Management’s Assertions Balance Sheet Existence or Completeness Rights and Valuation or Presentation and Accounts Occurrence Obligations Allocation Disclosure Cash and cash The cash and cash All cash and cash The company has a The bank All cash and cash equivalents equivalents equivalents have right to use its cash reconciliation equivalents have account must be been appropriately and cash must match the been properly checked by outside recorded. equivalents. cash account on classified, and the sources, for the book balance. notes properly detail example the bank, which items are to verify existence. included in cash equivalents. Accounts The accounts The accounts The accounts The accounts The account is Receivable, net receivable exist, receivable may be receivable belong receivable balance disclosed adequately and a confirmation incomplete if the to the company must be recorded net of contractual request is sent to company has not unless there is a correctly, along adjustments and customers who recorded sales. factoring with the reduction allowances for either admit or Tracing cash arrangement, for accounts that doubtful accounts. dispute that they inflows to sales which can be will be owe a balance to can check found by looking at uncollectible. the company. completeness. cash receipts for factor payments. Prepaid expenses Auditors can The prepaid The company has a The account All prepaid expenses confirm the expense account right to current should only should be properly prepaid expense should contain all prepaid assets contain amounts disclosed in the with the other and only prepaid because the costs that will be current asset section company involved accounts. have already been expensed in the of the balance sheet in the transaction. current year and net of expired costs.
Management’s Assertions Balance Sheet Accounts Existence or Occurrence Completeness Rights and Obligations Valuation or Allocation Presentation and Disclosure Cash and cash equivalents The cash and cash equivalents account must be checked by outside sources, for example the bank, to verify existence. All cash and cash equivalents have been appropriately recorded. The company has a right to use its cash and cash equivalents. The bank reconciliation must match the cash account on the book balance. All cash and cash equivalents have been properly classified, and the notes properly detail which items are included in cash equivalents. Accounts Receivable, net The accounts receivable exist, and a confirmation request is sent to customers who either admit or dispute that they owe a balance to the company. The accounts receivable may be incomplete if the company has not recorded sales. Tracing cash inflows to sales can check completeness. The accounts receivable belong to the company unless there is a factoring arrangement, which can be found by looking at cash receipts for factor payments. The accounts receivable balance must be recorded correctly, along with the reduction for accounts that will be uncollectible. The account is disclosed adequately net of contractual adjustments and allowances for doubtful accounts. Prepaid expenses Auditors can confirm the prepaid expense with the other company involved in the transaction. The prepaid expense account should contain all and only prepaid accounts. The company has a right to current prepaid assets because the costs have already been The account should only contain amounts that will be expensed in the current year and All prepaid expenses should be properly disclosed in the current asset section of the balance sheet net of expired costs.