Chapter l01 l- lAuditing land lAssurance
lServices
Solution Manual For Auditing & Assurance Services
l l l l l l l
l 9th Edition by Timothy Louwers, Penelope Bagley
l l l l l l
,Chapter l01 l- lAuditing land lAssurance
lServices
CHAPTER l01
Auditing land lAssurance lServices
LEARNING lOBJECTIVES
Review Multiple Exercises, lProblems,
Checkpoints
l lChoice land lSimulations
1. lDefine linformation lrisk land lexplain lhow 1, l2, l3 29, l31, l38 65*
lthe lfinancial lstatement lauditing lprocess
lhelps lto lreduce lthis lrisk, lthereby lreducing
lthe lcost lof lcapital lfor la lcompany.
2. Define land lcontrast lassurance, lattestation, 4, l5, l6, l7, l8 23, l25, l28, l44, 60, l65*
and lfinancial lstatement lauditing lservices. 50
3. Describe land ldefine lthe lassertions lthat 9, l10, l11 36, l39, l40, l41, l45, 62, l63, l67, l68, l69
lmanagement l makes labout lthe lrecognition, 46, l47, l48, l49, l52,
lmeasurement, lpresentation, land ldisclosure 53, l54, l55, l57, l58,
lof lthe lfinancial lstatements land lexplain l why 59
lauditors luse lthem las la lfocal lpoint lof lthe
laudit.
4. Define lprofessional lskepticism land lexplain lits 12 24, l37 61
lkey lcharacteristics.
5. Describe lthe lorganization lof lpublic 13, l14 30, l42, l56 72
laccounting lfirms land lidentify lthe lvarious
lservices lthat lthey loffer.
6. Describe lthe laudits land lauditors lin 15, l16, l17, l18 26, l27, l32, l34, l35 64, l66
lgovernmental, linternal, land
loperational lauditing.
7. List land lexplain lthe lrequirements lfor 19, l20, l21, l22 33, l43, l51 70, l71
lbecoming la lcertified lpublic laccountant
l(CPA) land lother lcertifications lavailable lto
lan laccounting lprofessional.
(*) lItem lrelates lto lmultiple llearning lobjectives
,Chapter l01 l- lAuditing land lAssurance
lServices
SOLUTIONS lFOR lREVIEW lCHECKPOINTS
1.1 Business lrisk lis lthe lrisk lthat lan lentity lwill lfail lto lmeet lits lbusiness lobjectives. lWhen lassessing
lbusiness lrisk, la lprofessional lmust lconsider lall lpossible lthreats lto lan lentity‘s lgoals land lobjectives.
lSome lillustrative lexamples linclude lthe lrisk lthat: l1) lits lexisting lcustomers l will lstart lbuying lproducts
lor lservices lfrom lits lprimary lcompetitors; l2) lits lproduct llines l will lbecome lobsolete; l3) lits ltaxes l will
lincrease; l4) lkey lgovernment lcontracts lwill lbe llost; l5) lkey lemployees lwill lleave lthe lentity; land lmany
lother lexamples lexist.
