CHAPTER 1

Auditing and Assurance Services

LEARNING OBJECTIVES
Review
Checkpoints
Exercises and
Problems
1. Define information risk and explain how auditing and
assurance services play a role in reducing this business
risk.
1 ! " #$ %&
!. Define and contrast accounting auditing and assurance
services.
# % ' ( $ #(
". Describe and define the management assertions
embodied in financial statements and why auditors use
them as a focal point of the audit.
) 1& 11 %! %#
#. Explain some characteristics of *professional
skepticism.+
1!
%. Describe the organi,ation of public accounting firms
and identify the various services they offer.
1" 1#
'. Describe the audits and auditors in governmental
internal and operational auditing.
1% 1' 1( 1$ #) %1
(. -ist and explain the re.uirements for becoming a
certified information professional.
1) !& !1 !! %"
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SOLUTIONS OR REVIE! CHEC"POINTS
1.1 9usiness risk is the name for the collective risk faced by a company that engages in business. 5t includes
the chance that customers will buy from competitors that product lines will become obsolete that taxes
will increase that government contracts will be lost or that employees will go on strike.
1.! 0he conditions of complexity remoteness time3sensitivity and conse.uences increase demands by outside
users for relevant reliable :useful; information. 0hey cannot produce the information for themselves
because of these conditions. Company managers and accountants produce the information.
1." 5nformation risk in contrast to business risk is the risk :probability; that the information :mainly
financial; disseminated by a company will be materially false or misleading. 0his condition creates
the demand for ob<ective outsiders to provide assurance to decision makers.
1.# 7tudents can refer to the 666 and 65CP6 definitions in Chapter 1. 7ome instructors may want to extend
the consideration of definitions to include the internal and governmental definitions.
5n response to =what do auditors do= students can refer to Exhibit 1.1 and respond in terms of> :1; obtain
and evaluate evidence about assertions management makes about economic actions and events :!;
ascertain the degree of correspondence between the assertions and 266P and :"; give an audit report
:opinion;. 7tudents can also respond more generally in terms of =lending credibility= to financial statements
presented by management :attestation;.
1.% 6n attest engagement is> =6n engagement in which a practitioner is engaged to issue or does issue a written
communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party.= 0o attest means to lend credibility or to vouch for the truth or accuracy of
the statements that one party makes to another. 0he attest function is a term often applied to the activities
of independent CP6s when acting as auditors of financial statements.
1.' 6ssurance engagements are independent professional services that improve the .uality of information or
its context for decision makers. 7ince information :financial statements; are prepared by managers of an
entity who have authority and responsibility for financial success or failure an outsider may be skeptical
that the information is ob<ective free from bias fully informative and free from material error intentional
or inadvertent. 0he services of an independent3CP6 auditor helps resolve those doubts because the
auditor?s success depends upon his independent ob<ective and competent assessment of the information
:e.g. the conformity of the financial statements with 266P;. 0he CP6?s role is to lend credibility to the
information@ hence the outsider will likely seek his independent opinion.
1.( CP6s serve as intermediaries who lend credibility to information. 4ence assurance services are natural
extensions of the well3regarded audit and attest services.
CP6s can use their expertise in internal control and measurement methods.
6ssurance services are natural extensions of attestation services which earlier evolved from financial
statement audit services.
6ttestation and audit services are highly structured and intended to be useful for large groups of decision
makers :e.g. investors lenders;. An the other hand assurance services are more customi,ed and intended
to be useful to smaller targeted groups of decision makers. 5n this sense assurance services bear
resemblance to consulting services.
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1.$ 0here are four ma<or elements of the broad definition of assurance services>
5ndependence. CP6s want to preserve their attestation and audit reputations and competitive advantages by
preserving integrity and ob<ectivity when performing assurance services.
Professional 7ervices. Birtually all work performed by CP6s is defined as =professional services= as long
as it involves some element of <udgment based in education and experience.
5mproving the Cuality of 5nformation or its Context. 0he emphasis is on =information=33 CP6s? traditional
stock in trade. CP6s can enhance .uality by assuring users about the reliability and relevance of
information and these two features are closely related to the familiar credibility3lending products of
attestation and audit services. =Context= is relevance in a different light. Dor assurance services improving
the context of information refers to improving its usefulness when targeted to particular decision makers in
the surroundings of particular decision problems.
Dor Decision 1akers. 0hey are the =consumers= for assurance services and they personify the consumer
focus of new and different professional work. 0hey may or may not be the =client= that pays the fee and
they may or may not be one of the parties to an assertion or other information. 0he decision makers are the
beneficiaries of the assurance services.
