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Hi Sir, there’s this OTQ about audit procedures to test the valuation assertion for NCA, and according to the answers provided, option 2 is not a relevant test for valuation assertion while option 1 is (options 1 and 2 are as below). To me both are relevant tests and similar in nature, so I’m left feeling confused. May I know what’s the reason behind this answer?
Option 1: Ensure disposals are correctly accounted for and recalculate gain/loss on disposal
Option 2: Review board minutes for evidence of disposals during the year and verify that these are appropriately reflected in the NCA registerThank you!
Please remember to give the source of your query – in this case this relates to Q7 in the Specimen exam.
“valuation” concerns the carrying amount shown in the financial statements which is extracted from relevant ledger a/cs (i.e. cost and depreciation) in the general ledger.
Option 1 includes “correctly accounted for” – which means that the cost and depreciation amounts for disposals have been transferred out of these a/cs (to a disposals a/c which determines the gain/loss).
Option 2 concerns existence – reflecting disposals in the asset register is not the same as accounting for them. An asset register is not part of the double-entry accounting system but completely separate.
Thank you for the reminder! Will keep that in mind for the future.
So, if option 2 reads “Review board minutes for evidence of disposals during the year and verify that these are appropriately reflected in the NCA accounts” instead, it will be a relevant test for the valuation assertion.
Is my understanding correct?
Your understanding is correct but I rather doubt you would see this as there is no direct linkage between authorisation to dispose of evidence (which is what you would find in the board minutes) and the accounting for the disposal (which might be “triggered” by the disposal proceeds). The register on the other hand could easily include a column with an authorisation date.
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