Identify risk accounts and assertions and propose suitable audit procedures for the audit of

RISK IDENTIFICATION 4

Risk Identification and Assertion

Risk Identification and Assertion

  1. Account identification

The risky account identified is the expenses account.

  1. Assertion: Completeness

Expenses relating to wages and salaries were incurred during the period in respect of the employees contracted by Toshiba. Allocation of this salaries and wages is between general and administrative expenses, and operating expenses for the entity’s production activities (Needles & Powers, 2013). This expense does not factor the payroll cost of any unauthorized employees working or rendering services to the entity. All wages and salaries have been calculated correctly, taking into account adjustments for tax deductions and reconciliations. Any wages and salaries not recognized during the accounting period are for the current period. All prepaid expenses and accruals have been accounted for accurately in the current financial statements (Moroney, Campbell & Hamilton, 2014).

Audit Procedure for Verifying the Assertion

The completeness assertion means that all financial transactions for the entity must be included in the books of accounts. When auditing, completeness assertion takes into account the principle of existence which states that legitimate liabilities or assets existing during the accounting period must be recorded and accounted for (Alexander, Britton & Jorissen, 2005). Therefore, when testing for completeness, the audit procedure must relate to liabilities. Among other things, this helps in checking whether the client underestimated their liabilities to improve their financial position. In order to test for completeness, it is recommended that the auditor selects a certain transaction that was undertaken during the year to verify (Ikpefan & Akande, 2012). This is done together with transactions after year end to ensure they have been included properly in the accounting period. Tracing can also be done to ensure that all accounting transactions are correctly entered into the company’s journals or ledgers. In this case, the direction of testing should be from the original documents to the ledger. The aim is to test whether all transactions that occurred were recorded in the appropriate accounting records.

References

Alexander, D., Britton, A. & Jorissen, A. (2005). International Financial Reporting and Analysis. London: Routledge.

Ikpefan, O. & Akande, A.O. (2012). International Financial Reporting Standard (IFRS) Benefits, Obstacles and Intrigues for Implementation in Nigeria. Business Intelligence Journal, 5(2): 299–307

Moroney, R., Campbell, F. M., & Hamilton, J. M. (2014). Auditing: A practical approach (2nd ed.) Milton, Qld: John Wiley and Sons.

Needles, B. & Powers, M. (2013). Principles of Financial Accounting. Financial Accounting Series. Melbourne: Cengage Learning.