1.2 To lhelp lminimize lbusiness lrisk land ltake ladvantage lof lother lopportunities lpresented lin ltoday‘s
lcompetitive lbusiness lenvironment, ldecision lmakers lsuch las lchief lexecutive lofficers l(CEOs) ldemand
ltimely, lrelevant, land lreliable linformation. lThere lare lat lleast lfour lenvironmental lconditions lthat
lincrease ldemand lfor lreliable linformation. lFirst, lcomplexity l which limplies lthat levents land ltransactions
lin ltoday‘s lglobal lbusiness lenvironment lcan lbe lcomplicated. lMost linvestors ldo lnot lhave lthe llevel lof
lexpertise lneeded lto lproperly laccount lfor lcomplex ltransactions. lSecond lis lremoteness lwhich limplies
lthat ldecision lmakers lare loften lseparated lfrom lcurrent land lpotential lbusiness lrelationships ldue lto
ldistance land ltime. lFor lexample, linvestors lmay lnot lbe lable lto lvisit ldistant llocations lto lcheck lup lon
ltheir linvestments. lThird lis ltime-sensitivity l which limplies lthat lin ltoday‘s leconomic lenvironment,
linvestors land lother lusers lof lfinancial lstatements lneed lto lmake ldecisions lmore lrapidly lthan lever
lbefore. lAs la lresult, lthe lability lto lpromptly lobtain lhigh-quality linformation lis lessential. lFourth lis la
lconsequence l which limplies lthat ldecisions lmay lvery lwell linvolve lsignificant linvestments. l As la
lresult, lthe lconsequences lcan lbe lsevere lif linformation lcannot lbe lobtained
1.3 Of lall lthe ldifferent lrisks ldiscussed lin lthe lchapter lup lto lthis lpoint, linformation lrisk lis lthe lone lthat lis
lmost llikely lto lcreate lthe ldemand lfor lindependent land lobjective lassurance lservices lis linformation lrisk
lor lthe lprobability lthat lthe linformation lcirculated lby lan lentity lwill lbe lfalse lor lmisleading. lBecause lthe
lprimary lsource lof linformation lfor linvestors land lcreditors lis lthe lcompany litself, lan lincentive lexists
lfor lthat lcompany‘s lmanagement lto lmake ltheir lbusiness lor lservice lappear lto lbe lbetter lthan lit lactually
lmay lbe, lto lput ltheir lbest lfoot lforward. lAs la lresult, lpreparers land lissuers lof lfinancial linformation
l(directors, lmanagers, laccountants, land lother lpeople lemployed lin la lbusiness) lmight lbenefit lby lgiving
lfalse, lmisleading, lor loverly loptimistic linformation. lThis lpotential lconflict lof linterest lbetween
linformation lproviders land lusers lwhich lprovides lthe lunderlying lbasis lfor lthe ldemand lfor lreliable
linformation.
1.4 The lfour lmajor lelements lof lthe lbroad ldefinition lof lassurance lservices lare
Independence. l CPAs lwant lto lpreserve ltheir lreputation land lcompetitive ladvantage lby lalways
lpreserving lintegrity land lobjectivity l when lperforming lassurance lservices.
Professional lservices. lVirtually lall lwork lperformed lby lCPAs lis ldefined las l―professional lservices‖ las
llong las lit linvolves lsome lelement lof ljudgment lbased lon leducation land lexperience.
Improving lthe lquality lof linformation lor lits lcontext. lThe lemphasis lis lon l―information,‖ lCPAs‘
ltraditional larea lof lexpertise. lCPAs lcan lenhance lquality lby lassuring lusers labout lthe lreliability land
lrelevance lof linformation, land lthese ltwo lfeatures lare lclosely lrelated lto lthe lfamiliar lcredibility-lending
lproducts lof lattestation land laudit lservices. l―Context‖ lis lrelevance lin la ldifferent llight. lFor lassurance
lservices, limproving lthe lcontext lof linformation lrefers lto limproving lits lusefulness lwhen ltargeted lto
lparticular ldecision lmakers lin lthe lsurroundings lof lparticular ldecision lproblems.
For ldecision lmakers. lAs lthe l―consumers‖ lof lassurance lservices, ldecision lmakers lare lthe lbeneficiaries lof
lthe lassurance lservices. lDecision lmakers lmay lor lmay lnot lbe lthe l―client‖ lthat lpays lthe lfee land lmay lor lmay
lnot lbe lone lof lthe lparties lto lan lassertion lor lother linformation, lbut lthey lpersonify lthe lconsumer lfocus
lof lnew land ldifferent lprofessional lwork.
