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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

During the audit of Kaveri Textiles Ltd, the auditor finds that a large fixed-asset purchase of Rs 40 lakh was recorded in the books before the supplier's delivery and installation took place. The auditor is concerned that assets are recorded which do not yet exist or are not yet controlled by the company. Which assertion is MOST directly at risk?

The assertion most directly at risk is occurrence and existence. The asset was booked before delivery and installation, so the balance sheet may show an asset that did not exist or was not controlled at the reporting date. Completeness addresses omitted items, which is the reverse problem.

  1. ACompleteness
  2. BOccurrence and existenceCorrect
  3. CClassification
  4. DValuation and allocation

Explanation

Recording an asset before it has been delivered means the recorded asset may not exist at the reporting date, so the existence/occurrence assertion is threatened. Completeness concerns omitted items, which is the opposite of the issue here. Classification and valuation are not the primary concern.

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