Free Essays on Auditing

The topic I will be discussing tonight is management’s assertions about the financial statements representing their company. According to the textbook these assertions can be divided into to five broad categories. These categories are existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. An auditor’s develops objectives, which vary from one engagement to another, depending on the entity’s business and the accounting practices distinctive to its industry. In the existence or occurrence assertion, management asserts that all recorded assets, liabilities, and equities disclosed in the financial statements actually existed at the balance sheet date. Management also asserts that all recorded transactions occurred during the period ending on the balance sheet date. The auditor’s objective is to test whether the assertions made by management are appropriate. For example, when auditing inventory an auditor’s objective is to determine if the inventory existed at the balance sheet date, if the recorded inventory purchases in fact occurred, and if sales transactions in the income statement represent the exchange of goods or services for cash or other consideration. This can be tested by observing the client’s physical count of inventory, confirming the off-premises inventory with public warehouses, and by using inventory cutoff tests to be sure purchases and sales are recorded in the correct accounting period. In the completeness assertion, management asserts that all transactions occurred during the period were recorded. This assertion is the most challenging for the auditor because he or she must discover any transactions that were not recorded but should have been and vise versa. For example, when auditing inventory the auditor will use the same tests used in the existence assertion. The auditor will observe physical inventory, confirm off-premises invento... Free Essays on Auditing Free Essays on Auditing The topic I will be discussing tonight is management’s assertions about the financial statements representing their company. According to the textbook these assertions can be divided into to five broad categories. These categories are existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. An auditor’s develops objectives, which vary from one engagement to another, depending on the entity’s business and the accounting practices distinctive to its industry. In the existence or occurrence assertion, management asserts that all recorded assets, liabilities, and equities disclosed in the financial statements actually existed at the balance sheet date. Management also asserts that all recorded transactions occurred during the period ending on the balance sheet date. The auditor’s objective is to test whether the assertions made by management are appropriate. For example, when auditing inventory an auditor’s objective is to determine if the inventory existed at the balance sheet date, if the recorded inventory purchases in fact occurred, and if sales transactions in the income statement represent the exchange of goods or services for cash or other consideration. This can be tested by observing the client’s physical count of inventory, confirming the off-premises inventory with public warehouses, and by using inventory cutoff tests to be sure purchases and sales are recorded in the correct accounting period. In the completeness assertion, management asserts that all transactions occurred during the period were recorded. This assertion is the most challenging for the auditor because he or she must discover any transactions that were not recorded but should have been and vise versa. For example, when auditing inventory the auditor will use the same tests used in the existence assertion. The auditor will observe physical inventory, confirm off-premises invento... Free Essays on Auditing In order to fully comprehend what is meant by internal control we must look at the definition as stated in the COSO report. It is defined as, â€Å"a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following three categories: reliability of financial reporting; effectiveness and efficiency of operations; compliance with applicable laws and regulations.† An important aspect of internal control to keep in mind is it’s reliance on people. No matter how much control a company implements, there will always be humans involved at some step of the way and therefore a chance for error and/or fraud. It is important to remember that these controls can only provide reasonable assurance, not absolute assurance, regarding the achievements of a company’s objectives. Internal control consists of control activities. These activities include: performance reviews, segregation of duties, physical controls, and information processing controls. It is the responsibility of management to implement these activities effectively, and also to review the results so improvements or adjustments can be made. The auditor’s responsibility is to assess the level of risk connected to each control. After assessing the risks involved, tests must be performed to evaluate the effectiveness of the control in question. Some tests are more costly to run than the benefits that will be received. It is the job of the auditors to weigh the costs and benefits of performing each test and then determine which ones are to be carried out, and which will be scrapped. The controls discussed so far focus on management’s internal control over its employees. But in a retail store, employees are not the only ones with access to product, and therefore are not the only ones capable of influencing the financial statements. Management in the reta...