Audit procedures - assertions

This topic has 3 replies, 2 voices, and was last updated 11 months ago by Kim Smith.

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August 21, 2021 at 11:34 am #632396
orhodes
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Hi Kim

I am struggling to remember audit procedures to confirm assertions like completeness, occurrence, cut-off for example purchases.
I kind understand it all but it doesn’t click I my head.
For example for “purchases” one of the procedure to confirm completeness is “for a sample of amounts on the ledger, agree to the computerised payment list to verify the amount and supplier. The purpose is to provide assurance that the payment list is complete and accurate.” (BPP, 150 Westra Co question)

I am trying to find logic so it’s easier on the exam. When I think about purchases, I think about that we have all invoices for all goods that we received, if not then we should have an accrual; prices on invoices are correct so the purchase amount is not misstated.
I am not sure why in the question they are talking about the payment list, basicly to confirm that we are paying suppliers on the ledger not someone odd.
I get confused on tracing in general because it should be in a certain order. In one order it confirms completeness (invoice to GRN to order, to amount in ledge). In backwards order confirms occurance (amount in ledger to invoice to GRN).
I can’t see the difference why we can’t put for both completeness and occurance tracing in one order (amount in ledger to invoice to GRN to order for example).

Not sure how to remember it all.

Thanks
Oksana
August 21, 2021 at 1:21 pm #632404
Kim Smith
Keymaster
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First see Chapter 16:

s2. Assertions about classes of TRANSACTIONS and events and related disclosures are for the period
s3. Assertions about account BALANCES and related disclosures relate to the period end

See “Learn the assertions” at the bottom of the page.

Occurrence – transactions and events that have BEEN RECORDED or disclosed have occurred and pertain to the entity. The “direction” of this, then, is “backwards” from what is recorded to “source”.

Completeness is the “opposite” – you are asking “what has NOT been recorded?”. The direction of testing CANNOT therefore be the same – you have to start at the SOURCE – e.g. receipt/despatch of goods should give rise to recording of purchases/sales (and payables/receivables).
August 21, 2021 at 2:12 pm #632413
orhodes
- Topics: 17
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Thank you very much for an explanation! I understand it better now. I’ll practice more questions and hopefully won’t get confused on the exam.

Oksana
August 21, 2021 at 2:48 pm #632418
Kim Smith
Keymaster
- Topics: 91
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It may help you to draw yourself “flows” like this:

This would take you “backwards” from purchases/payables in the FS to source:

FS -> TB -> Payables control a/c balance reconciled to list of individual balances -> make-up of individual balances -> purchase invoices -> GRNs

This “direction” of testing is relevant to the assertions of occurrence (purchase transactions) and/or existence (payables balance).

For completeness you do in reverse. If something is “missing” in reverse – e.g. there’s a GRN but there’s no purchase invoice (yet) – that’s why you need an accrual.
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