Question

An auditor obtains the year end closing market price of the shares in a listed public company and applies this to the number of these shares owned by the entity. Which assertion is the auditor most likely addressing? Which ans in correct an which is incorrect. explain the reason for both accordingly.
The information is not incomplete.
a. Rights and obligations
b. Accuracy, valuation and allocation

Answer 1

Understanding both assertions-

• Rights and obligations-  This assertion pertains to the entity holding or controling the rights to assets, and liabilities which are the obligations of the entity.
• Accuracy, valuation and allocation- This assertion pertains to assets, liabilities and equity interests that have been included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments should be appropriately recorded. Additionally, the related disclosures have been appropriately measured and described.

In the example above, an auditor obtaines the year end closing market price of the shares in a listed public company and applies this to the number of shares owned by the entity.

Going by the above understanding provided for both the assertions; the entity is holding and controlling the right pertaining to equity which are the obligations of the entity. Hence it meets Rights & obligations assertion.

Adding on the value should be accurately recorded in the financial statements. Hence meeting the second assertion.

Conclusion- Both the answers are correct considering the information provided above.