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Management assertions for the financial statements referenced in PCAOB Auditing Standards are: Existence, occurrence Completeness Rights, obligations Valuation, allocation Presentation and disclosure The purpose of

Management assertions for the financial statements referenced in PCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

The purpose of tests of controls is to permit the auditor to assess whether properly designed controls operate effectively enough to prevent or detect material misstatements that would make these managements assertions wrong.

Required:

For each of the following audit procedures identify whether the procedure is:

(a) directed at a control or at an amount or disclosure, or both, and

(b) what assertion (or assertions) is (are) targeted.

Accounts, Classes of Transactions

Audit Procedure

Directed at:

Assertion:

All

Inquire who controls passwords for IT access.

Sales, Receivables, Inventory

Examine document packages for items that have been shipped for inclusion of a customer order, credit approval, and shipping document. Make sure the documents are properly matched and complete, with all required signatures and trace amounts to the sales journal, accounts receivable subsidiary ledger, and inventory files.

Payroll

For the Hourly Payroll Expense account, multiply the average number of workers times the average number of hours worked per year times the average hourly rate. Compare to the total posted annual amount.

Cash

Inspect the client-prepared bank reconciliation for each month of the year, recalculate the amounts, examine the supporting bank statements, and trace the cash amount to the general ledger.

Fixed assets

Obtain a list of fixed assets and physically look at the assets.

Long-term debt

Read the contract related to each of the companys long-term borrowings and agree the terms of the contracts to the financial statements notes.

Cash, Long-term debt

For each item of long-term debt that existed both at the beginning and end of the year, inspect the debt contracts and the companys analysis of the discounted debt amount and its analysis of violation of debt covenants and look for whether the details agree. Recalculate the amounts, and examine recorded entries and bank statements for cash disbursements for debt repayments. Using that information, determine whether the company has been in violation of any debt covenants during the year.

Prepaid rent

Using the beginning financial statement amount, cash receipts and cash disbursements evidence, and the lease agreement, calculate year-end prepaid rent and agree that amount to what is shown in the general ledger.

Inventory

At the end of the last day in the fiscal year, go to the clients shipping area and record the last shipment; trace the shipment into the clients records.

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