Question

6-30 (Objective 6-8) The following are various management assertions (a. through m.) related to sales and accounts receivable.

Management Assertion

1. Receivables are appropriately classified as to trade and other receivables in the financial statements and are clearly described.

2. Sales transactions have been recorded in the proper period.

3. Accounts receivable are recorded at the correct amounts.

4. Sales transactions have been recorded in the appropriate accounts.

5. All required disclosures about sales and receivables have been made.

6. All accounts receivable have been recorded.

7. Disclosures related to receivables are at the correct amounts.

8. Sales transactions have been recorded at the correct amounts.

9. Recorded accounts receivable exist.

10. Disclosures related to sales and receivables relate to the entity.

11. Recorded sales transactions have occurred.

12. There are no liens or other restrictions on accounts receivable.

13. All sales transactions have been recorded.

Please answer these questions only.

1. Explain the differences among management assertions about classes of transactions and events, management assertions about account balances, and management assertions about presentation and disclosure.

2. For each assertion, indicate whether it is an assertion about classes of transactions and events, an assertion about account balances, or an assertion about presentation and disclosure.

3. Indicate the name of the assertion made by management.

Answer 1

Management assertions are claims made by the management of the company regarding various aspects of a business. Generally, the auditors rely and test these assertions during the audit of financial statements of the Company by conducting various audit tests. For this purpose, the management assertions are categorized as

• management assertions about classes of transactions and events,
• management assertions about account balances, and
• management assertions about presentation and disclosure.

The types of assertions under these categories also overlap, but the purpose is to test the fairness of these assertions made by the management.

• management assertions about classes of transactions and events - (mainly Income Statement)
• management assertions about account balances - (mainly Balance Sheet)
• management assertions about presentation and disclosure - (all the information in the Financial Statements)

	Name of Assertion
Management assertions about classes of transactions and events	Accuracy
	Classification
	Completeness
	Cut -off
	Occurrence
Management assertions about account balances	Completeness
	Existence
	Rights and Obligations
	Valuation
Management assertions about Presentation and Disclosure	Accuracy (and Valuation)
	Completeness
	Occurrence ; Rights & Obligations
	Understandability ( and Classification)

Below is the table showing categories and name of the Management Assertions.

	Assertion	Name of Assertion
Management assertions about classes of transactions and events	Sales transactions have been recorded in the proper period	Cut -off
	Sales transactions have been recorded in the appropriate accounts.	Classification
	Sales transactions have been recorded at the correct amounts.	Accuracy
	Recorded sales transactions have occurred.	Occurrence
	All sales transactions have been recorded.	Completeness
Management assertions about account balances	Accounts receivable are recorded at the correct amounts.	Valuation
	All accounts receivable have been recorded.	Completeness
	Recorded accounts receivable exist.	Existence
	There are no liens or other restrictions on accounts receivable.	Rights and Obligations
Management assertions about Presentation and Disclosure	Receivables are appropriately classified as to trade and other receivables in the financial statements and are clearly described.	Understandability (and Classification)
	All required disclosures about sales and receivables have been made.	Completeness
	Disclosures related to receivables are at the correct amounts.	Accuracy (and Valuation)
	Disclosures related to sales and receivables relate to the entity.	Occurrence ; Rights & Obligations