1. Transaction Errors and Management Assertions What is Relationship of Error Types and Management Assertions?

2. Only 6 Fundamental Transaction Errors Recorded but not real Real but not recorded Wrong amount Wrong account Wrong period Not authorized

3. Management Assertions Existence/Occurrence (Valid or Real Transactions) Completeness (Have not missed any transactions) Valuation (Correct amount or reasonable estimation, Rights/Obligation/Ownership (Assets owned by entity, Liability owed by entity) Presentation & Disclosure (Financial statement and related notes)

4. Relationship between Management Assertion & Transaction Errors Management assertions state (assert) that financial statements do not include the any of these six types of errors A matter of mapping errors to assertions Remember: We make our Control Risk Assessment on the Mgt Assertions –So if we have a lot of errors of a particular type, the control risk assessment on the related mgt assertion increases –We try to find controls that do the best at preventing, detecting, different types of errors and strengthen the related management assertions

5. Mapping Error Types to Management Assertions –Error Types Recorded but not real Real but not recorded Wrong amount Wrong account Wrong period Not authorized –Management AssertionsExistence/OccurrenceCompletenessValuation Rights/Obligation/Owners hip Presentation & Disclosure

6. Control Objectives Complicate the Mapping Control Objectives are used by internal auditors, external auditors as a middle or intermediate mapping point –Specific controls are tied to control objectives –Could we map controls directly to management assertions? (That would simplify internal control evaluation) Many different versions of control objective lists and names. –Vary by firm, professional organization

7. Control Objectives are an intermediate mapping between Error Types and Mgt Assertions Adds complexity and some confusion Error Types Control Objectives Management Assertions