As an auditor, how would you justify that all assets are reflected in the financial statement of an organization?

Auditing and Assurance Revision Questions and Answers

Answer
a) Financial statement is prepared on periodic basis. Commonly, it is prepared on yearly basis as per the requirement of the law into force. As an auditor, it should be ensured that all assets are accounted and shown into the financial statement. The assets that requires specific recognition may be as:

 Interest earned but not received.
 Receivable created due to credit sales
 Prepaid expenses
 Inventory/closing stock
 Fixed assets
 Cash and bank etc.

The item that has to be recognized as assets should be carefully scrutinized. Sales if made in credit should be verified with invoices and inventory record, interest receivable should be examined with the bank balance at the year end and interest income recognized in the books of account. Similarly, prepaid expenses should be verified with the payment voucher of particular expenses with period for which the payment is made. Likewise, inventory that should be shown as per valuation can be examined with the production and sales report, which ensures the actual position of inventory items. Fixed assets created should be separately shown instead of stock or work in progress. The cash and bank balances should be examined with cash book records and bank statement respectively. It should be ensured that bank reconciliation statement has been prepared and tallied with the bank balance as per books. Cash balance should be as per physical verification at the year end.



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