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Risk and Assessment and Financial Statement Assertions.

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by

Chris Cui

on 2 September 2013

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Transcript of Risk and Assessment and Financial Statement Assertions.

RISK ASSESSMENT AND FINANCIAL STATEMENT ASSERTIONS
Risk and Assessment and Financial Statement Assertions.
ASA 200 : The auditor to express an opinion on whether the financial report is prepared, in all material respects, in accordance with an applicable financial reporting framework.


to meet the objective, it is necessary to identify specific audit objectives for transactions balance and disclosures.

Financial statement assertions: ASA 315.A111: identify these assertions under three categories.
Assertion about classes of transactions and events (ASA 315.A111)
Occurrence: occurred and pertain to the entity

Completeness: have been recorded

Accuracy: amounts have been recorded appropriately

Cut-off: recorded in the correct accounting period

Classification: recorded in the proper accounts




Assertions about presentation and disclosure (ASA 315.A111)
Occurrence, rights and obligations

Completeness

Classification and understandability

Accuracy and valuation
Conclusion: why we doing this?
the objective is to restrict audit risk at the account balance level

the audit risk in expressing an opinion on the financial statement as a whole will be at an appropriately low level.
Assertions about account balances (ASA 315.A111)
Existence: Assets, Liabilities, and equity interests exist

Rights and obligations: Controls are the obligations

Completeness: All have been recorded

Valuation and allocation:
Q1: Non-current assets are not valued greater than recoverable amount in accordance with an applicable accounting standard. (Occurrence, rights and obligations--- Assertions about presentation and disclosure.)
2). Classification and understandability OR accuracy and valuation--- Assertions about presentation and disclosure.
Since the all non-current assets were on hand at the year end, the mistakes or assertions may just come from the presentation and disclosure. As a result, if not classify the assets properly and not value the non-current assets properly will become a damage on credibility of the financial statement.

5) Valuation and Allocation--- Assertion about the account balance
Non-current assets on hand are owned which imply the assertion may come from valuation and allocation about the account balance. Auditors need to make sure if the non-current assets are including in the financial reports at appropriate amount and allocation adjustment are appropriately recorded.

6). Valuation and Allocation--- Assertion about the account balance
Obsolete non-current assets have been identified and revalued or written off as appropriate. The potential management assertion may come from valuation of the non-current assets and revaluation assets. Additionally, how the management allocation the non- current assets should be identified by the auditors to make sure the non-current assets exist.

7). Completeness and rights and obligations--- assertion about the account balance
Non-current assets have been properly classified in the balance sheet. However, the management assertion may come from if the classified non- current assets have been recorded. Additionally, need to make sure the entity holds or controls the rights to assets.

8). Valuation and Allocation--- Assertion about the account balance
All non-current assets under lease have been identified separately; the management assertion may arise from valuation and allocation of the account balance. If the account combined lots of non-current assets, it may possible lead to a material and pervasive mistake. As a result, the non-current assets have been identified to reduce the level of mistake risk

9). Valuation and Allocation--- Assertion about the account balance
Depreciation on non-current assets has been properly calculated which imply that the management assertion will possibly come from the valuation and allocation assertion, if the non-current assets do not calculate the depreciation accompany with same accounting standards, the valuation of the non-currents may change based the different types of the depreciation calculation.

10). Valuation and Allocation and completeness--- Assertion about the account balance
Since the non-current assets register has been totaled and totals agree with the figures in the general ledges, that means in general view, the valuation of non-current assets is no problems, but there is possible to change the number in accounting, because just using the total amount to calculate. As well as the completeness assertion, auditors have to make sure all transaction that should have been recorded have been recorded.

Q3. Non-current assets were on hand at year-end
4). Valuation and allocation--- Assertion about account balance OR accuracy and valuation --- Assertion about presentation and disclosure.
Since the mortgages over non- current assets should be disclosure in the financial statement, the amount would lead to Valuation and allocation assertion. They may were not reported in appropriate amounts and appropriate adjustment. Additionally, during the presentation, the financial and other information should be disclosed fairly and at appropriate amount.
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