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Hi Kim. I had read through several posts that you answered and it is really really helpful, thank you so much! However, I still have some questions in my mind and would like to seek for your advice :
1. For receivables, reviewing post y/e cash receipts and follow through to the receivables can confirm existence ; while for payables, it confirms completeness instead. I do not understand why it is completeness for payables. For what I understand, completeness is about “everything that should be recorded have been recorded”. Then why any after date payment to the supplier ensure that there are no missing payables? I think it should be to confirm existence in both receivables and payables, as after date cash receipts/ payment surely indicates that the recorded receivables/ payables exist.
2. Do all reconciliation statements (for example, bank statement reconciliation, trade payables reconciliation, etc.) are to ensure completeness?
3. Tracing unpresented cheque to pre y/e cash book and post y/e bank statement ensure completeness. I do not understand why it is completeness rather then existence. In my understanding, there may be a risk that some unpresented cheque and outstanding lodgements is not recorded but cancel each other out, resulting the reconciliation statement seems right.
4. For payroll records, what assertion do agreeing the individual monthly payments to payroll records confirm? Completeness or existence?
Thank you!
1. For receivables, after-date cash confirms recoverability of the debt and, subject to confirmation of timing/cut-off of sales transactions, that the debt existed at the reporting date (otherwise why would a customer pay?) Any shortfall in after-date cash might suggest that a receivable is not recoverable (i.e. accuracy and valuation).
But for payables, you are searching payments for evidence of of liabilities that have NOT been recorded – for sure, you will find lots of payments that are in settlement of recorded liabilities (existence) but it’s the payments that DON’T match a year-end payable that the auditor is most interested in.
Consider this – profit will be overstated if:
– receivables are overstated … so you test for existence (direction from recognised in FS to “source”);
– payables are understated … so you test for completeness (direction from “source” to FS).2. Not only completeness, but accuracy of recording – which is related to valuation – and cut-off.
3. That would be completeness of recording of payment transactions – remember completeness is an assertion that is relevant to classes of transactions and account balances.
It is also a test of cut-off – cheques should “clear” the banking system quite quickly – so significant delays should be investigated (e.g. if the cheques were not “in the post” but sitting in a drawer waiting to be sent out to suppliers after the year end).
As an assertion, “existence” relates only to account balances. (See notes at the bottom of page 86 of the notes.) The existence of the bank balance is confirmed by a bank report for audit purposes.
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