ASSIGNMENT 3

AssertionsLearning objective

In this assignment, you will extend your knowledge gained in assignment 1 link : https://www.chegg.com/homework-help/questions-and-answers/required-task-11-josh-thomas-audit-senior-asked-research-retail-wholesale-footwear-industr-q36329237

by taking the significant risks you have already identified and then conducting further analysis on their likelihood and materiality.

Risks identified from gaining an understanding of the clients business are referred to as inherent risks. These risks are considered in the audit-risk formula. The auditor needs to identify which financial statement assertions may be affected by these inherent risks. Identifying these risks will help determine the nature of the audit procedures to be performed.

Management implicitly or explicitly makes assertions regarding the recognition, measurement, and presentation of the various elements of the financial statements and related disclosures. Auditors use assertions for account balances to form a basis for the assessment of risks of material misstatement. That is, assertions are used to identify the types of errors that could occur in transactions that result in the account balances. Consequently, breaking down the financial statement accounts into these assertions will direct the audit effort to those areas of higher risk.

Assertions direct the audit, and audit procedures are designed so that they are responsive to the assessed risks. Broadly, these assertions can be classified in the following categories:

• existence or occurrence

• completeness

• valuation and allocation, or accuracy

• rights and obligations

• cut-off

• classification

• presentation, disclosure, and understandability

  Required

  Using the risks identified in assignment 1 on working paper A11, complete the following information in the relevant columns of the working paper.

• Identify the associated financial account (if you havent done so already) and assertions that

  would be affected.

• Give an assessment of high, medium, or low in relation to the likelihood and

  materiality of the risk occurring. A risk should be classified as high if it is highly likely to be present and material. A risk

  should be classified as medium if it may be present and material. Risks should be classified as low if they are unlikely to be present and/or not material.

  Discussion points

• Did you have any significant risks that could not be linked to an account in the financial statements and an assertion? Is it still a significant risk?

• Given your analysisfor this clientis the overall level of inherent risk low, medium,or high?