Part II Evidence of Errors and Financial Statement Assertions (2*7=14 points) Th
ID: 2460200 • Letter: P
Question
Part II Evidence of Errors and Financial Statement Assertions (2*7=14 points)
The audit assistant collected the following evidence of errors during an audit. Identify the financial statement assertion affected by each error by selecting the appropriate option from the list provided below the table (A-E). An Assertion may be selected once, more than once, or not at all.
Evidence of Errors
Assertions
1. The assistant noted on a cash confirmation from a bank that there was an outstanding short-term loan at December 31, which was not recorded by the client.
2. The current portion of long-term debt was excluded from the current liabilities section of the balance sheet, and was included with long term liabilities instead.
3. The assistant found a number of shipping documents for which there were no related sales invoices.
4. During the year the client purchased a truck from a private individual, but legal title was not obtained.
5. During her observation of the client's inventory, the assistant noted a few items in the back of the storeroom that appeared to be rather old. Upon further investigation, the items were deemed to be obsolete and worthless.
6. The assistant selected several older assets from the client's asset ledger, but was unable to locate those assets for physical inspection. The accounting manager indicated that the assets had been disposed of during the year.
7. The client bought a piece of property five years ago for investment purposes. The property has quadrupled in value since that time, so the client has written up the investment to more closely reflect its current market value. The client uses U.S. GAAP.
Five Financial Statement Assertions: (CoVER U)
Completeness
Valuation and allocation
Existence
Rights and obligations
Understandability and classification
Evidence of Errors
Assertions
1. The assistant noted on a cash confirmation from a bank that there was an outstanding short-term loan at December 31, which was not recorded by the client.
2. The current portion of long-term debt was excluded from the current liabilities section of the balance sheet, and was included with long term liabilities instead.
3. The assistant found a number of shipping documents for which there were no related sales invoices.
4. During the year the client purchased a truck from a private individual, but legal title was not obtained.
5. During her observation of the client's inventory, the assistant noted a few items in the back of the storeroom that appeared to be rather old. Upon further investigation, the items were deemed to be obsolete and worthless.
6. The assistant selected several older assets from the client's asset ledger, but was unable to locate those assets for physical inspection. The accounting manager indicated that the assets had been disposed of during the year.
7. The client bought a piece of property five years ago for investment purposes. The property has quadrupled in value since that time, so the client has written up the investment to more closely reflect its current market value. The client uses U.S. GAAP.
Explanation / Answer
Evidence of Errors Assertions 1. The assistant noted on a cash confirmation from a bank that there was an outstanding short-term loan at December 31, which was not recorded by the client. Completeness 2. The current portion of long-term debt was excluded from the current liabilities section of the balance sheet, and was included with long term liabilities instead. Understandabilty and classifictaion 3. The assistant found a number of shipping documents for which there were no related sales invoices. Completeness 4. During the year the client purchased a truck from a private individual, but legal title was not obtained. Rights & Obligaction 5. During her observation of the client's inventory, the assistant noted a few items in the back of the storeroom that appeared to be rather old. Upon further investigation, the items were deemed to be obsolete and worthless. Valuation & Allocation 6. The assistant selected several older assets from the client's asset ledger, but was unable to locate those assets for physical inspection. The accounting manager indicated that the assets had been disposed of during the year. Existence 7. The client bought a piece of property five years ago for investment purposes. The property has quadrupled in value since that time, so the client has written up the investment to more closely reflect its current market value. The client uses U.S. GAAP. Valuation & Allocation