Question

Explain the following auditor responsibilities and objectives – and give 2 examples of documents or tools that would be used for each of the following: Management's responsibilities and Management assertions. Please I need 2 examples and the name of the documents. Thank you.

Answer 1

Auditor's Responsibilities

-Conduct an audit of the FS in accordance with GAAS

-Collect evidence to support mgmt's assertions (representations)

-Issue an opinion on FS (auditor's report)

-Maintain professional skepticism

-Obtain and provide reasonable assurance that material misstatements (errors and fraud) are detected.

Audit Objectives

Based on management assertions, transaction-related and balance-related audit objectives are established.

Audit objectives provide a conceptual framework to assist the accumulation of audit evidence.

For each class of transactions and events, there are several general and specific transaction-related audit objectives that must be met before the auditor can conclude that the transactions are properly recorded.

For each account balance, there are general and specific balance-related audit objectives that must be met before the auditor can conclude that the balance is properly reported.

There are four presentation and disclosure audit objectives that must be met before the auditor can conclude that the FS are presently fairly and all necessary informative disclosures have been made.

Management Assertions

Management assertions are "implied or expressed representations by management about classes of transactions and the related accounts in the FS."

There are assertions for each of FS elements (e.g., assets) which are related to GAAP.

The assertions serve as the basis for management's recognition and disclosure of information in FS

The five broad categories of assertions:
1.Existence or Occurrence
2.Completeness
3.Valuation or Allocation
4.Rights and Obligations
5.Presentation and Disclosure.

Management assertions in auditing

Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used in regard to the audit of a company's financial statements, where the auditors rely upon a variety of assertions regarding the business. The auditors test the validity of these assertions by conducting a number of audit tests. Management assertions fall into the following three classifications:

Transaction-level assertions. The following five items are classified as assertions related to transactions, mostly in regard to the income statement:

• Accuracy. The assertion is that the full amounts of all transactions were recorded, without error.
• Classification. The assertion is that all transactions have been recorded within the correct accounts in the general ledger.
• Completeness. The assertion is that all business events to which the company was subjected were recorded.
• Cutoff. The assertion is that all transactions were recorded within the correct reporting period.
• Occurrence. The assertion is that recorded business transactions actually took place.

Account balance assertions. The following four items are classified as assertions related to the ending balances in accounts, and so relate primarily to the balance sheet:

• Completeness. The assertion is that all reported asset, liability, and equity balances have been fully reported.
• Existence. The assertion is that all account balances exist for assets, liabilities, and equity.
• Rights and obligations. The assertion is that the entity has the rights to the assets it owns and is obligated under its reported liabilities.
• Valuation. The assertion is that all asset, liability, and equity balances have been recorded at their proper valuations.

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.

There is a fair amount of duplication in the types of assertions across the three categories; however, each assertion type is intended for a different aspect of the financial statements, with the first set related to the income statement, the second set to the balance sheet, and the third set to the accompanying disclosures.

If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements.

Management's Responsibilities

Management is responsible for ensuring that systems of internal control are in place, good business practices are implemented and followed in all areas, compliance is maintained, fraud risks are identified and mitigated, and effective governance is established. This provides assurance that financial information and other management information are reliable, that University resources are used efficiently and effectively and that the potential for fraud is minimized.

Management provides a written response to report recommendations issued within time frames requested by internal audit. Management is responsible to address issues identified by implementing recommendations or agreed-upon corrective action plans.