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Sitting F8 next week – could anyone explain the distinction between audit procedures at ‘FS level’…and at ‘Assertion level’……by my understanding we are performing substantive audit procedures to test the FS assertions (completeness, cut-off, etc, etc) ….what is an audit procedure at FS level if it is not testing the assertion…..
I guess you address the audit risk problem – it can be found at “FS level” and at “assertions level”.
Assertions level imply accounts level – you have the risk of undiscovered material misstatement of a single account or group of accounts.
When yu speak about audit risk at FS level – you mean that all accounts separately show “true and fair view” but still the overall FS are “misleading”. For example, you might have liquidity issues, but any account in the BS or P&L would still be correct.It’s kinda subtle stuff, but it still is. Covering FS level risks would be planning, understanding the business, risk assessment, Overall Analytical Review of FS. Assertion level – test of controls and substantive audit.
Hope I’ve helped. Good luck tomorrow.
risk at financial statement level is talking about the factors withing a given scenario that would affect the financial statements as a whole. these are any factors that would filter down into account balances. it pervades the financial statements and can not be identifiable with specific ascertions. for example integrity of management (if they do not have integrity then risk at fs level is high where as if they do the risk at fs is reduced)
1. What is the difference between financial statement level and assertion level?
2. What is the difference between risk at the financial statement level and assertion level?On this forum you already have students’ answers – if an existing thread doesn’t answer your question I recommend you use the tutor forum – which I look at every working day.
See page 64 and Chapter 16 of the notes – assertions relate to “classes of transactions” (e.g. sales, purchases) and “account balances” (e.g. receivables, inventory). Collectively all classes of transactions, account balances (and their related disclosures) make up the financial statements.
Most risks you will see described are at the assertion level e.g. risk of revenue overstatement due to cut-off [assertion] error; risk of understatement of trade payables due to unrecorded purchase invoices [completeness assertion].
Examples of risks that affect financial statements as a whole (i.e. effect is not limited to individual classes of transaction/account balance) include the risk that entity is not a going concern (e.g. if financial statements should be prepared on a basis other than going concern) and significant risks of management fraud (e.g. if management is involved in fraudulent financial reporting).
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