1.) 6ccountants record classify and summari,e :report; a company?s assets liabilities capital revenue and
expense in financial statements. 6uditors gather evidence related to the assertions management makes in
financial statements and render a report. 6ccountants produce the financial statements@ auditors audit them.
1.1& Dive ma<or assertions in financial statements>
Existence or Accurrence assertion>
0he practical ob<ective is to establish with evidence that assets liabilities and e.uities actually exist and
that sales and expense transactions actually occurred. Eey .uestions include *Did the recorded sales
transactions really occurF+ and *Do the assets listed really existF+
Completeness assertion>
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0he practical ob<ective is to establish with evidence that all transactions of the period are in the financial
statements and all transactions that properly belong in the preceding or following accounting periods are
excluded. 6nother term for these aspects of completeness is cut3off. Completeness also refers to proper
inclusion in financial statements of all assets liabilities revenue expense and related disclosures. Eey
.uestions related to completeness include> *6re the financial statements :including footnotes; completeF+
and *Gere all the transactions recorded in the right periodF+
Rights and Abligations assertion>
0he practical ob<ectives related to rights and obligations are to establish with evidence that assets are
owned :or rights such as capitali,ed leases are shown; and liabilities are owed. Eey .uestions related to
this assertion include> *Does the company really own the assetsF and *6re related legal responsibilities
identifiedF+
Baluation or 6llocation assertion>
0he practical ob<ective is to establish with evidence that proper values have been assigned to things :assets
liabilities e.uities and related disclosures; and events :revenues expenses and related disclosures;. 767
"1 refers to the practical ob<ective of obtaining evidence about =valuations= achieved by cost allocations
such as depreciation and inventory costing methods. Eey .uestions include *6re the accounts valued
correctlyF+ and *6re expenses allocated to the period:s; benefitedF+
Presentation and Disclosure assertion>
0he practical ob<ective is to establish with evidence that accounting principles used by management are
appropriate in the circumstances and are applied properly and that disclosures contain all information
re.uired by generally accepted accounting principles.
1.11 6uditors should think about a =compliance assertion= even though it is not explicitly listed in the auditing
standards because auditors have responsibilities regarding these compliance3type events> :1; company
employees observing the company?s internal control policies and procedures :see Chapter %; :!; frauds and
illegal acts :see Chapter "; and :"; compliance with laws and regulations in government3standard audits
:see 1odule D;.
1.1! 4olding a belief that a potential conflict of interests always exists causes auditors to perform procedures to
search for errors or frauds that would have a material effect on financial statements. 0his tends to make
audits more extensive for the auditor and more expensive for the client. 0he situation is not a desirable one
in the vast ma<ority of audits where no errors or frauds exist. 4owever errors and financial reporting
frauds have happened too often. Hsers of financial statements and audit reports expect auditors to detect
material misstatements.
1.1" 7ome examples of assurance engagements include>
5nternet Gebsite certification :CP6 Geb0rust;
6ccounts receivable review and cash enhancement
0hird3party reimbursement maximi,ation
Rental property operations review
Customer satisfaction surveys
9enchmarking8best practices
Evaluation of investment management policies
Draud and illegal acts prevention and deterrence
5nformation systems security reviews :7ys0rust;
5nternal audit strategic review
1.1# 1a<or areas of public accounting services>
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6ssurance services :including audit services and other attestation engagements;
0ax consulting services
Consulting services
1.1% Aperational auditing is the study of business operations for the purpose of making recommendations about
the economic and efficient use of resources effective achievement of business ob<ectives and compliance
with company policies. 0he 65CP6 views operational auditing as a type of management advisory service
offered by public accounting firms.
1.1' 0he elements of expanded3scope auditing include> :1; financial and compliance audits :!; economy and
efficiency audits and :"; program results audits.
1.1( Compliance auditing involves a study of an organi,ation?s policies procedures and performance in
following laws rules and regulations. 6n example is a school?s policies procedures and performance in
determining eligibility for a free meal program.
1.1$ Ather kinds of auditors include 5R7 agents8auditors state and federal bank examiners state insurance
department auditors and fraud auditors.
1.1) 0he purpose of continuing education is to ensure that CP6s in practice maintain their expertise at a
sufficiently high level in light of evolving business conditions and new regulations. Dor CP6s in public
practice 1!& hours of continuing education is re.uired every three years with no less than !& hours in any
one year. Dor CP6s not in public practice the general re.uirement is 1!& or fewer :)& in some states; every
three years.
