Question

jenny and Sam are the auditors for the AAA audit firm. They discuss an audit program for the sales account. Jenny and Sam disagree about whether they should use procedure (1) or (2) below to test the Occurrence assertion for the sales account:

Procedure (1): Select a sample of sales invoices, delivery dockets and customer orders and agree the details to the details recorded in the sales journal.

Procedure (2): Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery dockets and customer orders.

Required: Advise the senior auditor of AAA audit firm:

1. Which procedure provides evidence about the Occurrence assertion? Explain your answer.

2. Which assertion does the other procedure provide evidence about? Explain your answer.

Answer 1

1. the first one is occurrence assertion

Meaning of occurrence assertion

The assertion that all the transactions and events recorded in the financial statements, have occurred and are related to the entity is called occurrence.

This assertion is tested for an overstatement. In simple words, if management has recorded a transaction related to profit or loss statement, you need to check its occurrence which will ensure two major things:

• That transaction recorded by management actually occurred, and
• That transaction actually relates to the entity (it means management is not showing someone else’s transaction in their profit or loss statement.

2. The second one indicates the completeness assertion

Meaning of compleatness assertion

Transactions that are completed and supposed to be recorded have been recognized in the sales journel.

Thank you I hope this answer is correct.if you have any doubts please ask. Sorry for any mistakes