Chapter x01 x- xAuditing xand xAssurance
Services
,Chapter x01 x- xAuditing xand xAssurance
Services
CHAPTER x01
Auditing xand xAssurance xServices
LEARNING xOBJECTIVES
Review Multiple Exercises, xProblems,
Checkpoints
x xChoic xand xSimulations
e
1. xDefine xinformation xrisk xand xexplain xhow xthe 1, x 2, x 3 29, x 31, x 38 65*
xfinancial xstatement xauditing xprocess xhelps
x to xreduce xthis xrisk, xthereby xreducing xthe
x cost xof xcapital xfor xa xcompany.
2. Define xand xcontrast xassurance, xattestation, 4, x 5, x 6, x 7, x 8 23, x25, x28, x 44, 60, x 65*
and xfinancial xstatement xauditing xservices. 50
3. Describe xand xdefine xthe xassertions xthat 9, x 10, x 11 36, x39, x 40, x 41, 62, x63, x 67, x 68, x 69
xmanagement xmakes xabout xthe xrecognition, x 45,
xmeasurement, xpresentation, xand xdisclosure 46, x47, x 48, x 49,
xof xthe xfinancial xstatements xand xexplain x 52,
xwhy xauditors xuse xthem xas xa xfocal xpoint xof 53, x54, x 55, x 57,
xthe x 58,
audit. 59
4. Define xprofessional xskepticism xand xexplain 12 24, x 37 61
xits xkey xcharacteristics.
5. Describe xthe xorganization xof xpublic 13, x 14 30, x 42, x 56 72
xaccounting xfirms xand xidentify xthe xvarious
xservices xthat xthey xoffer.
6. Describe xthe xaudits xand xauditors 15, x16, x 17, x18 26, x27, x 32, x 34, x 35 64, x 66
xin xgovernmental, xinternal, xand
xoperational xauditing.
7. List xand xexplain xthe xrequirements xfor 19, x20, x 21, x22 33, x 43, x 51 70, x 71
xbecoming xa xcertified xpublic xaccountant
x(CPA) xand xother xcertifications xavailable
xto xan xaccounting xprofessional.
(*) xItem xrelates xto xmultiple xlearning xobjectives
,Chapter x01 x- xAuditing xand xAssurance
Services
SOLUTIONS xFOR xREVIEW xCHECKPOINTS
1.1 Business xrisk xis xthe xrisk xthat xan xentity xwill xfail xto xmeet xits xbusiness xobjectives. xWhen xassessing
xbusiness x risk, x a x professional x must x consider x all x possible x threats x to x an x entity‗s x goals x and
x objectives. xSome xillustrative xexamples xinclude xthe xrisk xthat: x1) xits xexisting xcustomers xwill xstart
xbuying xproducts xor xservices xfrom xits xprimary xcompetitors; x2) xits xproduct xlines xwill xbecome xobsolete;
x3) xits xtaxes xwill xincrease; x4) xkey xgovernment xcontracts xwill xbe xlost; x5) xkey xemployees xwill xleave xthe
xentity; xand xmany xother xexamples xexist.
