Auditing C5

Occurrence Assertion (Transactions)

Relates to whether all recorded or disclosed transactions and events have occurred and pertain to the entity (sometimes referred to as validity).

Completeness Assertion (Transactions & Balances)

Relates to whether all transactions, events, assets, liabilities, and equity interests that should have been recorded (and related disclosures) have been included.

Authorization Assertion

Relates to whether all transactions and events have been properly authorized (considered a subset of occurrence in official standards).

Accuracy Assertion (Transactions)

Addresses whether amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures measured and described.

Cutoff Assertion

Relates to whether transactions and events have been recorded in the correct accounting period.

Classification Assertion (Transactions & Balances)

Relates to whether transactions, events, assets, liabilities, and equity interests have been recorded in the proper accounts.

Presentation Assertion (Transactions & Balances)

Addresses whether items are appropriately aggregated/disaggregated, clearly described, and related disclosures are relevant and understandable.

Existence Assertion (Account Balances)

Addresses whether ending balances of assets, liabilities, and equity interests actually exist at the date of the financial statements.

Rights and Obligations Assertion

Addresses whether the entity holds or controls the rights to assets, and whether liabilities are the obligations of the entity at period end.

Accuracy, Valuation, and Allocation Assertion

Addresses whether assets, liabilities, and equity interests are included at appropriate amounts and valuation/allocation adjustments are appropriately recorded.

Audit Evidence

Information used by the auditor in arriving at the conclusions on which the auditor's opinion is based, consisting of information that corroborates or contradicts assertions.

Sufficiency and Appropriateness of Audit Evidence

Sufficiency is the measure of the quantity of audit evidence, while appropriateness is a measure of the quality (relevance and reliability); there is an inverse relationship between them based on RMM.

Vouching

Selecting an item for testing from accounting journals or ledgers and examining the underlying source document to test the occurrence assertion (ledger to source document).

Tracing

Selecting a source document and following it into the journal or ledger to test the completeness assertion (source document to ledger).

Inspection of Assets

Physical examination of a tangible asset, which primarily provides assurance for the existence assertion.

Observation

Looking at a process or procedure being performed by others (limited to the point in time observed and requires corroboration).

Inquiry

Seeking information, both financial and nonfinancial, from knowledgeable persons within or outside the entity.

Confirmation

Audit evidence obtained as a direct written response to the auditor from a third party in paper, electronic, or other medium.

Recalculation

Checking the mathematical accuracy of information manually or through IT (viewed as highly reliable since the auditor creates it).

Reperformance

Independent execution of procedures or controls by the auditor that were originally performed as part of internal control (highly reliable).

Purposes of Analytical Procedures

Used for risk assessment (planning), as substantive analytical procedures, and as final analytical procedures during the review stage.

Purposes of Audit Documentation

To provide principal support for the audit report opinion, aid in planning/performance/supervision, and provide a basis for quality review.

Significant Findings Requiring Documentation (AS 1215)

Accounting principle selection/consistency issues, results requiring modification of planned procedures, audit adjustments, engagement team disagreements, and significant changes in assessed audit risk.

Documentation Requirements for Audit Samples

Documentation must include identifying characteristics (e.g., specific check numbers) for a sample selected from a document population.

Documentation Requirements for Large Items / Specific Dollar Thresholds

Documentation needs to describe only the scope and population identification (e.g., all checks over $10,000 from the July cash disbursements journal).

Documentation Requirements for Systematic Samples

Documentation must provide the document source, starting point, and sampling interval (e.g., starting with invoice #375 and selecting every 50th invoice).

Permanent Files

Audit files containing historical data about the entity that are of continuing relevance to the audit every year (e.g., corporate charter, chart of accounts, organizational chart, important contracts, internal control documentation).

Current Files

Audit files including information and data related specifically to the current year's engagement (e.g., audit plan, audit programs, memoranda, current working papers).

Adjusting Entries

Entries made to correct misstatements in the entity's records, posted in both the entity's records and the working trial balance.

Reclassification Entries

Entries made to properly present information on the financial statements, affecting either income statement or balance sheet accounts, but not both.

Three General Characteristics of Audit Documentation Format

Proper heading (entity name, paper title, year-end date), indexing and cross-referencing, and tick marks.

Tick Marks

Notations made by the auditor near or next to an item or amount on an audit document to document work performed, with the symbol's meaning explained at the bottom.

Organization of Audit Documentation Hierarchy

Financial statements agree to the working trial balance, which summarizes general ledger accounts from lead schedules, which are supported by detailed audit documents (account analyses, listings, confirmations).

Risk Assessment Analytical Procedures (Planning Analytical Procedures)

Analytical procedures used during the planning and early phases of the audit to enhance understanding, identify significant transactions/events, recognize unusual amounts/ratios/trends, and spot potential fraud.

First Step in Substantive Analytical Procedures

Developing an expectation for the amount or account balance (the most important step, required by auditing standards).

Four Factors Affecting the Precision of Analytical Procedures

Disaggregation, plausibility and predictability of the relationship, data reliability, and type of analytical procedure used.

Disaggregation in Analytical Procedures

The principle that the more detailed the level at which an expectation is formed (e.g., monthly vs. annual), the greater the precision and ability to detect misstatements.

Plausibility and Predictability in Analytical Procedures

The consideration of whether the tested relationship makes sense; income statement accounts tend to be more predictable than balance sheet items.

Data Reliability in Analytical Procedures

The dependability of data used to develop expectations, influenced by the independence of the source, internal controls, personal knowledge, and prior audit verification.