The Professional Standards Identify Five Categories of Assertions Made by Management

question 17

Short Answer

The professional standards identify five categories of assertions made by management that are contained in the financial statements. If any of these assertions is a misrepresentation, the statements could be materially misstated. The categories of assertions identified by the profession are:
A.Existence or occurrence
B.Completeness
C.Rights and obligations
D.Valuation or allocation
E.Presentation and disclosure
Following is a list of errors encountered during the conduct of an audit.
REQUIRED: Using the letters given above, indicate the assertion that is being misrepresented by each listed error.
1.A short-term loan obtained from the bank was not recorded.
2.The current portion of long-term debt was excluded from the current liabilities
section of the balance sheet.
3.The fact that certain inventories were pledged as collateral on a bank loan was
not mentioned in the statements.
4.Reported sales include transactions from the subsequent period.
5.A number of shipments were made that were never billed.
6.Clerical errors were made in the compilation of the physical inventory count.
7.Several fictitious sales were booked during the period.
8.Legal title has not been obtained to a truck purchased from a private party.
9.Some of the inventory is obsolete, with no current market.
10.Accrued liabilities include the utility bills of the owner.
11.The allowance for doubtful accounts was understated because of the failure to
properly age the receivables at year-end.
12.The disposal of several pieces of machinery was never recorded.
13.Utility bills for the current period were recorded and paid in the following
period.
14.A piece of land, carried as an investment, has been written up to reflect current
appraisals of the property.
15.The subsidiary accounts receivable ledger is out of balance with the control
account.

---

Definitions:

Neon Green Beverage

A brightly colored drink, often flavored and appealing to the eye, but not specifically indicative of any particular type or brand.

Behaviorist

A person who specializes in behaviorism, a branch of psychology that focuses on observable behaviors and the processes of learning through conditioning.

Response Tendencies

The habitual ways in which individuals react to different situations or stimuli, often based on past experiences or personality.

Cognition

The cognitive process of gaining understanding and knowledge via thinking, experiences, and sensory input.