1.2 To x help x minimize x business xrisk x and xtake xadvantage xof xother xopportunities xpresented x in xtoday‗s
xcompetitive xbusiness xenvironment, xdecision xmakers xsuch xas xchief xexecutive xofficers x(CEOs) xdemand
xtimely, xrelevant, xand xreliable xinformation. xThere xare xat xleast xfour xenvironmental xconditions xthat
xincrease xdemand xfor xreliable xinformation. xFirst, xcomplexity xwhich ximplies xthat xevents xand xtransactions
xin xtoday‗s xglobal xbusiness xenvironment xcan x be xcomplicated. x Most x investors xdo xnot xhave xthe xlevel xof
x expertise xneeded xto xproperly xaccount xfor xcomplex xtransactions. xSecond xis xremoteness xwhich ximplies
xthat xdecision xmakers xare xoften xseparated xfrom xcurrent xand xpotential xbusiness xrelationships xdue xto
xdistance xand xtime. xFor xexample, xinvestors xmay xnot xbe xable xto xvisit xdistant xlocations xto xcheck xup xon
xtheir xinvestments. xThird xis xtime-sensitivity xwhich ximplies xthat xin xtoday‗s xeconomic xenvironment,
xinvestors xand xother xusers xof x financial xstatements xneed xto xmake xdecisions xmore xrapidly xthan xever
xbefore. xAs xa xresult, xthe xability xto xpromptly xobtain xhigh-quality xinformation xis xessential. xFourth xis xa
xconsequence xwhich ximplies xthat xdecisions xmay xvery xwell xinvolve xsignificant xinvestments. x As xa
xresult, xthe xconsequences xcan xbe xsevere xif xinformation xcannot xbe xobtained
1.3 Of x all x the x different x risks x discussed x in x the x chapter x up x to x this x point, x information x risk x is x the x one
x that x is xmost xlikely xto xcreate xthe xdemand xfor xindependent xand xobjective xassurance xservices xis
xinformation xrisk xor xthe xprobability xthat xthe xinformation xcirculated xby xan xentity xwill xbe xfalse xor
xmisleading. xBecause xthe xprimary xsource xof xinformation x for xinvestors xand xcreditors xis xthe xcompany
xitself, xan xincentive xexists xfor x that xcompany‗s xmanagement xto xmake xtheir xbusiness xor xservice xappear
xto xbe xbetter xthan xit xactually xmay xbe, xto xput xtheir xbest xfoot xforward. xAs xa xresult, xpreparers xand xissuers
xof xfinancial xinformation x(directors, xmanagers, xaccountants, xand xother xpeople xemployed xin xa xbusiness)
xmight xbenefit xby xgiving xfalse, xmisleading, xor xoverly xoptimistic xinformation. xThis xpotential xconflict xof
xinterest xbetween xinformation xproviders xand xusers xwhich xprovides xthe xunderlying xbasis xfor xthe xdemand
xfor xreliable xinformation.
1.4 The xfour xmajor xelements xof xthe xbroad xdefinition xof xassurance xservices xare
Independence. x CPAs xwant xto xpreserve xtheir xreputation xand xcompetitive xadvantage xby xalways
xpreserving xintegrity xand xobjectivity xwhen xperforming xassurance xservices.
Professional xservices. xVirtually xall xwork xperformed xby xCPAs xis xdefined xas x―professional xservices‖ xas
xlong xas xit xinvolves xsome xelement xof xjudgment xbased xon xeducation xand xexperience.
Improving xthe xquality xof xinformation xor xits xcontext. xThe xemphasis xis xon x―information,‖ xCPAs‗
xtraditional xarea xof xexpertise. xCPAs xcan xenhance xquality xby xassuring xusers xabout xthe xreliability xand
xrelevance xof xinformation, xand xthese xtwo xfeatures xare xclosely xrelated xto xthe xfamiliar xcredibility-lending
xproducts xof xattestation xand xaudit xservices. x ―Context‖ xis xrelevance xin xa xdifferent xlight. xFor xassurance
xservices, x improving xthe xcontext xof xinformation xrefers xto ximproving xits xusefulness xwhen x targeted xto
xparticular xdecision x makers x in xthe xsurroundings xof xparticular xdecision xproblems.
For xdecision xmakers. xAs xthe x―consumers‖ xof xassurance xservices, xdecision xmakers xare xthe xbeneficiaries xof
xthe xassurance xservices. xDecision xmakers xmay xor xmay xnot xbe xthe x―client‖ xthat xpays xthe xfee xand xmay xor
xmay xnot xbe xone xof xthe xparties xto xan xassertion xor xother xinformation, xbut xthey xpersonify xthe xconsumer
xfocus xof xnew x and xdifferent xprofessional xwork.