1.!& Everything cannot be learned in the classroom and some on3the3<ob experience is helpful before a person is
foisted off on the public as a licensed professional. 6lso the experience weeds out some persons who do
not want to take the trouble to be involved in accounting work.
1.!1 7tate boards administer the state accountancy laws. 7tate boards make physical arrangements to give the
CP6 examination collect the examinations receive the grades from the 65CP6 grading activity and notify
candidates whether they passed or failed. 6fter satisfying state re.uirements for education and experience
successful candidates are awarded the CP6 certificate by a state board. 6t the same time new CP6s must
pay a fee to obtain a state license to practice. 0hereafter state boards of accountancy regulate the behavior
of CP6s under their <urisdiction :enforcing state rules of conduct; and supervise the continuing education
re.uirements.
1.!! 6fter becoming a CP6 licensed in one state a person can obtain a CP6 certificate and license in another
state. 0he process is known as reciprocity. CP6s can file the proper application with another state board of
accountancy meet the stateIs re.uirements and obtain another CP6 certificate. 1any CP6s hold
certificates and licenses in several states. Drom a global perspective individuals must be licensed in each
country. 7imilar to CP6s in the Hnited 7tates =Chartered 6ccountants= :C6s; practice in Canada
6ustralia and 2reat 9ritain. Efforts are currently underway through J6796 to streamline the reciprocity
process so that CP6s can practice across state lines without having to have %& different licenses.
SOLUTIONS OR #ULTIPLE CHOICE$%UESTIONS
1.!" a. 5ncorrect 0his is an attestation to the pri,e promoter?s claims.
b. 5ncorrect 0his is an audit engagement to give an opinion on financial statements.
c. 5ncorrect 0his is an assurance engagement on newspaper?s circulation data.
d. 5ncorrect 0his is an assurance engagement on the performance of golf balls.
e. Correct 7ince attestation and audit engagements are subsets of assurance engagements
all are assurance engagements.
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1.!# a. Correct 0his statement characteri,es professional skepticism.
b. 5ncorrect =Exclusively an auditor= is not an idea that seems to speak of =skepticism.=
c. 5ncorrect Professional obligations= is not an idea that seems to speak of =skepticism.=
d. 5ncorrect 0his is more an assumption of necessity than of skepticism.
1.!% a. 5ncorrect Ghile work on a forecast is covered by the attestation standards the auditors
should give assurance or a disclaimer.
b. Correct 0his is the basic definition of attestation33giving a report on reliability of an
assertion one party makes to another.
c. 5ncorrect 0ax work is not an attestation service.
d. 5ncorrect -itigation and expert witness services are not attestation services.
1.!' a. 5ncorrect 0he ob<ective of environmental auditing is to help achieve and maintain
compliance with environmental laws and regulations and to help identify and
correct unregulated environmental ha,ards
b. 5ncorrect 0he ob<ective of financial auditing is to obtain assurance on the conformity of
financial statements with generally accepted accounting principles.
c. 5ncorrect 0he ob<ective of compliance auditing is the entityIs compliance with laws and
regulations.
d. Correct Aperational auditing refers to the study of business operations for the purpose of
making recommendations about the economic and efficient use of resources
effective achievement of business ob<ectives and compliance with company
policies.
1.!( a. 5ncorrect Ghile not the primary ob<ective of an operational audit auditors should still be
concerned about compliance with financial accounting standards.
b. Correct 0his statement is part of the basic definition of operational auditing.
c. 5ncorrect 6n operational audit does not focus on the financial statements.
d. 5ncorrect 6nalytical tools and skills are an important part of financial auditing.
1.!$ a. Correct 0he proper reference is to 266P.
b. 5ncorrect 0he 65CP6 does not refer only to the D679 for 266P.
c. 5ncorrect 0he reference to the 7EC is wrong.
d. 5ncorrect 0his is an abstract of the 666 definition.
1.!) d. Correct Ghile =complexity= =remoteness= and =conse.uences= are good answers
=skepticism= or potential conflict of interest generally drives the demand for
audited financial statements.
1."& a. Correct 7arbanes3Axley prohibits the provision of bookkeeping services to an audit
client.
b. Correct 7arbanes3Axley prohibits the provision of internal audit services to an audit
client.
c. Correct 7arbanes3Axley prohibits the provision of valuations services to an audit client.
d. Correct 9ecause a b and c are correct responses d :all of the above; is the best
response.
