Quiz 5: Evidence and Documentation

Business

The auditor divides the financial statements into components or segments in order to test the management's assertions, for the following reasons: • To manage the audit : For the proper management of the audit procedure, the auditor divides the financial statements into segments. • Proper examination: It is easy for the auditor to conduct proper examination of each component instead of the whole audit. • Easy to locate errors: As the auditor divides the whole audit procedure into various segments, the auditor locates the errors easily.

Relation of management assertions with financial statements Management is the preparer of the financial statements. The management represents the assertions as a set of detailed information about the financial statements regarding the accuracy and completeness of transactions, rights, obligations, and valuation of account balances, fairness and reliability of presentation and disclosure.

Assertions on classes of transactions and events The assertions about classes of transactions and events for the period under audit are listed and defined below: • Occurrence - The transactions and events that are recorded have actually appeared in the business course of time. • Completeness - All the transactions and events that are necessary for a fair presentation are recorded in the financial statements. • Authorization - All the transactions and events have been properly justified and authorized.• Accuracy - All the transactions and events are recorded with exact amounts and the proper valuation. • Cutoff - The transactions and events which are recorded in a year are related and relevant only to that particular period of time. • Classification - The transactions and events properly grouped based upon their similar characteristics are recorded in their appropriate ledger accounts.