Original Question: (Do not reply to this one)
Explain why the auditor divides the financial statements into components or segments in order to test management’s assertions.
Student Discussions:
Reply to each student posts by commenting about their posts and building on the subject (About 100 words each) APA reference.
APA reference. Any sources including, but not limited to:
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017).Financial accounting theory and analysis: Text and cases(12th ed.). Hoboken, NJ: Wiley.
1-Randie Peterson
Assertions are made by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures. When conducting an audit the concepts of the nature, appropriateness, and evaluation of the audit evidence are important.In order to accomplish the audit better auditors will divide financial statements into components.Either a financial statement or a business process can be a component.Understanding the information system that a business uses from the start to finish in accounting journals and ledgers will enable the auditor to gather required evidence on business processes and related accounts and transactions.It is the job of the auditor to gather evidence using audit procedures to test management’s assertions.The auditor will use a variety of concepts to test the financial documents such as occurrence, accuracy, completeness, existence, and understandability.Using the evidence to form an opinion about whether the financial statements are fairly presented.As long as evidence supports the management’s assertions, the auditor can issue an unqualified audit report.
Reference
Messier W. F., Glover S. M., & Prawitt D. F XXXXXXXXXXAuditing & Assurance Services A Systematic Approach. Tenth Edition.NY- McGraw-Hill Education.
2-Shirley Stenbak
An auditor will divide the financial statements into components in order to investigate and understand an entire process of that segment or process.Examples of a process can be the revenue transaction cycle and a component is a specific account such as accounts receivable.Separating the components allows for investigating an entire process through the information system of the organization being audited (Messier, Glover &Prawitt, 2017).The revenue process is one example of a cycle that is investigated through the audit process.
Selection of the revenue process looks at the revenue and accounts receivable accounts and all transactions related to those accounts.An auditor will verify the occurrence and completeness of each invoice transaction to ensure that those invoices trace back to actual invoiceable events that happened.It also ensures that each purchase transaction relating to the activity was valid and approved by the proper authority within the organization.Each invoiceable activity should be recorded in the proper accounting period and each inventory item should be allocated in the proper amounts.This ensures that all transactions recorded give a fair representation of the amounts and revenues recorded in the financial statements.
Messier, W. F., Glover, S. M., & Prawitt, D. F XXXXXXXXXXAuditing & assurance services: A systematic approach (10th ed.). New York: McGraw-Hill/Irwin. ISBN: XXXXXXXXXX