Identify and explain the assertions that the auditor will check by performing the following audit procedures: (i) Any inventory held by the entity…
CA Intermediate · Auditing and Ethics · MTP · September 2025
Identify and explain the assertions that the auditor will check by performing the following audit procedures: (i) Any inventory held by the entity on behalf of another entity has not been recognised as part of inventory of the entity. (ii) Employee benefit expense has been incurred during the period in respect of the personnel employed by the entity. (iii) Inventory has been recognised at the lower of cost and net realisable value in accordance with AS 2 - Inventories. (iv) Sales shall include the despatch of goods made at the year-end as they belong to the relevant period. (v) Any inventory held by a third party on behalf of the entity has been included as part of the inventory balance.
Suggested Answer and Working Notes:
(i) The auditor will check Rights & Obligations assertion to ensure that the entity has the right to assets i.e. (whether the entity has ownership and legal title to assets) and the liabilities recognised in the financial statements represent all the entity's obligations to repayment as at a given date. (ii) The auditor will check Occurrence assertion to ensure that the transactions recognized in the financial statements have occurred and relate to the entity. (iii) The auditor will check Valuation assertion to ensure assets, liabilities and equity balances have been valued appropriately i.e. the amounts at which they are recorded are appropriate. There has been no overstatement or understatement. (iv) The auditor will check Cut-off assertion to ensure that all income and expenses are reported in the correct accounting period. Cut-off is a separate assertion because the substantive procedures to verify it are typically different from those applied to the other components of completeness. (v) The auditor will verify Completeness assertion to ensure that all assets, liabilities and equity balances that were supposed to be recorded have been recognized in the financial statements.
Topics: Audit Evidence
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