calculation (e.g., FIFO, LIFO), etc. For receivables, blind or blank confirmations can provide evidence of accuracy of amounts. Valuation— Classification Amounts are properly classified in appropriate accounts Inspection of records and documents. Auditors review details of documents to determine whether relevant criteria have been met. Valuation— Detail Tie In Amounts are totaled correctly. Subsidiary ledger control totals agree with the general ledger and financial statements Recalculation and Reperformance. Total subsidiary ledgers. Trace totals to the general ledger and the balance sheet. Rights and Obligations The entity holds or controls the rights to assets and liabilities are the obligations of the entity. Inspection of records and documents. Review deeds, contracts, purchase agreements, etc. for evidence of ownership or obligation.

Presentation and Disclosure-Related Assertions AssertionManagement is asserting that… Occurrence Transactions and events disclosed in the financial statements have occurred and relate to the entity. Completeness All transactions, balances, events and other matters that should have been disclosed have been disclosed in the financial statements. Classification & Understandability Disclosed events, transactions, balances and other financial matters have been classified appropriately and presented clearly in a manner that promotes the understandability of information contained in the financial statements. Accuracy & Valuation Transactions, events, balances and other financial matters have been disclosed accurately at their appropriate amounts. Note: the type of evidence used most frequently for disclosure-related objectives is inspection of records and documents. Typically, disclosure-related details are found in contracts and other documents establishing the nature of an agreement.