Question

For each of the following specific audit procedures, identify the category (assertions about classes of transactions and events or assertions about account balances) and the primary assertion being tested.

1. Tracing the prices used by the entity’s billing program for pricing sales invoices to the entity’s approved price list.

2. Examining employee paychecks before and after year-end to determine if their salaries are recorded in the proper period.

3.Agreeing the total of the account’s payables subsidiary ledger to the accounts payable general ledger account.

4.Discussing the adequacy of the allowance for doubtful accounts with the credit manager

5. Examining new manufacturing equipment to ensure that this major acquisition was received.

Answer 1

Question : Identify the categories and primary assertions to be tested

Solution

1.(a) Category : Transaction Level Assertion

(b) Primary Assertion to be tested : Accuracy : Whether approved prices were accurately picked up by entity's billing program and whether prices were actually approved

2.(a) Category : Transaction Level Assertion

(b) Primary assertion to be tested : Cut-off : Whether expenses (Salaries) for particular year are recorded in that particular year. To examine in deep, attendance records of employees can be verified and salary amounts can be traced to the emloyment contracts (On sample basis)

3.(a) Category : Account balance assertions

(b) Primary assertions to be tested : Existence : All the accounts payable balances in the subsidiary ledger should be actually payable by the entity. External confirmation can be obtained. The entity should be actually liable.

Other Assertions: Valuation

4.(a) Category : Transaction Level Asseertions

(b) Primary assertion to be tested : Basis of Provision of Allowance : What is the basis on which allowance was made, degree of estimation as well as fairness of estimation involved. past year trends can be helpful.

5.(a) Category : Account Balance Asserions

(b) Primary assertions to be tested : Occurence: Transaction actually occured, asset was actually received, acquisition was duly authorised, vendor screening was performed, pqayment was made.