What assertions applied for auditing non current asset property, plant and equipment
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What are Management Assertions?Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used in regard to the audit of a company's financial statements, where the auditors rely upon a variety of assertions regarding the business. The auditors test the validity of these assertions by conducting a number of audit tests. Management assertions fall into the following three classifications. Transaction-Level AssertionsThe following five items are classified as assertions related to transactions, mostly in regard to the income statement:
Account Balance AssertionsThe following four items are classified as assertions related to the ending balances in accounts, and so relate primarily to the balance sheet:
Presentation and Disclosure AssertionsThe following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:
There is a fair amount of duplication in the types of assertions across the three categories; however, each assertion type is intended for a different aspect of the financial statements, with the first set related to the income statement, the second set to the balance sheet, and the third set to the accompanying disclosures. If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements. Chapter 13 Audit of Non-Current Assets LEARNING OBKECTIVES 1. Understand the audit objectives of auditing fixed assets. 1. Assertions for the Audit of Fixed Assets 1.1 The assertions for auditing fixed assets are as follows:
2. Inherent Risks for Fixed Assets Question 1 Required:
3. Internal Control for Fixed Assets 3.1 The internal controls for the acquisition of non-current assets are similar to those applied in purchase cycle.
4. Tests of Details of Balances – Fixed Assets 4.1 Steps for designing tests of details of balances 4.1.1 The steps are as follows: 4.2 Analytical procedures 4.2.1 The nature of analytical procedures depends on the nature of client’s operations.
4.3 Verification of carrying value of fixed assets 4.3.1 The following substantive procedures, for example, may be applied:
4.4 Tests of details of account balance to satisfy balance-related audit objectives
5. Audit of Investment Properties 5.1 Inherent risk for investment properties (Dec 10, Dec 14) 5.1.1
The inherent risk of material misstatement of the existence of investment property should be low to medium. 5.2 Internal control for investment properties 5.2.1 There should not be any difference in internal controls for the purchase and sale of investment properties process from those of PPE transactions (refer to point 3 above). 5.3 Tests of details of account balance – investment properties 5.3.1 The audit
procedures to verify the balance of investment property can be referred to those discussed in point 4 above.
Question 2 Required: (a) Assess with reasons the inherent risk of material misstatement of the existence of HY Limited’s investment properties.
(2 marks) What matters should be agreed between
the auditor and the auditor’s expert? 6. Audit of Intangible Assets 6.1 Inherent risk for intangible assets 6.1.1 Intangible
assets that usually can be found in the financial statements of companies in HK are mainly purchased goodwill, patents, brand names, trademarks, copyrights, mastheads and research and development (R&D) expenditure. 6.2 Assertions for the audit of intangible assets 6.2.1 There should not be any difference in assertions for the audit of fixed assets (refer to point 1 above). 6.3 Tests of details of account balance – patent and trade marks
6.4 Tests of details of account balance – R&D
6.5 Tests of details of account balance – Purchased goodwill
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What are the assertions for PPE?g)The two key significant assertions for property, plant and equipment (PPE) are existence,and valuation and allocation. Existence is important because the assets the company has recorded in its fixed assetsregister (which flows into the general ledger and finally into the financial statements) needto actually exist.
What are the 7 assertions of audit?Types of assertions. Existence. The existence assertion verifies that assets, liabilities, and equity balances exist as stated in the financial statement. ... . Occurrence. ... . Accuracy. ... . Completeness. ... . Valuation. ... . Rights and obligations. ... . Classification. ... . Cut-off.. |