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In: Accounting

Explain disclosure assertions issues related to investments Audit?

Explain disclosure assertions issues related to investments Audit?

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Expert Solution

Audit Assertions::--

Audit assertions make up an important element in the different stages of financial statement audits. An auditor uses audit assertions and procedures to perform tests on a company’s policies, guidelines or internal controls, and financial reporting processes. In financial statements, assertions about the recognition, measurement, presentation, and disclosure of financial information are included.

-->> assertions issues related to investments Audit .::--

Companies that hold investments in stocks and bonds may have significant cash amounts tied up in these financial instruments. Auditors will want to make sure that these investments exist and that the company has the right to the funds held in the investment. For most investments, confirmations are sent to investment companies and brokerage firms. However, there are a few exceptions. Companies that hold bearer bonds will have an auditor physically examine the bond to make sure that it exists and is valid. In addition, companies that hold investments in private companies or other illiquid investments may need to demonstrate how they arrived at the valuation of their stake in the investment.

-->> Presentation and disclosure assertions. The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:

• Accuracy. The assertion is that all information disclosed is in the correct amounts, and which reflect their proper values.

• Completeness. The assertion is that all transactions that should be disclosed have been disclosed.

• Occurrence. The assertion is that disclosed transactions have indeed occurred.

• Rights and obligations. The assertion is that disclosed rights and obligations actually relate to the reporting entity.

• Understandability. The assertion is that the information included in the financial statements has been appropriately presented and is clearly understandable.


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