Question 10 Marks

An audit risk is manifested when a material misstatement enters the financial reporting process (inherent risk) that the clients internal controls do not prevent or detect (control risk) and that the auditors substantive procedures do not detect (detection risk).

Because material mistakes happen, auditors need to examine eg. Revenue and accounts receivable for completeness. Auditors may assess inherent risk for some transaction assertions to be higher than others.

Required:

You must assess the Relative Assertion Risks is for Revenue and Receivables. Use and complete the worksheet given below, to assess the relative assertion risks for revenue and accounts receivable.

Tips:

List the assertions, rate using High, Medium, Low and give an explanation as to why you have rated it as such.

Relative Assertion Risk for Revenue and Accounts Receivable
AICPA Assertions	Revenues	Receivables	Explanation (why)
Transaction Assertions
1.Occurance
2.Completeness
3.Accuracy
4.Cut-off
5.Classification
Balance Assertions
1.Existence
2.Rights and obligation
3.Completeness
4.Accuracy, valuation and Allocation
Presentation and Disclosure Assertions
1.Accuracy
2.Completeness
3.Occurence
4.Rights and obligation
5.Understandibility