1.5 An xassurance xservices xengagement xis xany xassignment xthat ximproves xthe xquality xof xinformation, xor xits
xcontext, xfor xdecision xmakers. xBecause xinformation x(e.g., xfinancial xstatements) xare xprepared xby
xmanagers x of xan xentity xwho xhave xauthority xand xresponsibility xfor xfinancial xsuccess xor xfailure, xan
xoutsider xmay xbe xskeptical xthat xthe xinformation xtruly xis xobjective, xfree xfrom xbias, xfully xinformative,
xand xfree xfrom xmaterial xerror, xintentional xor xinadvertent. x The xservices xof xan xindependent xauditor
xhelps xresolve xthose xdoubts xbecause xthe
, Chapter x01 x- xAuditing xand xAssurance
Services
auditor‗s xsuccess xdepends xupon xhis xor xher xindependent, xobjective, xand xcompetent xassessment xof xthe
xinformation x(e.g., xthe xconformity xof xthe xfinancial xstatements xwith xthe xappropriate xreporting
xframework). xThe xindependent x auditor‗s xrole x is xto xlend xcredibility xto xthe xinformation; xhence, x the
xoutsider x will xlikely xseek xhis xor xher xindependent xopinion xabout xthe xfinancial xstatements.
1.6 An x attestation x engagement xis x―an x engagement xin x which xa xpractitioner x is xengaged x to xissue xor x does
xissue xa xwritten xcommunication xthat xexpresses xa xconclusion xabout xthe xreliability xof xa xwritten
xassertion xthat xis x the x responsibility xof xanother xparty‖ x(SSAE x 10, xAT x101.01). xTo xattest xmeans xto
xlend xcredibility xor x to xvouch x for x the xtruth x or x accuracy xof xthe xstatements xthat x one xparty xmakes x to
xanother. x The xattest x function x is xa xterm xoften xapplied xto xthe xactivities xof xindependent xCPAs xwhen
xacting xas xauditors xof xfinancial xstatements.
1.7 An xassurance xservice xengagement xis xone xthat ximproves xthe xquality xof xinformation, xor xits xcontext, xfor
xdecision xmakers. x Thus, xan xattestation xservice xengagement xis xone xtype xof xan xassurance xservice.
x Another xway xof xthinking xabout xthe xissue xis xto xremember xthat xthe xfinancial xstatement xaudit
xengagement xis xone x type xof x an x attestation x service. x Please x see x exhibit x 1.3 x in x the x text x which
x depicts x the x relationship x among xassurance, xattestation, xand xauditing xengagements.
1.8 According xto xthe xAmerican xAccounting xAssociation, x―Auditing xis xa xsystematic xprocess xof
xobjectively xobtaining xand xevaluating xevidence xregarding xassertions xabout xeconomic xactions xand
xevents xto xascertain xthe xdegree xof xcorrespondence xbetween xthe xassertions xand xestablished xcriteria
xand xcommunicating xthe xresults xto xinterested xusers.‖ xIn xeffect, xauditors xadd xreliability xto xthe
xinformation xthat xis xprovided xto xinterested xusers. xOf xcourse, xthis xdefinition xis xfocused xon xan
xexternal xreporting xcontext. xStudents xmay xalso xdiscuss xhow xgovernmental xand xinternal xauditors
xoperate xas xwell.
In xresponse xto x―What xdo xauditors xdo?‖ xstudents xcan xrespond xby xstating xthat xauditors x(1) xobtain xand
xevaluate xevidence xabout xassertions xmade xby xmanagement xabout xeconomic xactions xand xevents, x(2)
xascertain xthe xdegree xof xcorrespondence x between x the xassertions xand xthe xappropriate xreporting
xframework, x and x(3) xissue xan xaudit xreport x(opinion). xStudents xcan xalso xrespond xmore xgenerally xby
xstating xthat xauditors xessentially x lend xcredibility xto xthe xfinancial xstatements xpresented xby
xmanagement.