1.5 An lassurance lservices lengagement lis lany lassignment lthat limproves lthe lquality lof linformation, lor lits
lcontext, lfor ldecision lmakers. lBecause linformation l(e.g., lfinancial lstatements) lare lprepared lby
lmanagers lof lan lentity lwho lhave lauthority land lresponsibility lfor lfinancial lsuccess lor lfailure, lan loutsider
lmay lbe lskeptical lthat lthe linformation ltruly lis lobjective, lfree lfrom lbias, lfully linformative, land lfree
lfrom lmaterial lerror, lintentional lor linadvertent. l The lservices lof lan lindependent lauditor lhelps lresolve
lthose ldoubts lbecause lthe
, Chapter l01 l- lAuditing land lAssurance
lServices
auditor‘s lsuccess ldepends lupon lhis lor lher lindependent, lobjective, land lcompetent lassessment lof lthe
linformation l(e.g., lthe lconformity lof lthe lfinancial lstatements l with lthe lappropriate lreporting
lframework). lThe lindependent lauditor‘s lrole lis lto llend lcredibility lto lthe linformation; lhence, lthe loutsider
l will llikely lseek lhis lor lher lindependent lopinion labout lthe lfinancial lstatements.
1.6 An lattestation lengagement lis l―an lengagement lin lwhich la lpractitioner lis lengaged lto lissue lor ldoes
lissue la l written lcommunication lthat lexpresses la lconclusion labout lthe lreliability lof la lwritten lassertion
lthat lis lthe lresponsibility lof lanother lparty‖ l(SSAE l10, lAT l101.01). lTo lattest lmeans lto llend lcredibility
lor lto lvouch lfor lthe ltruth lor laccuracy lof lthe lstatements lthat lone lparty lmakes lto lanother. lThe lattest
lfunction lis la lterm loften lapplied lto lthe lactivities lof lindependent lCPAs l when lacting las lauditors lof
lfinancial lstatements.
1.7 An lassurance lservice lengagement lis lone lthat limproves lthe lquality lof linformation, lor lits lcontext, lfor
ldecision lmakers. l Thus, lan lattestation lservice lengagement lis lone ltype lof lan lassurance lservice.
l Another lway lof lthinking labout lthe lissue lis lto lremember lthat lthe lfinancial lstatement laudit lengagement
lis lone ltype lof lan lattestation lservice. lPlease lsee lexhibit l1.3 lin lthe ltext lwhich ldepicts lthe lrelationship
lamong lassurance, lattestation, land lauditing lengagements.
1.8 According lto lthe lAmerican lAccounting lAssociation, l―Auditing lis la lsystematic lprocess lof lobjectively
lobtaining land levaluating levidence lregarding lassertions labout leconomic lactions land levents lto lascertain
lthe ldegree lof lcorrespondence lbetween lthe lassertions land lestablished lcriteria land lcommunicating lthe
lresults lto linterested lusers.‖ lIn leffect, lauditors ladd lreliability lto lthe linformation lthat lis lprovided lto
linterested lusers. lOf lcourse, lthis ldefinition lis lfocused lon lan lexternal lreporting lcontext. lStudents lmay
lalso ldiscuss lhow lgovernmental land linternal lauditors loperate las l well.
In lresponse lto l―What ldo lauditors ldo?‖ lstudents lcan lrespond lby lstating lthat lauditors l(1) lobtain land
levaluate levidence labout lassertions lmade lby lmanagement labout leconomic lactions land levents, l(2)
lascertain lthe ldegree lof lcorrespondence lbetween lthe lassertions land lthe lappropriate lreporting lframework,
land l(3) lissue lan laudit lreport l(opinion). lStudents lcan lalso lrespond lmore lgenerally lby lstating lthat
lauditors lessentially llend lcredibility lto lthe lfinancial lstatements lpresented lby lmanagement.
