Question

In Seattle Plant, Inc.’s most recent balance sheet, accounts receivable was reported at $560,495. Using the PCAOB identification system, state the five separate assertions management is making about accounts receivable. Be clear and concise. Do not use the words exist, existence, occur, occurrence, completeness, rights, obligations, valuation, allocation, presentation, or disclosure in your answer.

I completed the Rights & Obligations assertion for you.

MANAGEMENT ASSERTION (ACCOUNTS RECEIVABLE)

Existence/Occurrence

Completeness

Valuation

Rights & Obligations

Seattle Plants is entitled to all amounts included in accounts receivable.

Presentation/Disclosure

Answer 1

As per the latest Balance Sheet of Seattle Plant Inc. the Accounts Receivables show balance of $560,495. There are five separate assertions management is making about accounts receivable. They have been explained as follows:

The first one suggests that the accounts receivables that comprise of debtors and bills and trade receivables are real. It must be taken care that these accounts do not reflect balances that are doubtful of recovery and have chances of no realisation. Also, the transactions that have given rise to a receivable have actually happened and are not fake. They must be capable of being recognised, identified, and valued appropriately.

The second assertion states that all of the receivables must be accounted for and there must not be any that is left out or is failed to be taken into consideration for drawing the balance sheet. All the sub heads i.e.the trade debtors, bills receivables, and other trade receivables, must all form a part of the accounts receviable and all transactions must be recorded correctly.

The third assertion suggest that the management must ensure that the receivables are rightfully accounted for, that pertain to the respective time period in which they arise.

The fourth assertion suggests that the receivables have been accounted properly in terms of the value that they are worth. In case of foreign accounts receivables, they must be converted to the home currency closing rate and the final converted figure must be refelcted in the balance sheet. Discounts given must proportionately reduce the value of assets and be charged to the Revenue A/c of the appropriate Financial Year. Grouping of these receviables must be done on the basis of the number of years credit given and their maturity thereof and must be accordingly grouped into current or non-current receivables.

The fifth assertion asserts that the receivables figures are debited to the correct accounts, i.e. the classification is made to the correct ledger accounts and the understandability of the accounts is accentuated through its proper classifiaction.