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ACCT3043 –
Auditing I
Audit Evidence
DIANA WEEKES–MARSHALL BSC(HONS)
FCCA FCA PGCUTL
The Audit
Process
Management Assertions &
Audit Evidence
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Management
Assertions
Management Assertions
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An assertion is a statement or representation, explicit or implied, made by
management regarding the recognition, measurement, presentation, and
disclosure of items included in the financial statements and notes.
Management also asserts that transactions are recorded at the correct amount,
represent a complete list of all transactions, and are classified correctly.
During the risk assessment phase, auditors use management assertions as a
guide when determining the different types of potential material misstatements
that could occur or what can go wrong in the financial statements.
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Management Assertions
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The assertions are divided into the three categories:
(1) Assertions about classes of transactions and events for the period under audit.
(2) Assertions that focus on account balances at the end of the period.
(3) Assertions that focus on presentation and disclosure in the financial statements
and the notes to the financial statements.
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Management Assertions
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Management Assertions
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Assertions about classes of transactions and events for the period under audit include the
following:
(1) Occurrence: auditors gather evidence to verify that recorded transactions and events,
such as sales and expenses, actually took place and relate to the entity.
(2) Completeness: auditors gather evidence that all transactions have been recorded and
the financial statements are not understated or overstated because transactions have been
omitted.
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Management Assertions
(3) Accuracy: auditors gather evidence that transactions and events
have been recorded at appropriate amounts.
(4) Cutoff: auditors search for evidence that transactions have been
recorded in the correct accounting period.
(5) Classification: auditors gather evidence that transactions and events
have been recorded in the proper accounts.
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Management Assertions
•Assertions that focus on account balances at the end of the
period include the following:
(6) Existence: auditors search for evidence to verify that asset,
liability, and equity items on the balance sheet actually exist.
(7) Rights and obligations: auditors gather evidence to verify
recorded assets are owned by the entity and recorded liabilities
represent commitments of the entity.
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(8) Completeness: auditors search for assets, liabilities, and equity items to ensure
they have been recorded.
(9) Valuation and allocation: auditors search for evidence that assets, liabilities,
and equity items have been recorded at appropriate amounts and allocated to the
correct general ledger accounts.
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The last category of assertions focuses on presentation and disclosure in the
financial statements and the notes to the financial statement.
(10) Occurrence, rights and obligations: auditors verify that all transactions,
events, and other matters disclosed in the notes to the financial statements actually
occurred and pertain to the entity.
(11) Completeness: auditors verify that all required and necessary disclosures
and notes have been included in the financial statements by management.
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Management Assertions
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(12) Classification and understandability: auditors verify that financial
information is appropriately presented and described, and disclosures are clearly
expressed.
(13) Accuracy and Valuation: auditors verify that financial and other information
are disclosed fairly and in appropriate amounts.
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Evidence
Cloud 9 – Continuing Case
At the next planning meeting for the Cloud 9 audit, Suzie Pickering presents the results of the analytical
procedures performed so far and a working draft of the audit program. The audit manager, Sharon
Gallagher, and the audit senior, Josh Thomas, are also involved in the planning, with special responsibility
for the internal control assessment.
The meeting’s agenda is to discuss the available sources of evidence at Cloud 9 and specify these in the
detailed audit program. The team members also must ensure they have enough evidence to conduct the
audit.
Two specific issues worry members of the team:
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