1.9 Financial laccounting lrefers lto lthe lprocess lof lrecording, lclassifying, lsummarizing, land lreporting labout
la lcompany‘s lassets, lliabilities, lcapital, lrevenues, land lexpenses lin lthe lfinancial lstatements lin laccordance
lwith lthe lapplicable lfinancial lreporting lframework l(e.g., lGAAP). lIn lso ldoing, lthe lmanagement lteam
lis lmaking lseveral lassertions labout lthe lfinancial lstatements. lThe lfinancial laccounting lprocess lis lthe
lresponsibility lof lthe lmanagement lteam.
Financial lstatement lauditing lrefers lto lthe lprocess lwhereby lprofessional lauditors lgather levidence
lrelated lto lthe lassertions lthat lmanagement lmakes lin lthe lfinancial lstatements, levaluates lthe levidence land
lconcludes lon lthe lfairness lof lthe lfinancial lstatements lin la lreport.
They ldiffer lbecause laccountants lproduce lthe lfinancial lstatements lin laccordance lwith lthe lapplicable
lfinancial lreporting lframework. lAfter lthis lis lcomplete, lfinancial lstatement lauditors lthen lperform
lprocedures lto lascertain lwhether lthe lfinancial lstatements lhave lbeen lprepared lin laccordance lwith lthe
lapplicable lfinancial lreporting lframework.
1.10 The ltwo lmajor lclassifications lof lASB lassertions lwith lseveral lassertions lin leach lclassification
are: lAssertions lAbout lClasses lof lTransactions land lEvents, land lRelated lDisclosures
l
Occurrence lassertion: lThe lobjective lis lto lestablish lwith levidence lthat ltransactions lgiving lrise lto
lassets, lliabilities, lsales, land lexpenses loccurred. l Key lquestions linclude l―Did lthe lrecorded lsales
ltransactions lreally loccur?‖
Completeness lassertion: lThe lobjective lis lto lestablish lwith levidence lthat lall ltransactions lof lthe lperiod
lthat lshould lbe lare lincluded lin lthe lfinancial lstatements l(including lfootnotes). lCompleteness lalso lrefers
lto lproper linclusion lin lfinancial lstatements lof lall lrevenue, lexpense, land lrelated ldisclosures. lKey
lquestions lrelated lto
lServices
Solution Manual For Auditing & Assurance Services
l l l l l l l
l 9th Edition by Timothy Louwers, Penelope Bagley
l l l l l l
,Chapter l01 l- lAuditing land lAssurance
lServices
CHAPTER l01
Auditing land lAssurance lServices
LEARNING lOBJECTIVES
Review Multiple Exercises, lProblems,
Checkpoints
l lChoice land lSimulations
1. lDefine linformation lrisk land lexplain lhow 1, l2, l3 29, l31, l38 65*
lthe lfinancial lstatement lauditing lprocess
lhelps lto lreduce lthis lrisk, lthereby lreducing
lthe lcost lof lcapital lfor la lcompany.
2. Define land lcontrast lassurance, lattestation, 4, l5, l6, l7, l8 23, l25, l28, l44, 60, l65*
and lfinancial lstatement lauditing lservices. 50
3. Describe land ldefine lthe lassertions lthat 9, l10, l11 36, l39, l40, l41, l45, 62, l63, l67, l68, l69
lmanagement l makes labout lthe lrecognition, 46, l47, l48, l49, l52,
lmeasurement, lpresentation, land ldisclosure 53, l54, l55, l57, l58,
lof lthe lfinancial lstatements land lexplain l why 59
lauditors luse lthem las la lfocal lpoint lof lthe
laudit.
4. Define lprofessional lskepticism land lexplain lits 12 24, l37 61
lkey lcharacteristics.
5. Describe lthe lorganization lof lpublic 13, l14 30, l42, l56 72
laccounting lfirms land lidentify lthe lvarious
lservices lthat lthey loffer.
6. Describe lthe laudits land lauditors lin 15, l16, l17, l18 26, l27, l32, l34, l35 64, l66
lgovernmental, linternal, land
loperational lauditing.
7. List land lexplain lthe lrequirements lfor 19, l20, l21, l22 33, l43, l51 70, l71
lbecoming la lcertified lpublic laccountant
l(CPA) land lother lcertifications lavailable lto
lan laccounting lprofessional.
