Understanding Audit Assertions (Part 1)

Hi readers!  My name is Gus Patel, and I have offered to help update some content on the UFE Blog.  I have recently been in your situation, having written the 2013 UFE.  Currently, I work as an Audit Senior at BDO Canada LLP.  In my spare time, I enjoy being active, as well as teaching students about accounting concepts.

Today I’m going to introduce you to how audit assertions will be an important aspect of writing good procedures on the UFE. Tomorrow I will dive into the technical aspects of audit assertions which CKE candidates may find helpful.

Please have a look at Creating good procedures on the UFE  before diving into this audit assertions topic, as this post will focus on the key assertions that candidates will integrate as part of their procedure response.

Given the increased attention on the UFE to relevant procedures, it’s worth examining one aspect of procedures which is key to understanding how to write good procedures from the start. Scoring on procedure indicators includes the requirement to identify the relevant “audit assertion”.  Candidates will probably not score competent on a discussion of procedures which address an irrelevant assertion.  Where candidates have difficulty is in pairing a relevant assertion to the procedure that they create.

For example:  If case facts indicate an accounting issue is related to a writedown of inventory, which you correctly identify and respond as apart of your accounting discussions, an easy procedure candidates may choose to write could be an inventory count.  Inventory counts address two assertions through testing, either completeness of the listing obtained by vouching from items on the records (known as floor-to-sheet), or existence of inventory by vouching from items on the books to items held in inventory (known as sheet-to-floor).  While you may correctly identify an assertion related to this particular procedure, the real risk you identified is around inventory valuation.  Thus, discussion of an inventory count would not address the real risk you identified.  In this case, a valid response could be as follows:

  • To address the risk of proper inventory valuation at year-end, we should obtain an aged inventory listing as well as the most recent sales invoice, to ensure the product is selling higher than the cost recorded.  If it is determined that the product has been sold for less than costs recorded, or has not been sold recently, this may be indicative of a write-down being required.

While this may be easier for candidates in audit, assertions can be somewhat tricky for writers with little to no audit experience. Luckily, audit assertions can be found in the CICA Handbook.  With this in mind, if you are having difficulty with developing procedures, it may be wise to keep the Handbook open, at least in the beginning while writing and quickly reference what the relevant assertion would be.

If you are struggling with this at the beginning, you are not alone!  Pairing audit assertions to the procedures you create tends to be one of the more difficult areas for candidates to master at first, but with time and practice it is something that will become second nature by the time you are ready to write the UFE.  Also remember, topics such as the inventory count discussion above do not change, therefore, frequently tested topics which you will debrief over your study period will cover virtually all assertions for the popularly tested risk areas.

What difficulties with audit assertions do you have?



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