Page 58 - CA Inter Audit PARAM

CA Ravi Taori
procedures at the assertion level necessary to obtain sufficient appropriate audit evidence.

In identifying and assessing risks of material misstatement at the assertion level, the auditor may
conclude that the identified risks relate more pervasively to the financial statements as a whole
and potentially affect many assertions. Assertions used by the auditor to consider the different
types of potential misstatements that may occur fall into the following three categories and may
take the following forms –

• Assertions about classes of
transactions and events for
the period under audit:
o Occurrence—
transactions and
events that have
been recorded have
occurred and pertain
to the entity.
o Completeness—all
transactions and
events that should
have been recorded
have been recorded.
o Accuracy—amounts and other data relating to recorded transactions and events
have been recorded appropriately.
o Cut-off—transactions and events have been recorded in the correct accounting
period.
o Classification—transactions and events have been recorded in the proper
accounts.

• Assertions about account balances at the period end:
o Existence—assets, liabilities, and equity interests exist.
o Rights and obligations—the entity holds or controls the rights to assets, and
liabilities are the obligations of the entity.
o Completeness—all assets, liabilities and equity interests that should have been
recorded have been recorded.
o Valuation and allocation—assets, liabilities, and equity interests are included in
the financial statements at appropriate amounts and any resulting valuation or
allocation adjustments are appropriately recorded.
- Example of Valuation and allocation
▪ Inventory has been recognized at the lower of cost and net realizable
value in accordance with AS 2 - Inventories.
▪ Any costs that could not be reasonably allocated to the cost of
production (e.g. general and administrative costs) and any abnormal
wastage have been excluded from the cost of inventory.
▪ An acceptable valuation basis (e.g. FIFO, Weighted average etc.) has
been used to value inventory as at the period-end.

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