1.9 Financial xaccounting xrefers xto xthe xprocess xof xrecording, xclassifying, xsummarizing, xand xreporting xabout
xa xcompany‗s xassets, xliabilities, xcapital, xrevenues, xand xexpenses xin xthe xfinancial xstatements xin
xaccordance xwith xthe xapplicable xfinancial xreporting xframework x(e.g., xGAAP). xIn xso xdoing, xthe
xmanagement xteam xis xmaking xseveral xassertions xabout xthe xfinancial xstatements. xThe xfinancial
xaccounting xprocess xis xthe xresponsibility xof xthe xmanagement xteam.
Financial x statement x auditing xrefers x to xthe x process x whereby xprofessional x auditors x gather x evidence
xrelated xto xthe xassertions xthat xmanagement xmakes xin xthe xfinancial xstatements, xevaluates xthe xevidence
xand x concludes xon xthe xfairness xof xthe xfinancial xstatements xin xa xreport.
They xdiffer xbecause xaccountants xproduce xthe xfinancial xstatements xin xaccordance xwith xthe
xapplicable xfinancial xreporting xframework. xAfter xthis xis xcomplete, xfinancial xstatement xauditors xthen
xperform xprocedures xto xascertain xwhether xthe xfinancial xstatements xhave xbeen xprepared xin
xaccordance xwith xthe xapplicable xfinancial xreporting xframework.
1.10 The xtwo xmajor xclassifications xof xASB xassertions xwith xseveral xassertions xin xeach
xclassification xare: xAssertions xAbout xClasses xof xTransactions xand xEvents, xand xRelated
xDisclosures
Occurrence xassertion: xThe xobjective xis xto xestablish xwith xevidence xthat xtransactions xgiving xrise xto
xassets, xliabilities, xsales, xand xexpenses xoccurred. x Key xquestions xinclude x―Did xthe xrecorded xsales
xtransactions xreally xoccur?‖
Completeness xassertion: x The xobjective xis xto xestablish x with xevidence x that xall xtransactions xof xthe
xperiod xthat xshould xbe xare xincluded xin xthe xfinancial xstatements x(including xfootnotes). xCompleteness
xalso xrefers xto xproper xinclusion xin xfinancial xstatements xof xall xrevenue, xexpense, xand xrelated
Services
,Chapter x01 x- xAuditing xand xAssurance
Services
CHAPTER x01
Auditing xand xAssurance xServices
LEARNING xOBJECTIVES
Review Multiple Exercises, xProblems,
Checkpoints
x xChoic xand xSimulations
e
1. xDefine xinformation xrisk xand xexplain xhow xthe 1, x 2, x 3 29, x 31, x 38 65*
xfinancial xstatement xauditing xprocess xhelps
x to xreduce xthis xrisk, xthereby xreducing xthe
x cost xof xcapital xfor xa xcompany.
2. Define xand xcontrast xassurance, xattestation, 4, x 5, x 6, x 7, x 8 23, x25, x28, x 44, 60, x 65*
and xfinancial xstatement xauditing xservices. 50
3. Describe xand xdefine xthe xassertions xthat 9, x 10, x 11 36, x39, x 40, x 41, 62, x63, x 67, x 68, x 69
xmanagement xmakes xabout xthe xrecognition, x 45,
xmeasurement, xpresentation, xand xdisclosure 46, x47, x 48, x 49,
xof xthe xfinancial xstatements xand xexplain x 52,
xwhy xauditors xuse xthem xas xa xfocal xpoint xof 53, x54, x 55, x 57,
xthe x 58,
audit. 59
4. Define xprofessional xskepticism xand xexplain 12 24, x 37 61
xits xkey xcharacteristics.
5. Describe xthe xorganization xof xpublic 13, x 14 30, x 42, x 56 72
xaccounting xfirms xand xidentify xthe xvarious
xservices xthat xthey xoffer.
6. Describe xthe xaudits xand xauditors 15, x16, x 17, x18 26, x27, x 32, x 34, x 35 64, x 66
xin xgovernmental, xinternal, xand
xoperational xauditing.
7. List xand xexplain xthe xrequirements xfor 19, x20, x 21, x22 33, x 43, x 51 70, x 71
xbecoming xa xcertified xpublic xaccountant
x(CPA) xand xother xcertifications xavailable
xto xan xaccounting xprofessional.
