Summary AUE2602 STUDY NOTES 2022

Assertions are categorized as follows: • assertions about classes of transactions and events for period under audit e.g. sales, interest received • assertions about account balances at year-end e.g., accounts receivable, property, plant and equipment • assertions about presentation and disclosure e.g., notes that support Statement of Financial Position account headings, contingent liabilities Transactions and events: • Occurrence – have all occurred and pertain to the entity • Completeness – anything that should have been recorded has been recorded • Accuracy - have been recorded appropriately • Cut-off - have been recorded in the correct accounting period • Classification - have been recorded in the correct accounts Account balances: • Existence – assets, liabilities and equity interest exist • Rights and obligations – entity holds and controls rights to assets and obligations are theirs • Completeness – have all been recorded • Valuation and allocation – included at appropriate amounts and valuation or allocation adjustments are recorded Presentation & disclosure: • Occurrence and rights and obligations – have occurred and pertain to entity • Completeness – all has been included • Classification & understandability – is appropriately presented and described and disclosures are clearly expressed • Accuracy and valuation – disclosed fairly & at appropriate amounts. Assertions for Statement of Financial Position transactions and balances : Assertion Audit objective - to obtain satisfaction that : Completeness individual transactions and balances in respect of specific kind of asset or liability are fully accounted for in the accounting records and financials Valuation & allocation the balance for the specific asset or liability has been accounted for at the appropriate carrying value and that the transactions have been correctly allocated to the proper period and recorded at the proper amount Existence at a given date the asset or liability did exist and the transactions did take place during the period in question Rights & obligations at a given date the asset or liability pertains to the entity and that the transactions did take place during the period in question Presentation & disclosure the asset or liability was disclosed, classified and described in accordance with the applicable legal requirements and generally accepted accounting practice Assertions for Statement of Comprehensive Income transactions and balances : Assertion Audit objective - to obtain satisfaction that the specific revenue or expenditure : Completeness transactions and balances are fully accounted for in the accounting records and financial statements Occurrence • transactions actually took place during the period in question (occurrence) • transactions pertain to the entity (validity) Cut-off / accuracy / classification transactions are recorded in the proper period, are correctly allocated and are recorded at the proper amount Presentation & disclosure balances are disclosed, classified and described in accordance with the applicable legal requirements and generally accepted accounting practice (ISA’s & 4 th schedule) lOMoARcPSD| 2 Downloaded by DJ poppy paps () Procedures used by auditor to obtain audit evidence : Analysis of objectives Procedures of auditor Completeness : All transactions were recorded at the time when they took place All transactions have been reported in the accounting records - check date on the supporting documentation - check sequential numbering of transactions Occurrence : Transactions reordered in records did actually take place Transactions recorded in the accounting records pertain to the entity - investigate existence of valid documents - compare entries in accounting records with supporting documents - check that transactions have been authorised - check supporting document to ensure that entity was party in the transaction Existence : Assets and liabilities did actually exist on given date - perform physical inspection of assets and compare it with the accounting record - examine supporting documentation - obtain supporting evidence from 3 rd parties Accuracy / cut-off / classification : All transactions have been recorded at the proper amount All transactions have been correctly allocated All transactions have been recorded in the correct financial period - compare the amount from supporting documents with the amount in the accounting records - compare the allocation with the particulars in the supporting documents - compare the date of the transaction with the date on the supporting documentation Valuation : Assets and liabilities have been recorded at an appropriate carrying value Assess value by physical inspection Assess the reasonable of the amounts claimed for reduction / increase or write-off of assets - obtain external valuation or confirmation from 3 rd parties - compare value by referring to supporting documentation Rights and obligations : Assets and liabilities pertain to the entity at a given date - examine supporting documentation - obtain evidence from 3 rd parties in support of rights or obligations - obtain sufficient information to make sure that the state of affairs was applicable at given date Presentation and disclosure : Items in financials have been correctly disclosed, classified and described - examine financials and obtain satisfaction that there has been proper disclosure, classification and description in terms of the Companies Act and generally accepted accounting practice APPLICATION CONTROLS Framework for application controls in computerised environment = • masterfile amendments • input, processing and output • validity, accuracy and completeness • prevention, detection and correction. Ideal to have distinctive input, processing and output phases with manual controls combined with program controls, but if fewer people involved and if no real distinction between these phases then must place more reliance on : • access controls and programmed controls rather then manual controls • preventative rather then detective and corrective controls Vital that the information that is being processed is valid, accurate and complete. Application = set of procedures and programmes that satisfy all users associated with a specific task. Application controls = controls over input, processing and output of financial information relating to specific application, that ensures that the information is valid, accurate and complete. Consist of both automated (computerised) and manual controls. Transaction files = files uses to store all details of an individual transaction Masterfiles = files used to store only standing information (debtor’s names, addresses and credit limits) and latest balances. Masterfile amendments = changes to standing data on masterfiles – MUST be tightly controlled Objective of controls in computerised accounting environment is generally centered around the validity, accuracy and completeness of data and information processed by and stored on the system. Validity = ensures that the transactions and data : • aren’t fictitious or fraudulent and • are in accordance with activities which have been properly authorised by management Accuracy = minimising errors to ensure that data and transactions are correctly captured, processed and allocated Completeness – ensuring data and transactions are not omitted or incomplete Terms relating to the stage at which controls are implemented to achieve the objectives explained above : • prevention = controls designed to identify errors and problems in source data and how it is captured BEFORE it is accepted for input, processing and output by the system • detection = controls which identify errors and problems with data that has been entered onto the system (i.e. errors that weren’t caught by prevention controls). Detection is worthless unless problems are followed up on and resolved • correction = controls that are implemented to resolved errors and problems which have been identified using detection controls.