Question

In Auditing, please provide some examples of financial statement accounts for the Valuation management assertion and the Ownership management assertion.

Answer 1

Valuation assertion means that a business records all account balances in the right amounts, and allocation means that the company records the amounts in the appropriate accounting period as and when they occur.

For example, a company takes a physical count of its inventory, which totals $500,000. The inventory asset account on the balance sheet shows $510,000. The difference (shrink) between the two ($10,000) needs to be allocated from inventory to the current year expense cost of goods sold.

The ownership assertion tests whether your audit client actually has a lawful claim to the fixed asset on its balance sheet. You test this assertion by examining title documents or deeds for proof of ownership. You also review lease agreements to make sure that any capitalized leases are included on the balance sheet and that any operating leases aren’t.

For Example, a company has put its assets on lien and have already given the original documents to someone else, then in that case the company is not the rightful owner of the asset it has recorded in its books of accounts.