Discussion and Assignment solutions_Ch5 Page 1 of 2

Assignment
P5-6
Refer to Exhibit 5.3.

PHASE OF THE AUDIT OPINION FORMULATION ACTIVITIES WITHIN THE PHASE

PROCESS
Phase I Making Client Acceptance and
Continuance Decisions
Phase II Performing Risk Assessment
Phase III Obtaining Evidence about Internal
Control Operating Effectiveness , if applicable
Phase IV Obtaining Substantive Evidence
about Accounts, Disclosures, and Assertions
Phase V Completing the Audit and Making
Reporting Decisions
• Assess whether management uses an
acceptable financial reporting framework
• Assess whether management
acknowledges and understands its
responsibilities
• Identify and assess risks of material
misstatement
• Respond to identified risks of material
misstatement
• Select controls to test, if applicable
• Perform tests of controls, if applicable
• Consider the results of tests of controls, if
applicable
• Perform appropriate substantive
procedures
• Complete review and communication
activities
• Determine the type(s) of opinion(s) to
issue

P5-9
Existence: Assertions about existence address whether assets and liabilities exist. For accounts receivable,
management asserts that the recorded accounts receivable exist at the balance sheet date and relate to
valid sales.

Completeness: Assertions about completeness address whether all transactions and accounts that should
be included in the financial statements are included. For accounts receivable, management asserts that
accounts receivable on the balance sheet include all accounts receivable that the organization has.

Valuation or Allocation: Assertions about valuation or allocation address whether accounts have been
included in the financial statements at appropriate amounts. For accounts receivable, management asserts
that trade accounts receivable included in the balance sheet are stated at net realizable value.

Rights and Obligations: Assertions about rights address whether assets are the rights of the organization.
For accounts receivable, management asserts that the organization owns the receivables and that they
have not been sold, pledged, etc.

Presentation and Disclosure: Assertions about presentation and disclosure address whether components
of the financial statements are properly classified, described, and disclosed. For accounts receivable,
management asserts that the accounts receivable are a short term asset (no credit balances and they have
Discussion and Assignment solutions_Ch5 Page 2 of 2

not been converted into a long term note receivable) and that they all relate to receivables from customers
and not from officers, directors, etc.

Discussion
P5-37