Part B: Audit Objective of Management Financial Statement Assertions Related to
ID: 2602038 • Letter: P
Question
Part B: Audit Objective of Management Financial Statement Assertions Related to Investments Management at B, P, & J Truck Repair Service has made the following assertions relating to company investments. You have assessed the control risk for the company at the maximum for all financial statement assertions relating to investments. Consequently, the internal control over financial reporting audit report will indicate material weaknesses; rather than relying on ICFR during the financial statement audit, all audit evidence will come from substantive procedures. You have determined that B, P, & J is unable to exercise significant influence over any investee and there are no related parties. You have received an investment analysis from B, P, & J’s management revealing the following: • There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian. • Investments are classied as current or noncurrent. • The beginning and ending balances are shown at cost and market. • Unamortized premiums or discounts are associated with bonds. • The face amount of bonds or number of shares of stock are given for the beginning and ending of the year. • Accrued investment income for each investment at the beginning and ending of the year is presented. • Investment income earned and collected is presented. • Valuation allowances at the beginning and ending of the year are shown. • Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss. Based on the information above, identify explain the audit objective for each of the listed management nancial statement assertions relative to investments. Assertion Audit Objective Existence Completeness Valuation/Allocation Presentation and Disclosure
Explanation / Answer
Solution - Description of audit objective relating to assertions.
a) Audit Objective is to ensure that only Valid and Authorised transactions are included.
b) Audit Objective is to determine that Independent Bank custodian identified in a confirmation hold the Securities.
a) All transactions related to Investments are processed as per the standards like any income on investements, Discount or Premium on Invetsments.
b) Investments are Properly Classified as per their nature and every transaction is completed related to investements
a) Transactions relating to Investments are valued or computed or allocated using the most appropriate method like Fair value, Cost method, Equity Method or amortised cost as appropriate for particulars Investments of company.
a) Investmemts classification is properly presented and disclosed in financial Statements
b) All Transactions of a particular period are recorded in that period.
c) Appropriate disclosures relating to like related party transactions, collateral Investments are made in the Financial Statments
Assertion Audit Objective 1. Existencea) Audit Objective is to ensure that only Valid and Authorised transactions are included.
b) Audit Objective is to determine that Independent Bank custodian identified in a confirmation hold the Securities.
2. Completenessa) All transactions related to Investments are processed as per the standards like any income on investements, Discount or Premium on Invetsments.
b) Investments are Properly Classified as per their nature and every transaction is completed related to investements
3. Valuation/Allocationa) Transactions relating to Investments are valued or computed or allocated using the most appropriate method like Fair value, Cost method, Equity Method or amortised cost as appropriate for particulars Investments of company.
4. Presentation and Disclosurea) Investmemts classification is properly presented and disclosed in financial Statements
b) All Transactions of a particular period are recorded in that period.
c) Appropriate disclosures relating to like related party transactions, collateral Investments are made in the Financial Statments