(*) lItem lrelates lto lmultiple llearning lobjectives
,Chapter l01 l- lAuditing land lAssurance
lServices
SOLUTIONS lFOR lREVIEW lCHECKPOINTS
1.1 Business lrisk lis lthe lrisk lthat lan lentity lwill lfail lto lmeet lits lbusiness lobjectives. lWhen lassessing
lbusiness lrisk, la lprofessional lmust lconsider lall lpossible lthreats lto lan lentity‘s lgoals land lobjectives.
lSome lillustrative lexamples linclude lthe lrisk lthat: l1) lits lexisting lcustomers l will lstart lbuying lproducts
lor lservices lfrom lits lprimary lcompetitors; l2) lits lproduct llines l will lbecome lobsolete; l3) lits ltaxes l will
lincrease; l4) lkey lgovernment lcontracts lwill lbe llost; l5) lkey lemployees lwill lleave lthe lentity; land lmany
lother lexamples lexist.
1.2 To lhelp lminimize lbusiness lrisk land ltake ladvantage lof lother lopportunities lpresented lin ltoday‘s
lcompetitive lbusiness lenvironment, ldecision lmakers lsuch las lchief lexecutive lofficers l(CEOs) ldemand
ltimely, lrelevant, land lreliable linformation. lThere lare lat lleast lfour lenvironmental lconditions lthat
lincrease ldemand lfor lreliable linformation. lFirst, lcomplexity l which limplies lthat levents land ltransactions
lin ltoday‘s lglobal lbusiness lenvironment lcan lbe lcomplicated. lMost linvestors ldo lnot lhave lthe llevel lof
lexpertise lneeded lto lproperly laccount lfor lcomplex ltransactions. lSecond lis lremoteness lwhich limplies
lthat ldecision lmakers lare loften lseparated lfrom lcurrent land lpotential lbusiness lrelationships ldue lto
ldistance land ltime. lFor lexample, linvestors lmay lnot lbe lable lto lvisit ldistant llocations lto lcheck lup lon
ltheir linvestments. lThird lis ltime-sensitivity l which limplies lthat lin ltoday‘s leconomic lenvironment,
linvestors land lother lusers lof lfinancial lstatements lneed lto lmake ldecisions lmore lrapidly lthan lever
lbefore. lAs la lresult, lthe lability lto lpromptly lobtain lhigh-quality linformation lis lessential. lFourth lis la
lconsequence l which limplies lthat ldecisions lmay lvery lwell linvolve lsignificant linvestments. l As la
lresult, lthe lconsequences lcan lbe lsevere lif linformation lcannot lbe lobtained
1.3 Of lall lthe ldifferent lrisks ldiscussed lin lthe lchapter lup lto lthis lpoint, linformation lrisk lis lthe lone lthat lis
lmost llikely lto lcreate lthe ldemand lfor lindependent land lobjective lassurance lservices lis linformation lrisk
lor lthe lprobability lthat lthe linformation lcirculated lby lan lentity lwill lbe lfalse lor lmisleading. lBecause lthe
lprimary lsource lof linformation lfor linvestors land lcreditors lis lthe lcompany litself, lan lincentive lexists
lfor lthat lcompany‘s lmanagement lto lmake ltheir lbusiness lor lservice lappear lto lbe lbetter lthan lit lactually
lmay lbe, lto lput ltheir lbest lfoot lforward. lAs la lresult, lpreparers land lissuers lof lfinancial linformation
l(directors, lmanagers, laccountants, land lother lpeople lemployed lin la lbusiness) lmight lbenefit lby lgiving
lfalse, lmisleading, lor loverly loptimistic linformation. lThis lpotential lconflict lof linterest lbetween
linformation lproviders land lusers lwhich lprovides lthe lunderlying lbasis lfor lthe ldemand lfor lreliable
linformation.
