Financial Statement Assertions

Financial Statement Assertions 
Auditors routinely encounter client entries or financial accounting choices that are inconsistent with the financial statement assertions.
Required
1.	For each of the following, indicate what account balance assertion(s) is violated. 
1.	Sales shipped FOB destination are recorded when shipped. Some of these are in transit at the balance sheet date.
2.	An inventory purchase is received but not recorded until the company pays for the goods.
3.	Certain repair costs that should be expensed are capitalized.
4.	No loss is recorded or disclosed for a pending lawsuit against the client that is material, probable, and can be estimated.
5.	Sales shipped FOB shipping point are recorded before the balance sheet date but not shipped until after the balance sheet date.
6.	Wages earned but not paid by the balance sheet date are not recorded.
7.	Some checks in payment of accounts payable are recorded before the balance sheet date but not mailed until after the balance sheet date.
8.	Collections from customers received after the balance sheet date are recorded as of the balance sheet date.
9.	A capital lease is improperly accounted for as an operating lease.
10.	A $56,000 sale on account near year end was recorded at $65,000.
2.	Under what circumstances might the recording of FOB destination sales that are in transit at the balance sheet date be acceptable to the auditor?
3.	Do all of the items in part (a) affect net income? Explain.
Q2	(Importance of the Control Environment) The auditor of a public company in the retailing industry is planning an integrated audit. The company has approximately 260 retail stores, primarily in the southeastern part of the United States.
Required
1.	Explain why an analysis of the company- control environment is important to the planning of the integrated audit.
2.	The company claims that it has a strong control environment, including a culture of high integrity and ethics; a commitment to financial reporting competencies; and an independent, active, and knowledgeable audit committee. For each of these items, develop an audit program to gather evidence that these elements are effective. Organize your answer around each of these three elements:
o	Integrity and ethical climate
o	Financial reporting competencies
o	Effective audit committee
In developing your answer, be sure to include the following two components: (1) evidence that would convince the auditor that the component of the control environment was effective; (2) procedures the auditor would use to gather the evidence.
Q3	(Approaches to Collecting and Analyzing Audit Evidence)
Describe how each of the various approaches to gathering audit evidence can be used to test the five financial statement assertions: existence, completeness, rights, valuation, and presentation/disclosure. Provide examples of audit procedures for each of the approaches for each of the assertions.