1."1 a. 5ncorrect 6uditors do not reduce or control business risk.
b. Correct Ghile =reduce and control= are not well3chosen words this is the best answer
because auditors give some assurance that the information risk is low.
c. 5ncorrect 0his is taken from the economics of auditing feature of demand for accounting
services.
d. 5ncorrect 6uditors only indirectly control the timeliness of financial statements.
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1."! d. Correct 6nswers a b and c refer to a financial statement audit an internal controls
attestation engagement and an operational audit respectively. Compliance
refers to following laws rules regulations and policies.
1."" d. Correct Ghile answers a b and c are true experience education and successful
completion of the Hniform CP6 are all necessary to be licensed as a CP6.
1."# d. Correct 0he mission of the H.7. 2overnment 6ccountability Affice is to ensure that
public officials are using public funds efficiently effectively and economically.
1."% bd Correct 0he two categories of performance audits are economy and efficiency audit and
program audits.
1."' c. Correct Review of credit ratings of customers gives indirect evidence of the collectibility
:valuation; of accounts receivable.
1."( a. 5ncorrect RhondaIs representations are not sufficient evidence to support assertions made
in the financial statements.
b. 5ncorrect Despite RhondaIs representations Kones must gather additional evidence to
corroborate RhondaIs assertions.
c. 5ncorrect RhondaIs representations are a form of evidence :albeit weak; that should
neither be disregarded nor blindly regarded without professional skepticism.
d. Correct RhondaIs assertions need corroboration.
1."$ a. 5ncorrect 6lthough there is a high level of risk associated with client acceptance this
phrase was created by the authors.
b. Correct 5nformation risk is the probability that the information circulated by a company
will be false or misleading.
c. 5ncorrect 1oral ha,ard is the risk that the existence of a contract will change the behavior
of one or both parties to the contract.
d. 5ncorrect 9usiness risk is the probability an entity will fail to meet its ob<ectives and
ultimately fail.
1.") a. Correct Completeness includes cutoff which refers to accounting for revenue expense
and other transactions in the proper period :neither postponing some recordings
to the next period nor accelerating next3period transactions into the current3year
accounts;.
1.#& d. Correct 0he ob<ective related to rights and obligations is to establish with evidence that
amounts reported as assets of the company represent its property rights and that
the amounts reported as liabilities represent its obligations.
1.#1 b. Correct 1anagementIs existence assertion states that reported assets liabilities and
e.uities actually exist.
1.#! a. 5ncorrect Hnder 7arbanes3Axley professional service firms are prevented from acting in a
managerial decision making role for an audit client.
b. 5ncorrect Hnder 7arbanes3Axley professional service firms are prevented from auditing
the firmIs own work on an audit client.
c. 5ncorrect Hnder 7arbanes3Axley professional service firms may only provide tax
consulting service to an audit client with the audit committeeIs approval.
d. Correct 7arbanes3Axley prevents professional service firms from engaging in any of the
above listed capacities.
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1.#" d. Correct Reciprocity refers to the process through which CP6s licensed in one state can
obtain a CP6 certificate and license in another state.
1.## a. Correct 6uditing is a subset of attestation engagements that focuses on the certification
of financial statements.
b. 5ncorrect 6uditing is a subset of attestation that provides higher assurance than that
provided by an attestation engagement.
c. 5ncorrect Consulting engagements focus on providing clients with advice and decision
support.
d. 5ncorrect 6ssurance engagements are designed to improve the .uality of information or
its context for decision makers.
1.#% d. Correct 6lthough auditing is a subset of attestation and attestation is a subset of
assurance the focus of the engagements tends to be very specific.
1.#' d. Correct Credibility advancement and monetary rewards are all reasons to become
certified.
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SOLUTIONS OR E&ERCISES AN' PROBLE#S
1.#( Audit, Attestation, and Assurance Services
7tudents may encounter some difficulty with this matching because the 7pecial Committee on 6ssurance
7ervices listed many things that heretofore have been considered =attestation services= :long before
assurance services were invented;. 1aybe this is a good vehicle for discussing the considerable overlap
between attestation services :attestation standards; and assurance services.