1.4 The lfour lmajor lelements lof lthe lbroad ldefinition lof lassurance lservices lare
Independence. l CPAs lwant lto lpreserve ltheir lreputation land lcompetitive ladvantage lby lalways
lpreserving lintegrity land lobjectivity l when lperforming lassurance lservices.
Professional lservices. lVirtually lall lwork lperformed lby lCPAs lis ldefined las l―professional lservices‖ las
llong las lit linvolves lsome lelement lof ljudgment lbased lon leducation land lexperience.
Improving lthe lquality lof linformation lor lits lcontext. lThe lemphasis lis lon l―information,‖ lCPAs‘
ltraditional larea lof lexpertise. lCPAs lcan lenhance lquality lby lassuring lusers labout lthe lreliability land
lrelevance lof linformation, land lthese ltwo lfeatures lare lclosely lrelated lto lthe lfamiliar lcredibility-lending
lproducts lof lattestation land laudit lservices. l―Context‖ lis lrelevance lin la ldifferent llight. lFor lassurance
lservices, limproving lthe lcontext lof linformation lrefers lto limproving lits lusefulness lwhen ltargeted lto
lparticular ldecision lmakers lin lthe lsurroundings lof lparticular ldecision lproblems.
For ldecision lmakers. lAs lthe l―consumers‖ lof lassurance lservices, ldecision lmakers lare lthe lbeneficiaries lof
lthe lassurance lservices. lDecision lmakers lmay lor lmay lnot lbe lthe l―client‖ lthat lpays lthe lfee land lmay lor lmay
lnot lbe lone lof lthe lparties lto lan lassertion lor lother linformation, lbut lthey lpersonify lthe lconsumer lfocus
lof lnew land ldifferent lprofessional lwork.
1.5 An lassurance lservices lengagement lis lany lassignment lthat limproves lthe lquality lof linformation, lor lits
lcontext, lfor ldecision lmakers. lBecause linformation l(e.g., lfinancial lstatements) lare lprepared lby
lmanagers lof lan lentity lwho lhave lauthority land lresponsibility lfor lfinancial lsuccess lor lfailure, lan loutsider
lmay lbe lskeptical lthat lthe linformation ltruly lis lobjective, lfree lfrom lbias, lfully linformative, land lfree
lfrom lmaterial lerror, lintentional lor linadvertent. l The lservices lof lan lindependent lauditor lhelps lresolve
lthose ldoubts lbecause lthe
, Chapter l01 l- lAuditing land lAssurance
lServices
auditor‘s lsuccess ldepends lupon lhis lor lher lindependent, lobjective, land lcompetent lassessment lof lthe
linformation l(e.g., lthe lconformity lof lthe lfinancial lstatements l with lthe lappropriate lreporting
lframework). lThe lindependent lauditor‘s lrole lis lto llend lcredibility lto lthe linformation; lhence, lthe loutsider
l will llikely lseek lhis lor lher lindependent lopinion labout lthe lfinancial lstatements.
1.6 An lattestation lengagement lis l―an lengagement lin lwhich la lpractitioner lis lengaged lto lissue lor ldoes
lissue la l written lcommunication lthat lexpresses la lconclusion labout lthe lreliability lof la lwritten lassertion
lthat lis lthe lresponsibility lof lanother lparty‖ l(SSAE l10, lAT l101.01). lTo lattest lmeans lto llend lcredibility
lor lto lvouch lfor lthe ltruth lor laccuracy lof lthe lstatements lthat lone lparty lmakes lto lanother. lThe lattest
lfunction lis la lterm loften lapplied lto lthe lactivities lof lindependent lCPAs l when lacting las lauditors lof
lfinancial lstatements.