(*) xItem xrelates xto xmultiple xlearning xobjectives
,Chapter x01 x- xAuditing xand xAssurance
Services
SOLUTIONS xFOR xREVIEW xCHECKPOINTS
1.1 Business xrisk xis xthe xrisk xthat xan xentity xwill xfail xto xmeet xits xbusiness xobjectives. xWhen xassessing
xbusiness x risk, x a x professional x must x consider x all x possible x threats x to x an x entity‗s x goals x and
x objectives. xSome xillustrative xexamples xinclude xthe xrisk xthat: x1) xits xexisting xcustomers xwill xstart
xbuying xproducts xor xservices xfrom xits xprimary xcompetitors; x2) xits xproduct xlines xwill xbecome xobsolete;
x3) xits xtaxes xwill xincrease; x4) xkey xgovernment xcontracts xwill xbe xlost; x5) xkey xemployees xwill xleave xthe
xentity; xand xmany xother xexamples xexist.
1.2 To x help x minimize x business xrisk x and xtake xadvantage xof xother xopportunities xpresented x in xtoday‗s
xcompetitive xbusiness xenvironment, xdecision xmakers xsuch xas xchief xexecutive xofficers x(CEOs) xdemand
xtimely, xrelevant, xand xreliable xinformation. xThere xare xat xleast xfour xenvironmental xconditions xthat
xincrease xdemand xfor xreliable xinformation. xFirst, xcomplexity xwhich ximplies xthat xevents xand xtransactions
xin xtoday‗s xglobal xbusiness xenvironment xcan x be xcomplicated. x Most x investors xdo xnot xhave xthe xlevel xof
x expertise xneeded xto xproperly xaccount xfor xcomplex xtransactions. xSecond xis xremoteness xwhich ximplies
xthat xdecision xmakers xare xoften xseparated xfrom xcurrent xand xpotential xbusiness xrelationships xdue xto
xdistance xand xtime. xFor xexample, xinvestors xmay xnot xbe xable xto xvisit xdistant xlocations xto xcheck xup xon
xtheir xinvestments. xThird xis xtime-sensitivity xwhich ximplies xthat xin xtoday‗s xeconomic xenvironment,
xinvestors xand xother xusers xof x financial xstatements xneed xto xmake xdecisions xmore xrapidly xthan xever
xbefore. xAs xa xresult, xthe xability xto xpromptly xobtain xhigh-quality xinformation xis xessential. xFourth xis xa
xconsequence xwhich ximplies xthat xdecisions xmay xvery xwell xinvolve xsignificant xinvestments. x As xa
xresult, xthe xconsequences xcan xbe xsevere xif xinformation xcannot xbe xobtained
1.3 Of x all x the x different x risks x discussed x in x the x chapter x up x to x this x point, x information x risk x is x the x one
x that x is xmost xlikely xto xcreate xthe xdemand xfor xindependent xand xobjective xassurance xservices xis
xinformation xrisk xor xthe xprobability xthat xthe xinformation xcirculated xby xan xentity xwill xbe xfalse xor
xmisleading. xBecause xthe xprimary xsource xof xinformation x for xinvestors xand xcreditors xis xthe xcompany
xitself, xan xincentive xexists xfor x that xcompany‗s xmanagement xto xmake xtheir xbusiness xor xservice xappear
xto xbe xbetter xthan xit xactually xmay xbe, xto xput xtheir xbest xfoot xforward. xAs xa xresult, xpreparers xand xissuers
xof xfinancial xinformation x(directors, xmanagers, xaccountants, xand xother xpeople xemployed xin xa xbusiness)
xmight xbenefit xby xgiving xfalse, xmisleading, xor xoverly xoptimistic xinformation. xThis xpotential xconflict xof
xinterest xbetween xinformation xproviders xand xusers xwhich xprovides xthe xunderlying xbasis xfor xthe xdemand
xfor xreliable xinformation.