Real estate demand studies 33 6ssurance service :listed by 7C67 but not in the textbook chapter;
9allot for awards show 33 6ssurance service :listed by 7C67 but not in the textbook chapter; L9ut PwC
attested to the 6cademy 6wards ballot results long before assurance services were inventedM
Htility rate applications 33 6ttestation service :or maybe a consulting service@ 5?m somewhat surprised the
7C67 did not list it as an assurance service.;
Jewspaper circulation audits 336ssurance service :listed by 7C67 but not in the textbook chapter; L9ut this
work has appeared in prior years in examples of attestation servicesM
0hird3party reimbursement maximi,ation 33 6ssurance service :listed by 7C67 and listed in the textbook
chapter;
6nnual financial report to stockholders 33 6udit service
Rental property operations review 33 6ssurance service :listed by 7C67 and listed in the textbook chapter;
Examination of financial forecasts and pro<ections 33 6ttestation service :but also listed by 7C67 as an
assurance service;
Customer satisfaction surveys33 6ssurance service :listed by 7C67 and listed in the textbook chapter;
Compliance with contractual re.uirements 33 6ttestation service :but also listed by 7C67 as an assurance
service;
9enchmarking8best practices 33 6ssurance service :listed by 7C67 and listed in the textbook chapter;
Evaluation of investment management policies 33 6ssurance service :listed by 7C67 and listed in the
textbook chapter;
5nformation systems security reviews 33 6ssurance service :listed by 7C67 and listed in the textbook
chapter;
Productivity statistics 33 6ttestation service :but also listed by 7C67 as an assurance service under various
descriptions;
5nternal audit strategic review 33 6ssurance service :listed by 7C67 and listed in the textbook chapter;
Dinancial statements submitted to a bank loan officer 33 6udit service
1.#$ Controller as Auditor
Ghen the CP6 is hired by 4ughes Corporation he can no longer be considered independent with respect to
the annual audit. 0he annual audit may then be unnecessary in a short3run view and unnecessary to the
extent of services exclusive of the attest opinion. 5t is true that the in3house CP6 can perform all the
procedural analyses that would be re.uired of an independent audit@ however it is extremely unlikely that
he could inspire the confidence of users of financial statements outside the company. 4e cannot modify the
perception of potential conflict of interest that creates demand for the independent audit. 6s a matter of
ethics rules this CP6 would be prohibited from signing the standard un.ualified attest opinion.
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1.#) Operational Auditing
9igdeal cannot hire the 26A. 0his government agency does not perform operational audits for private
industry.
Ane possibility is the management advisory services department of a large CP6 firm. 0he ma<or advantage
may be total ob<ectivity. 0he CP6 firm has no stake in making a report reflect favorably or unfavorably on
7malltek :provided there are no prior relations of the CP6 firm with 9igdeal managers that may suggest a
bias or with 7malltek;. 0he possible disadvantage is that the CP6 firm may not possess the re.uired
expertise in 7malltek?s type of business.
6nother possibility is the 9igdeal internal audit department. 0he ma<or advantage may be a thorough
appreciation of 9igdeal?s managerial effectiveness and efficiency standards and a longstanding familiarity
with 9igdeal?s business. 0he possible disadvantage could be that the internal auditors may not be
independent enough from internal management pressures for making or breaking the deal for reasons other
than 7malltek?s efficiency and effectiveness.
6nother possibility is a nonCP6 management consulting firm. 0he ma<or advantage of ob<ectivity would be
similar to the CP6 firm and such firms often have experts in manufacturing sales and research and
development management. 0he ma<or disadvantage could be a lack of appreciation and familiarity with
9igdeal?s management standards :as possessed by the 9igdeal internal auditors;.
1.%& Auditor as Guarantor
0he neighbor appears to be uninformed on the following points>
6ccording to auditors? dogma Price
Gaterhouse did not prepare the Dodge
Corporation financial statements and no
auditor prepares a company?s statements.
5nform your neighbor that Dodge management is
primarily responsible for preparing the financial
statements and deciding upon the appropriate accounting
principles.
6n un.ualified opinion does not mean an
investment is safe.
0ell your neighbor that the financial statements are
history. 0he value of his investment depends on future
events including the many factors that affect market
prices. 0ell him the opinion only means that the
statements conform to 266P :and you can add that the
auditor knows of no material fraud or error;.
1.%1 Identification of Audits and Auditors
0he responses to this matching type of .uestion are ambiguous. 0he engagement examples are real
examples of external internal and governmental audit situations. Nou might point out to students that the
distinctions among compliance economy and efficiency and program results audits are not always clear.
0he =solution= is shown below in matrix form showing some engagement numbers in two or three cells.
0he re.uired schedule follows.
