Question

Identify the test of controls for each asssertion(existence, completeness, accuracy or valuation, rights and obligations, and presentation and disclosure) and internal control. Write 500 words that set specific tests of internal controls for the 5 internal controls related to management assertions.

Answer 1

Assertions for Classes of Transactions:

Occurrence – Transactions recognized in the financial statements have occurred and relate to the entity.

Completeness – All transactions that were supposed to be recorded have been recognized in the financial statements.

Accuracy – Transactions have been recorded accurately at their appropriate amounts.

Cut-off – Transactions have been recognized in the correct accounting periods.

Classification – Transactions have been classified and presented fairly in the financial statements.
Assertions related to Assets, Liabilities and Equity Balances at the period end:

Existence – Assets, liabilities and equity balances exist at the period end.

Completeness – All assets, liabilities and equity balances that were supposed to be recorded have been recognized in the financial statements.

Rights & Obligations – Entity has the right to ownership or use of the recognized assets, and the liabilities recognized in the financial statements represent the obligations of the entity.

Valuation – Assets, liabilities and equity balances have been valued appropriately.
Assertions related to Presentation and Disclosures:

Occurrence – Transactions and events disclosed in the financial statements have occurred and relate to the entity.

Completeness – All transactions, balances, events and other matters that should have been disclosed have been disclosed in the financial statements.

Classification & Understandability – Disclosed events, transactions, balances and other financial matters have been classified appropriately and presented clearly in a manner that promotes the understandability of information contained in the financial statements.

Accuracy & Valuation – Transactions, events, balances and other financial matters have been disclosed accurately at their appropriate amounts.

internal control consists of five components:

Control Environment - Entity's emphasis on and attitude towards internal controls at the top of the organization.

Risk Assessment System - Entity's process to analyze and identify risks affecting the achievement of organizational objectives.

Control Activities - Policies and procedures established by the entity to help ensure management directives are carried out.

Information and Communication System - Entity's process to identify, capture, and report information for decision making.

Monitoring System - Entity's process to evaluate the effectiveness and efficiency of internal control.