ACCT3002 Chap.4 Audit Planning and Assertions
Audit Planning and Assertions
Audit planning transforms knowledge of the entity, its environment and reporting system into procedures. Management assertions make broad risks testable. Completeness begins with what should have been recorded and traces forward; occurrence or existence begins with recorded items and vouches backward. Accuracy normally requires recalculation, agreement or reperformance.
A high-quality procedure names the population, selection direction, evidence examined, expected comparison and exception that would alter the plan.
What this chapter covers
- 01
Entity understanding
- 02
Transaction assertions
- 03
Balance assertions
- 04
Disclosure assertions
- 05
Procedure direction
- 06
Nature timing extent
Worked example · free
Plan work over year-end online orders
- 1Identify occurrence and cut-off risk for the orders shipped in July.
- 2Vouch recorded invoices around year end to dispatch and delivery evidence.
- 2Trace dispatch records forward to invoices and journal entries to test completeness.
- 1Reperform the period allocation and quantify any misstatement.
Key terms
- Audit strategy
- Audit strategy sets the overall scope, timing and direction of the engagement before detailed procedures are designed.
- Completeness assertion
- The completeness assertion claims that all transactions, balances or disclosures that should be recorded have been included.
- Existence assertion
- The existence assertion claims that recorded assets, liabilities and equity interests exist at the relevant date.
- Audit objective
- An audit objective translates a management assertion into a specific evidence question for a segment or balance.
Audit Planning and Assertions FAQ
Why does direction matter in audit testing?
Because the starting population determines which error can enter the sample. A missing transaction cannot be found by starting from the ledger. Completeness therefore traces source items forward, while existence or occurrence vouches recorded entries backward to support.
What makes an audit procedure specific?
Name the population, period, selection method, direction, documents or external evidence, comparison and expected exception. A phrase such as check revenue is not executable and does not show which assertion the work is intended to test.
How do assertions affect planning?
They focus broad account risk into precise claims. The same balance may need different work for existence, completeness, rights and valuation. Stating the assertion first helps the auditor select relevant evidence instead of collecting documents without a purpose.
What makes an audit procedure executable rather than vague?
Specify the population, selection basis, period, action, comparison and expected exception. Instead of saying 'check revenue', select dispatch records from a defined year-end window, trace them to dated invoices and ledger entries, compare delivery terms with recognition dates, and investigate missing or mismatched items. State the assertion first so the starting point is logical.
Completeness usually requires evidence outside the recorded population; occurrence or existence usually starts with a recorded entry and seeks support. Accuracy may require recalculation, reperformance or agreement to authorised terms. The final clause should explain what a difference means for risk, projected misstatement or additional work.
This level of detail allows another auditor to perform the test and shows why it addresses the alleged error.
How should planning facts flow into the evidence programme?
Start with knowledge of the entity, its environment, reporting process and controls. Identify the business event that could affect an account or disclosure, then express the possible error by assertion and direction. Assess its likelihood and potential magnitude, including fraud or unusual-transaction features. Decide whether a relevant control could prevent or detect the error and whether reliance would be efficient.
From there, choose the nature, timing and extent of responsive procedures. High or unusual risk may call for more persuasive sources, experienced staff, unpredictable selections or work nearer year end. Document the link from fact to risk, assertion, control and procedure. If later evidence contradicts the original assessment, revise the programme rather than forcing the result into the initial plan.
What short template improves a procedure sentence?
Write 'select from, perform, compare with, investigate for'. The first phrase defines the population and direction, the second names the audit action, the third identifies independent or authorised criteria, and the fourth states the exception linked to the assertion. Add the period and sampling basis where relevant.
This template turns 'check invoices' into reproducible work and reveals when the starting population cannot find the suspected omission, fictitious item, inaccuracy or cut-off error.
Exam move
Create pairs of procedures for each major cycle: one completeness test that starts outside the records and one existence test that begins inside them. Rewrite vague procedures until another student could perform them without asking what to select or compare. Add the assertion beside every test and explain how an exception would change risk, sample extent or follow-up work.
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