1.4 The xfour xmajor xelements xof xthe xbroad xdefinition xof xassurance xservices xare
Independence. x CPAs xwant xto xpreserve xtheir xreputation xand xcompetitive xadvantage xby xalways
xpreserving xintegrity xand xobjectivity xwhen xperforming xassurance xservices.
Professional xservices. xVirtually xall xwork xperformed xby xCPAs xis xdefined xas x―professional xservices‖ xas
xlong xas xit xinvolves xsome xelement xof xjudgment xbased xon xeducation xand xexperience.
Improving xthe xquality xof xinformation xor xits xcontext. xThe xemphasis xis xon x―information,‖ xCPAs‗
xtraditional xarea xof xexpertise. xCPAs xcan xenhance xquality xby xassuring xusers xabout xthe xreliability xand
xrelevance xof xinformation, xand xthese xtwo xfeatures xare xclosely xrelated xto xthe xfamiliar xcredibility-lending
xproducts xof xattestation xand xaudit xservices. x ―Context‖ xis xrelevance xin xa xdifferent xlight. xFor xassurance
xservices, x improving xthe xcontext xof xinformation xrefers xto ximproving xits xusefulness xwhen x targeted xto
xparticular xdecision x makers x in xthe xsurroundings xof xparticular xdecision xproblems.
For xdecision xmakers. xAs xthe x―consumers‖ xof xassurance xservices, xdecision xmakers xare xthe xbeneficiaries xof
xthe xassurance xservices. xDecision xmakers xmay xor xmay xnot xbe xthe x―client‖ xthat xpays xthe xfee xand xmay xor
xmay xnot xbe xone xof xthe xparties xto xan xassertion xor xother xinformation, xbut xthey xpersonify xthe xconsumer
xfocus xof xnew x and xdifferent xprofessional xwork.
1.5 An xassurance xservices xengagement xis xany xassignment xthat ximproves xthe xquality xof xinformation, xor xits
xcontext, xfor xdecision xmakers. xBecause xinformation x(e.g., xfinancial xstatements) xare xprepared xby
xmanagers x of xan xentity xwho xhave xauthority xand xresponsibility xfor xfinancial xsuccess xor xfailure, xan
xoutsider xmay xbe xskeptical xthat xthe xinformation xtruly xis xobjective, xfree xfrom xbias, xfully xinformative,
xand xfree xfrom xmaterial xerror, xintentional xor xinadvertent. x The xservices xof xan xindependent xauditor
xhelps xresolve xthose xdoubts xbecause xthe
, Chapter x01 x- xAuditing xand xAssurance
Services
auditor‗s xsuccess xdepends xupon xhis xor xher xindependent, xobjective, xand xcompetent xassessment xof xthe
xinformation x(e.g., xthe xconformity xof xthe xfinancial xstatements xwith xthe xappropriate xreporting
xframework). xThe xindependent x auditor‗s xrole x is xto xlend xcredibility xto xthe xinformation; xhence, x the
xoutsider x will xlikely xseek xhis xor xher xindependent xopinion xabout xthe xfinancial xstatements.
1.6 An x attestation x engagement xis x―an x engagement xin x which xa xpractitioner x is xengaged x to xissue xor x does
xissue xa xwritten xcommunication xthat xexpresses xa xconclusion xabout xthe xreliability xof xa xwritten
xassertion xthat xis x the x responsibility xof xanother xparty‖ x(SSAE x 10, xAT x101.01). xTo xattest xmeans xto
xlend xcredibility xor x to xvouch x for x the xtruth x or x accuracy xof xthe xstatements xthat x one xparty xmakes x to
xanother. x The xattest x function x is xa xterm xoften xapplied xto xthe xactivities xof xindependent xCPAs xwhen
xacting xas xauditors xof xfinancial xstatements.
