Chapter 5 - Audit Evidence & Auditing Procedure
Chapter 5 - Audit Evidence & Auditing Procedure
Chapter 5 - Audit Evidence & Auditing Procedure
PROCEDURE
Chapter 5
5
What are these assertions/
declarations made by management?
Existence or occurrence
Completeness
Obligations and rights (Ownership)
Classification
Valuation or measurement
Accuracy
Cut-of
Presentation and disclosures
of events and transactions in the entity have
been properly reflected in the FS.
6
Assertions are evaluated into 3
categories:
1. Transactions (eg Sales transactions)
2. Account Balances ( eg Account
Receivables)
3. Presentation and disclosure ( Notes to the
FS)
7
Existence or occurrence
Transactions and events that have been
recorded have occurred.
(Eg. Sales have occurred)
Completeness
All transactions and events that should
have been recorded have been recorded.
(All sales transactions for the year have
been recorded)
8
Rights and Obligations (ownership)
The entity holds or controls the rights to
assets and liabilities are obligations of the
entity.
( PPE belongs to company and long term loan
is liability under the name of the company)
Classification
Transactions and events have been recorded
in the proper accounts. ( Eg Capital
Expenditure of PPE recorded under PPE
accounts instead of repair and maintenance)
9
Valuation or measurement
Assets, liabilities and equity interests are
included in the financial statements at
appropriate amounts, and any resulting
valuation or allocation adjustments are
appropriately recorded.
(eg trade receivables have been properly
valued taking into consideration allowance
for doubtful debt)
10
Accuracy
Amounts and other data relating to
recorded transactions and events have
been recorded appropriately.
(eg Sales amount have been recorded
accurately according to invoice amount)
11
Cut-of
Transactions and events have been
recorded according to proper accounting
year end. (eg, all sales invoice dated
between 1/1/2010 31/12/2010 should be
recorded in the Statement of
Comprehensive Income for the year ended
31/12/2010)
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Presentation and Disclosures
The Financial Statements have been
prepared in accordance with the
presentation and disclosure requirements
of applicable accounting standards in
Malaysia.
For Public Listed Companies (Bhd
companies), applicable accounting
standards is Malaysian Financial Reporting
Standards (MFRS).
For Private Entities (Sdn Bhd companies),
applicable accounting standards is
Malaysian Private Entities
Aud 390 - Betsy Jomitin
Reporting
Standards (MPERS) or MFRS.
So, what is the
elationships between the managemen
assertions and
the work of an auditor?
14
LETS TAKE A LOOK AT THE
EXAMPLE BELOW.
ABC Sdn Bhd has in its Statement of
Financial Position @31/12/2010, under
current asset, cash at bank amounting to
RM 20,000.
15
WHAT WOULD BE THE MANAGEMENTS
ASSERTIONS RELATING TO ITS CASH AT
BANK OF RM 20,000 RECORDED IN ITS
CURRENT ASSETS AS AT 31/12/2010?
16
BASICALLY, MANAGEMENT WOULD
ASSERT THAT.
CASH AT BANK REALLY EXIST.
AMOUNT REPORTED IS
CORRECT/ACCURATE.
THEY HAVE COMPLIED WITH THE
REQUIREMENT OF ACCOUNTING
STANDARDS RELATING TO RECORDING
OF CASH AT BANK.
THEY HAVE COMPLETELY RECORDED ALL
TRANSACTIONS RELATED TO CASH AT
BANK(COMPLETENESS).
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Therefore.
As an auditor, it is his responsibility to
obtain reasonable assurance by
verifying/checking/examining/provide proof
(BY COLLECTING REQUIRED EVIDENCES)
that the assertions made by the
management is accordingly as stated.
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What is audit evidence?
Accounting records
Minutes of meeting
Confirmations from third parties
Analysts Reports
Other information Benchmarking data about
competitors
Internal control manual
Aud 390 - Betsy Jomitin
The appropriateness of audit evidence