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Assertion notes F8
Association of Chartered Certified Accountants - ACCA (PAC150)
INTEC Education College
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PROCEDURES MEANING STRENGTHS AND WEAKNESSESS
Inspection Examination of records or documents. Examination of physical assets.
Depend on reliability of documents inspected. Prove that physical assets exist. Enquiry Interview, seeking information from knowledgeable persons in formal.
Depend on whom the enquiry is being made. -Junior staffs may not understand the system or transactions well compared to seniors or managers. Observation Looking at process or procedures performed by client.
Relatively weak procedures because in absence of auditors, unable to prove the correctness. Recalculation Recalculate mathematical accuracy of figures.
Provided by auditors, hence a very strong evidence. -Reconciliation statements Reperformance Independent execution of procedures or controls that was originally performed by client.
Performed by auditors, hence a very strong evidence.
External confirmation
Written response obtained directly from third parties. Eg: Receivables confirmation letter Legal correspondence Letter from the bank
Strong evidence but depends on integrity of the third parties.
Analytical procedures
Evaluating and comparing financial and/or non-financial data for plausible relationships and investigating unexpected fluctuations.
Depends on the underlying accounting system. -Comparison made from same system may not be as strong as comparison with other accounting system for the same output.
*TO DRAW THE FLOW OF AUDIT PROCEDURES
Acceptance | Appointment and Signing Engagement Letter (EL) | Plan the Audit | Understand the Entity – RISK ASSESSMENT PROCEDURES
- Prior Audit Knowledge
- Read SOP of the ICS
- Enquiry the relevant personnel | Document AUDIT STRATEGY and AUDIT PLAN | Recording the ICS on Auditor’s working paper
- Narrative Notes
- Flow Charts
- Questionnaires | Evaluation of ICS – Perform walkthrough test | Assess risk of material misstatements (Audit Risk) – Chapter 6 | First Assessment of CONTROL RISK
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TEST OF CONTROLS |
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| Report to Management Final Assessment of CONTROL RISK In the form of MANAGEMENT LETTER / Letter of Weaknesses | | | Satisfactory | | | Limited Substantive Procedures Full / Extensive Substantive Procedures | Overall review of Financial Statements | | Report to Management MANAGEMENT LETTER / Letter of Weaknesses
| Audit Report
Classes of Transactions and Events (SOPL)
Assertions Example Impact to FS
Completeness All transactions and events that should have been recorded, have been recorded.
Director asserts (express) that, purchases of $1 million is complete. (Purchases recorded in FS of $1 million is assume complete). However, during audit, EA found that purchase invoices of $200k is not recorded. The purchases should be recorded at $1.
The purchases of $1 is understated. (completeness=understatement)
Occurence All transactions and events recorded in FS, have actually occured during the year. (valid)
Director asserts that purchases for the year is $1 million. However, during audit, some purchase invoices found to be fictitious, worth $300k. The purchases should be recorded at only $700k.
The purchases of $1 million is overstated. (occurence=overstatement)
Cut-Off All transactions and events have been recorded in the correct accounting period in the FS.
Director asserts that sales figures of $1 have been recorded in the correct period, not from other period. However, during audit, EA found that, sales invoices of $200k belongs to next accounting period. The sales should be recorded at $800k. OR However, during audit, sales of $200k belong to current period have been mistakenly recorded in next period.
The sales figures of $1 million is overstated.
The sales figure of $1 million is understated.
Classifications All transactions and events have been recorded in the correct account.
Director asserts that expenses of $1 million have been correctly classified. However, during audit, some expenses of $200k belongs to capital expenditure rather than revenue expenditure. The expenses should only be recorded at $800k. OR However, during audit, EA found that some expenses of $200k belong to revenue expenditure has been recorded as capital expenditure. The expenses should be recorded at $1.
The expenses of $1 million is overstated.
The expenses of $1 million is understated.
Accuracy All transactions have been recorded appropriately in the FS.
Director asserts that expenses of $1 million have been recorded correctly. However, during audit, found that, expenses worth $200k has been incorrectly recorded.
The expenses of $1 million is over/understated.
Presentation All transactions and events have been clearly described and related disclosure are relevant and understandable according to financial reporting framework.
Assertion notes F8
Course: Association of Chartered Certified Accountants - ACCA (PAC150)
University: INTEC Education College
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