1.7 An xassurance xservice xengagement xis xone xthat ximproves xthe xquality xof xinformation, xor xits xcontext, xfor
xdecision xmakers. x Thus, xan xattestation xservice xengagement xis xone xtype xof xan xassurance xservice.
x Another xway xof xthinking xabout xthe xissue xis xto xremember xthat xthe xfinancial xstatement xaudit
xengagement xis xone x type xof x an x attestation x service. x Please x see x exhibit x 1.3 x in x the x text x which
x depicts x the x relationship x among xassurance, xattestation, xand xauditing xengagements.
1.8 According xto xthe xAmerican xAccounting xAssociation, x―Auditing xis xa xsystematic xprocess xof
xobjectively xobtaining xand xevaluating xevidence xregarding xassertions xabout xeconomic xactions xand
xevents xto xascertain xthe xdegree xof xcorrespondence xbetween xthe xassertions xand xestablished xcriteria
xand xcommunicating xthe xresults xto xinterested xusers.‖ xIn xeffect, xauditors xadd xreliability xto xthe
xinformation xthat xis xprovided xto xinterested xusers. xOf xcourse, xthis xdefinition xis xfocused xon xan
xexternal xreporting xcontext. xStudents xmay xalso xdiscuss xhow xgovernmental xand xinternal xauditors
xoperate xas xwell.
In xresponse xto x―What xdo xauditors xdo?‖ xstudents xcan xrespond xby xstating xthat xauditors x(1) xobtain xand
xevaluate xevidence xabout xassertions xmade xby xmanagement xabout xeconomic xactions xand xevents, x(2)
xascertain xthe xdegree xof xcorrespondence x between x the xassertions xand xthe xappropriate xreporting
xframework, x and x(3) xissue xan xaudit xreport x(opinion). xStudents xcan xalso xrespond xmore xgenerally xby
xstating xthat xauditors xessentially x lend xcredibility xto xthe xfinancial xstatements xpresented xby
xmanagement.
1.9 Financial xaccounting xrefers xto xthe xprocess xof xrecording, xclassifying, xsummarizing, xand xreporting xabout
xa xcompany‗s xassets, xliabilities, xcapital, xrevenues, xand xexpenses xin xthe xfinancial xstatements xin
xaccordance xwith xthe xapplicable xfinancial xreporting xframework x(e.g., xGAAP). xIn xso xdoing, xthe
xmanagement xteam xis xmaking xseveral xassertions xabout xthe xfinancial xstatements. xThe xfinancial
xaccounting xprocess xis xthe xresponsibility xof xthe xmanagement xteam.
Financial x statement x auditing xrefers x to xthe x process x whereby xprofessional x auditors x gather x evidence
xrelated xto xthe xassertions xthat xmanagement xmakes xin xthe xfinancial xstatements, xevaluates xthe xevidence
xand x concludes xon xthe xfairness xof xthe xfinancial xstatements xin xa xreport.
They xdiffer xbecause xaccountants xproduce xthe xfinancial xstatements xin xaccordance xwith xthe
xapplicable xfinancial xreporting xframework. xAfter xthis xis xcomplete, xfinancial xstatement xauditors xthen
xperform xprocedures xto xascertain xwhether xthe xfinancial xstatements xhave xbeen xprepared xin
xaccordance xwith xthe xapplicable xfinancial xreporting xframework.
1.10 The xtwo xmajor xclassifications xof xASB xassertions xwith xseveral xassertions xin xeach
xclassification xare: xAssertions xAbout xClasses xof xTransactions xand xEvents, xand xRelated
xDisclosures
Occurrence xassertion: xThe xobjective xis xto xestablish xwith xevidence xthat xtransactions xgiving xrise xto
xassets, xliabilities, xsales, xand xexpenses xoccurred. x Key xquestions xinclude x―Did xthe xrecorded xsales
xtransactions xreally xoccur?‖
Completeness xassertion: x The xobjective xis xto xestablish x with xevidence x that xall xtransactions xof xthe
xperiod xthat xshould xbe xare xincluded xin xthe xfinancial xstatements x(including xfootnotes). xCompleteness
xalso xrefers xto xproper xinclusion xin xfinancial xstatements xof xall xrevenue, xexpense, xand xrelated
