If a short-term note payable is included in the accounts payable balance on the financial statements,...

If a short-term note payable is included in the accounts payable balance on the financial statements, there is a violation of which of the following balance-related management assertions and the corresponding auditor objectives:

A. Completeness assertion and Completeness objective.

B. Valuation and Allocation assertion and Cutoff objective.

C. Valuation and Allocation assertion and Accuracy objective.

D. Valuation and Allocation assertion and Classification objective.

Solutions

Expert Solution

Including Short term notes payable in accounts payable balance leads to under-valuation of notes payable balance and over-valuation of accounts payable balance. Thus, it is a violation of "Valuation and Allocation" assertion of financial statement. Hence, option A is incorrect.

Cut-off assertion is about that transactions and events have been recorded in the correct accounting period. Here, no such violation of accounting period is made. Hence, Option B is incorrect.

Accuracy is about : Amounts and other information w.r.t recorded transactions have been recorded appropriately, and related disclosures have been made. Here, both notes payable and accounts payable are recorded appropriately, however have been incorrectly classifed in financial statements. Hence, it is not a violation of Accuracy, but a Violation of Classification (which is about : transactions and events should be recorded in the proper accounts). Thus, Option C is also incorrect and Option D : "Valuation and Allocation assertion and Classification objective" is Correct.

ekkarill92 answered 1 year ago

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