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Carmelo Teves Cuyos 2007-61546

BSA-5 September 24, 2011

Assertions Existence

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET) ASSERTIONS Potential Misstatements Necessary Controls Cash receipts are overstated on the books A trustworthy employee prepares a by transferring cash between accounts prelisting of cash receipts before further without appropriate recording of transfer to processing; validated deposits slips; duties cover up an embezzlement of cash of handling cash receipts are segregated from posting to accounts receivable Understatement of cash receipts due to lack of supervisory / competent clerk Prelisting and cash register procedures should be monitored; a daily cash summary is prepared and reconciled to total prelisting and over-the-counter receipts. Cash receipts are deposited intact daily in the companys bank; Receiving reports should be prepared by persons having access only to a blind copy of purchase order details. Cash receipts should be recorded at the amount indicated on the remittance advice.

Test of Controls Observation of the separation of duties and inquiring of client personnel about their responsibilities; observes where prelisting is prepared

Completeness

Rights and Obligations

Not reconciled balance of the book and bank account cash balance

Observation of the monitoring of these procedures ; Inquiry of employees who carry out the procedure about the regularity and consistency of its performance. Observation on the procedure and comparing cash in the prelisting with validated deposit slip;

Valuation/Allocation

Presentation and Disclosure

Billing a customer at a price lower than called for by company; Payment of interest to a related party for an amount far exceeding the going rate Recording cash that represents liability (receipt of customer deposit ) as revenue

Comparison of the entries in the cash receipts journal to remittance advices

An accounting supervisor should approve classifications made in journalizing. This control reduces the likelihood of payments being posted to the wrong accounts, resulting in credit balances in accounts receivable.

This control can be tested by the auditor by determining that the supervisors signature of approval is recorded.

Government Accounting & Auditing

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Assertions Occurrence

INCOME STATEMENT ASSERTIONS Potential Misstatements Necessary Controls Recording of fictitious sales without Recording of sales is supported by receiving customer order or shipping of customer orders, sales orders approved by goods; intentional overshipment of goods the credit department and approved and executed shipping documents.

Completeness

Understatement of sales due to nonrecording of sales transactions

Prenumbered shipping documents are accounted for to determine that sales invoice is prepared for all shipments; Prenumbered sales invoice are accounted for to determine that all sales are recorded.

Rights and Obligations

Recording sales when it is a consignment sales; not part of the agencys sales

Valuation/Allocation

Inaccurate billing and recording of sales.

Presentation and Disclosure

The assignment of direct labor costs, direct materials, factory overhead to inventory items is inaccurate; wrong usage of accounts

Clerks should check sales orders and sales invoice for terms to determine that transaction is sales rather than a consignment. For all goods shipped, goods are counted and descriptions and quantities are compared to quantities and descriptions on sales order and shipping documents prior to shipping. Sales invoices are checked for a.) proper pricing b.) mathematical accuracy c.) terms Sales must be properly classified to generate accurate segment reporting;

Test of Controls Examination of the approved customer order, sales order, shipping document and copy of sales invoice for a sample of entries in the sales journal. The documents should bear the required approval, such that of the credit managers approval. The description, quantity of goods, name, address and other details regarding the transaction should be consistent. Observation of the client performing the procedure or select a sample of shipping orders and examine the invoice that bills the sale. Also, observation of the clerk recording sales if he or she is accounting for the numerical sequence of invoices and determines why any missing invoices have not been processed Observation of the necessary controls is being performed.

Examination of sample sales order for credit approval prior to shipment; Inquiry about the updating and use of price lists; Observation that control is being performed

Determination that the invoice copy contains the signature that indicates approval of account classifications used.

Government Accounting & Auditing

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Government Accounting & Auditing

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