Question

Question 2

Identify and explain the assertions used for:

(i) Account balances (balance sheet) accounts.

(ii) Classes of transactions (income statement) accounts.

Question 3

Describe the purpose for, and provide examples of, external confirmations.

Question 4

Describe the three broad categories of corroborating evidence.

Answer 1

Answer 2:-

(i)Assertions used for Account balances

1) Existence:- should check whether the liability or the asset really exists

2) Rights in the property:- Should check whether the property is held by the business entity.

3) Completeness :- Should check whether all transactions recorded are completely recorded.

4) Valuation:- Should check whether all assets, liabilities, eqity are valued and recorded at appropriate values.

(ii) Assertions used for class of transactions

1) Occurance:- Should check whether the transaction recorded was actually occurred.

2) Completeness :- Should check whether the transaction recorded is completely recorded.

3) Accuracy:- Should check whether the transactions recorded are accurately and appropriately recorded.

4) Classification :- Should check whether the transactions and events are classified in to appropriate accounts.

5) Accounting period :- Should check whether the transactions and events recorded are correctly recorded in the relavent accounting period.

Answer 3:-

Purpose for external confirmation:- In order to verify the true and fair view of the financial statements of any organisation, transactions recorded in the books of account shall be compared with relavent audit evidences like vouchers attached with proper bills.

In general there are two types of audit evidences

a) Internal audit evidence, b) external audit evidence.

The external confirmation comes under external audit evidence. In order to confirm the validity and genuineness of a transaction external evidence is more effective and efficient as compared with the internal audit evidence.

Some of the examples of external confirmation are as follows:-

Obtaining bank statement showing closing balance authorized by the bank manager to cross check the bank balance in balance sheet

Requesting for purchases summary and sale summary from dealers of the organisation to confirm those amounts recorded.

Receive a statment showing the amount of loan from financial institutions to verify the amount recorded as liabilities in bslance sheet.

Request statment from creditors to know the actual amount he is oweing to them by comparing the statement balance with balance sheet balance.

Theses are some of the examples for external confirmation.

Answer 4:- Three broad categories of Corrobarating evidence are as follows:-

a) External evidence collected and presented to the auditor directly

b) External evidence held by the client

c) Internal evidence generated in the business entity.

Corrobarating evidence is the supporting evidence to the current evidence held by us, which increases the genuineness of the transaction or event. We cannot completely depend only upon the corroborative evidence, but it provides some more strengh to the primary evidence held with us.

In these three types of audit evidences, evidence collected by the auditor becomes corroborative evidence to external ebedence collected by the client which is an corroborative evidence to the internal evidence generated with in the business entity.