1.7 An lassurance lservice lengagement lis lone lthat limproves lthe lquality lof linformation, lor lits lcontext, lfor
ldecision lmakers. l Thus, lan lattestation lservice lengagement lis lone ltype lof lan lassurance lservice.
l Another lway lof lthinking labout lthe lissue lis lto lremember lthat lthe lfinancial lstatement laudit lengagement
lis lone ltype lof lan lattestation lservice. lPlease lsee lexhibit l1.3 lin lthe ltext lwhich ldepicts lthe lrelationship
lamong lassurance, lattestation, land lauditing lengagements.
1.8 According lto lthe lAmerican lAccounting lAssociation, l―Auditing lis la lsystematic lprocess lof lobjectively
lobtaining land levaluating levidence lregarding lassertions labout leconomic lactions land levents lto lascertain
lthe ldegree lof lcorrespondence lbetween lthe lassertions land lestablished lcriteria land lcommunicating lthe
lresults lto linterested lusers.‖ lIn leffect, lauditors ladd lreliability lto lthe linformation lthat lis lprovided lto
linterested lusers. lOf lcourse, lthis ldefinition lis lfocused lon lan lexternal lreporting lcontext. lStudents lmay
lalso ldiscuss lhow lgovernmental land linternal lauditors loperate las l well.
In lresponse lto l―What ldo lauditors ldo?‖ lstudents lcan lrespond lby lstating lthat lauditors l(1) lobtain land
levaluate levidence labout lassertions lmade lby lmanagement labout leconomic lactions land levents, l(2)
lascertain lthe ldegree lof lcorrespondence lbetween lthe lassertions land lthe lappropriate lreporting lframework,
land l(3) lissue lan laudit lreport l(opinion). lStudents lcan lalso lrespond lmore lgenerally lby lstating lthat
lauditors lessentially llend lcredibility lto lthe lfinancial lstatements lpresented lby lmanagement.
1.9 Financial laccounting lrefers lto lthe lprocess lof lrecording, lclassifying, lsummarizing, land lreporting labout
la lcompany‘s lassets, lliabilities, lcapital, lrevenues, land lexpenses lin lthe lfinancial lstatements lin laccordance
lwith lthe lapplicable lfinancial lreporting lframework l(e.g., lGAAP). lIn lso ldoing, lthe lmanagement lteam
lis lmaking lseveral lassertions labout lthe lfinancial lstatements. lThe lfinancial laccounting lprocess lis lthe
lresponsibility lof lthe lmanagement lteam.
Financial lstatement lauditing lrefers lto lthe lprocess lwhereby lprofessional lauditors lgather levidence
lrelated lto lthe lassertions lthat lmanagement lmakes lin lthe lfinancial lstatements, levaluates lthe levidence land
lconcludes lon lthe lfairness lof lthe lfinancial lstatements lin la lreport.
They ldiffer lbecause laccountants lproduce lthe lfinancial lstatements lin laccordance lwith lthe lapplicable
lfinancial lreporting lframework. lAfter lthis lis lcomplete, lfinancial lstatement lauditors lthen lperform
lprocedures lto lascertain lwhether lthe lfinancial lstatements lhave lbeen lprepared lin laccordance lwith lthe
lapplicable lfinancial lreporting lframework.
1.10 The ltwo lmajor lclassifications lof lASB lassertions lwith lseveral lassertions lin leach lclassification
are: lAssertions lAbout lClasses lof lTransactions land lEvents, land lRelated lDisclosures
l
Occurrence lassertion: lThe lobjective lis lto lestablish lwith levidence lthat ltransactions lgiving lrise lto
lassets, lliabilities, lsales, land lexpenses loccurred. l Key lquestions linclude l―Did lthe lrecorded lsales
ltransactions lreally loccur?‖
Completeness lassertion: lThe lobjective lis lto lestablish lwith levidence lthat lall ltransactions lof lthe lperiod
lthat lshould lbe lare lincluded lin lthe lfinancial lstatements l(including lfootnotes). lCompleteness lalso lrefers
lto lproper linclusion lin lfinancial lstatements lof lall lrevenue, lexpense, land lrelated ldisclosures. lKey
lquestions lrelated lto
