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The Professional Standards Identify Five Categories of Assertions Made by Management

Question 49

Matching

The professional standards identify five categories of assertions made by management that are contained in the financial statements. If any of these assertions is a misrepresentation, the statements could be materially misstated. The categories of assertions identified by the profession are:

Premises:

Responses:

A short-term loan obtained from the bank was not recorded.

Existence or occurrence

The current portion of long-term debt was excluded from the current liabilities section of the balance sheet.

Completeness

The fact that certain inventories were pledged as collateral on a bank loan was not mentioned in the statements.

Rights and obligations

Reported sales include transactions from the subsequent period.

Valuation or allocation

A number of shipments were made that were never billed.

Presentation and disclosure

Clerical errors were made in the compilation of the physical inventory count.

Several fictitious sales were booked during the period.

Legal title has not been obtained to a truck purchased from a private party.

Some of the inventory is obsolete, with no current market.

Accrued liabilities include the utility bills of the owner.

The allowance for doubtful accounts was understated because of the failure to properly age the receivables at year-end.

The disposal of several pieces of machinery was never recorded.

Utility bills for the current period were recorded and paid in the following period.

A piece of land, carried as an investment, has been written up to reflect current appraisals of the property.

The subsidiary accounts receivable ledger is out of balance with the control account.

Premises:

A short-term loan obtained from the bank was not recorded.

The current portion of long-term debt was excluded from the current liabilities section of the balance sheet.

The fact that certain inventories were pledged as collateral on a bank loan was not mentioned in the statements.

Reported sales include transactions from the subsequent period.

A number of shipments were made that were never billed.

Clerical errors were made in the compilation of the physical inventory count.

Several fictitious sales were booked during the period.

Legal title has not been obtained to a truck purchased from a private party.

Some of the inventory is obsolete, with no current market.

Accrued liabilities include the utility bills of the owner.

The allowance for doubtful accounts was understated because of the failure to properly age the receivables at year-end.

The disposal of several pieces of machinery was never recorded.

Utility bills for the current period were recorded and paid in the following period.

A piece of land, carried as an investment, has been written up to reflect current appraisals of the property.

The subsidiary accounts receivable ledger is out of balance with the control account.

Responses:

Existence or occurrence

Completeness

Rights and obligations

Valuation or allocation

Presentation and disclosure

Correct Answer:

Premises:

Responses:

A short-term loan obtained from the bank was not recorded.

The current portion of long-term debt was excluded from the current liabilities section of the balance sheet.

The fact that certain inventories were pledged as collateral on a bank loan was not mentioned in the statements.

Reported sales include transactions from the subsequent period.

A number of shipments were made that were never billed.

Clerical errors were made in the compilation of the physical inventory count.

Several fictitious sales were booked during the period.

Legal title has not been obtained to a truck purchased from a private party.

Some of the inventory is obsolete, with no current market.

Accrued liabilities include the utility bills of the owner.

The allowance for doubtful accounts was understated because of the failure to properly age the receivables at year-end.

The disposal of several pieces of machinery was never recorded.

Utility bills for the current period were recorded and paid in the following period.

A piece of land, carried as an investment, has been written up to reflect current appraisals of the property.

The subsidiary accounts receivable ledger is out of balance with the control account.