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Dear Sir
Kindly I need your help to explain Something for me
During my study for the Test of controls for the sales system in BPP I found that there is no testing for Rights and obligations assertion while in the purchase system there is testing for the right and obligation assertion I don’t understand why is that I thought all assertions should be tested for all systems also the presentation and disclosure is not tested in the sales system but it is tested in the others cycle so i don’t understand why.
Thanks a lot for your help I appreciate it.
Well the assertions divide into three classes: account balances, transactions and presentation and disclosure.
Rights and obligations is not an assertion relating to transactions and events (sales). It would relate account balances (receivables).
There is no right or obligation relating to a sale, but there is a right relates to a receivables balance (for example, it might have been assigned to someone else).
Thanks a lot for your quick reply but if that was the case then why in The BPP book it applies the right and obligation assertion to the purchase system it should have applied it to the liabilities balance only,,,,,Thanks
It depends what is meant by the ‘purchases system’. A purchase transaction is Dr Purchases, Cr Payables so both account balances and transactions are involved. INventory migth also be involved eg do we own the inventory in the warehouse? That would depend on whether or not it had been purchased or was in fact the supplier’s invenory in our warehouse.
Thanks a lot for your help but what you have just said applies to sales system too
Dr Receivables
Cr SalesAnd yet in the test of controls Rights and obligation assertion is not included
Thanks
Well, for receivables R&O is certainly an assertion that has to be tested.
What are the Diffrence between test of control and substantive procedures sir,i thing most of the time both are same.
They are very different.
See here:
https://opentuition.com/topic/confuision-of-verb-used-in-toc-and-substantive-procedures/
If you as an auditor look at 30 invoices to ensure that they have been posted to the correct accounts, that is a substantive test.
If you look at 30 invoices to see if someone has intialled them as having checked their account posting that is a test of control.
If you carry out a receivables ciscularisation, that is a cubstantive test. If you ensure that statesments are sent regularly to customers, that is a test of control.
If you carry out a bank reconciliation, that is a substantive test. If you ensure that client’s staff carried out bank reconciliations each month, thjat is a test of control.
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