0ype of 6udit
Eind of 6uditor
Dinancial
7tatement Compliance
Economy
Efficiency
Program
Results
5ndependent CP6 ! 1&
5nternal 6uditor ' $ # $
2overnmental :26A; 1 " 1 " )
5R7 6uditor %
9ank Examiner (
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1. Proprietary school?s training
expenses
Economy and Efficiency
Program Results
2overnmental :26A;
!. 6dvertising agency financial
statements
Dinancial statement 5ndependent CP6s
". Dept. of Defense launch
vehicle
Economy and Efficiency or
Program Results
2overnmental :26A;
#. 1unicipal services Economy and Efficiency 5nternal auditors
%. 0ax shelters Compliance 5R7 auditors
'. 0est pilot reporting Compliance 5nternal auditors
(. 9ank solvency Compliance 9ank examiners
$. 1aterials inspection by
manufacturer
Compliance or Economy and
Efficiency
5nternal auditors
). 7tates? reporting chemical use
data
Program goal 2overnmental :26A;
1&. 7ports complex forecast Dinancial statement 5ndependent CP6s
1.%! Financial Assertions and Audit Objectives
0he ob<ectives for the audit of 7pillane?s securities investments at December "1 are to obtain evidence about
the assertions implicit in the financial presentation specifically>
1. Existence. Abtain evidence that the securities are bona fide and held by 7pillane?s or by a responsible
custodian.
Accurrence. Abtain evidence that the loan transaction and securities purchase transactions actually
took place during the year under audit.
!. Completeness. Abtain evidence that all the securities purchase transactions were recorded.
". Rights. Abtain evidence that the securities are owned by 7pillane.
Abligation. Abtain evidence that O%&&&&& is the amount actually owed on the loan.
#. Baluation. Abtain evidence of the cost and market value of the securities held at December "1.
Decide whether any write downs to market are re.uired by 266P.
%. Presentation and Disclosure. Abtain evidence of the committed nature of the assets which should
mean they should be in a non3current classification like the loan. Abtain evidence that restrictions on
the use of the assets are disclosed fully and agree with the loan documents.
1.%" Internet Exercise: Professional Certification
0hese answers will be dependent upon the student?s state. 1any states have recently reduced the
experience re.uirements either 1; reducing or eliminating an audit experience re.uirement and8or !;
reducing the experience re.uirement in lieu of additional education. Dor a .uick link to each state visit the
Jational 6ssociation of 7tate 9oards of 6ccountancy :www.nasba.org;.
1.%# Internet Exercise: AS Proposed State!ent on Auditing Standards on Audit Evidence
0he following table describes both the existing assertions and the new assertions proposed in the 6uditing
7tandards 9oardIs exposure draft.
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Assertions about events
and transactions
Assertions about account
balances
Assertions about footnote
disclosures
Existing
(PCAOB)
Proposed
:679;
Existing
(PCAOB)
Proposed
:679;
Existing
(PCAOB)
Proposed
:679;
Occurrence Occurrenc
e
Existence Existence Existence or
Occurrence
Occurrence
Completeness
:includes the
concept of cutoff;
Completen
ess
Cutof
Completenes
s
Completenes
s
Completenes
s
Completeness
Valuation and
allocation
Accuracy Valuation and
allocation
Valuation
and
allocation
Valuation and
allocation
Accuracy and
valuation
Presentation
and disclosure
Classicati
on
Presentation
and
disclosure
Presentation
and
disclosure
Classication
and
understandabi
lity
!ig"ts and
obligations
!ig"ts and
obligations
!ig"ts and
obligations
!ig"ts and
obligations
0here are a couple of significant differences that students should make note of>
1. 0he 679 Exposure Draft lists a number of assertions :classification accuracy; under the heading
of presentation and disclosure while the PC6A9 maintains presentation and disclosure as a
separate assertion.
!. Cutoff is listed in the exposure draft as separate and distinct from existing completeness assertion.
6lthough not labeled as such we have included discussions of proposed assertions in the textbook under
the headings of the existing assertions. 5n other words we have included a discussion of the proposed
cutoff assertion as part of the discussion of the existing completeness assertion. 7imilarly we have
included a discussion of the proposed classification and understandability assertion under the existing
presentation and disclosure assertion.
Af the eight issued exposure drafts the reconceptuali,ation of managementIs assertions appears to be
receiving the most *hate mail.+ Respondents complain that the new version is too confusing compared to
the existing assertions.
McGraw-Hill/Irwin / 0he 1c2raw34ill Companies 5nc. !&&(
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