Majorly 5 balance sheet assertions: (Memory Technique – CPR provided in Electrical Vehicle)

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We are Sharing With You Majorly 5 balance sheet assertions: (Memory Technique – CPR provided in Electrical Vehicle) . So kindly Check Out our http://www.castudynotes.com website and ALL the Best for Your upcoming Exams.

CA STUDY NOTES

BALANCE SHEET ASSERTIONS : Detailed explanation with examples –

Majorly 5 balance sheet assertions: (Memory Technique – CPR provided in Electrical Vehicle)

1. Existence (Electric)

– Definition: Assets recorded in the balance sheet exist and are owned by the entity.

– Example: Physical verification of inventory, fixed assets, or cash on hand to confirm their existence.

2. Rights and Obligations (R)

– Definition: The entity has legal ownership or rights to use the assets, and there are no undisclosed restrictions.

– Example: Examination of title deeds for owned property or reviewing loan agreements for encumbrances.

3. Completeness (C)

– Definition: All assets that should be recorded are included in the financial statements.

– Example: Reconciling bank statements to ensure all cash transactions are recorded, or verifying completeness of inventory by comparing records to physical counts.

4. Valuation or Measurement (Vehicle)

– Definition: Assets are recorded at the appropriate amounts in the financial statements.

– Example: Testing the accuracy of valuation methods for inventory or reviewing the calculation of depreciation on fixed assets.

5. Presentation and Disclosure (P)

– Definition: Assets are appropriately classified, described, and disclosed in the financial statements.

– Example: Verifying that long-term investments are disclosed separately from short-term investments or confirming that contingent liabilities related to assets are appropriately disclosed.

Let’s consider an example of a company’s accounts receivable:

1. Existence:

– Audit Procedure: Select a sample of accounts receivable and confirm their existence by contacting customers directly.

– Outcome: The auditors receive confirmations from customers, verifying that the accounts receivable exist.

2. Rights and Obligations:

– Audit Procedure: Review sales contracts and agreements to ensure that the company has the legal right to collect on the accounts receivable.

– Outcome: The auditors confirm that the company has the legal right to collect on the receivables without any undisclosed restrictions.

3. Completeness:

– Audit Procedure: Reconcile the total accounts receivable balance to the subsidiary ledger and verify that all receivables are included.

– Outcome: The reconciliations demonstrate that all receivables have been properly recorded.

4. Valuation or Measurement:

– Audit Procedure: Test the accuracy of the allowance for doubtful accounts to ensure that accounts receivable are stated at their net realizable value.

– Outcome: The auditors verify that the allowance is based on reasonable estimates of collectibility.

5. Presentation and Disclosure:

– Audit Procedure: Review the financial statements to ensure that accounts receivable are appropriately classified and disclosed.

– Outcome: The auditors confirm that the financial statements provide clear and accurate information about accounts receivable.

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