Question

- Discuss, in detail, at least 2 Management Assertions (Auditors' objectives) relating to Accounts Receivables.

Answer 1

Management Assertions: Management assertions are claims made by members of management regarding certain aspects of a business. The auditors objective is to test the validity of these assertions by conducting a number of audit tests.

Management Assertions are 3 types:

Transaction-level assertions

Account balance assertions

Presentation and disclosure assertions

The following are two Management Assertions for Accounts Receivables:

Completeness. The assertion is that all Accounts Receivables balances have been fully reported.

Auditors Objective: Completeness is the quality that the financial statements contain all transactions that actually occurred. This is most often thought of in terms of unrecorded liabilities. However, accounts receivable may be incomplete if the company has not recorded sales so it can fraudulently reduce income tax liability. Confirmations do not provide much assurance related to the completeness assertion. However, if the auditor sends a blank confirmation, asking a customer to list all balances owed, any balances not recorded may be uncovered. Because this does not address any customers with no balances recorded, auditors will also look at cash receipts after the year-end date. These cash inflows should be traceable to sales after year-end or recorded receivables

Existence. The assertion is that all accounts receivables exist as on the date of Balance Sheet.

Auditor Objective : Accounts receivable confirmations mainly serve to prove the existence assertion. The existence assertion is management's claim that the accounts receivable that are recorded on the balance sheet are real. The logic is that if a customer will readily admit to owing a balance to your firm, the account receivable probably exists. If the customer disputes the balance, more work is done to determine where the discrepancy lies. Sometimes the customer will not respond to the confirmation request. In this case, the auditor will need additional information that proves the obligation was outstanding at the balance sheet date.