Part 4

My apology, I was real busy and real sick over the weather here. Can you imagine snowing in April? What a day and I have sick for the past 2 weeks. Anyway it is time to follow up with the blog commitments.
Let look the 5 monsters –COVED how do we put it in simple and provide a good example?
As we know financial assertion is the assertion that a recorded must ascertain before they record a “BUSINESS TRANSACTION” into the financial records. For your information, the financial records comprise of
1. The book of prime entry
2. The Ledger book
3. The trial balance and
4. The financial statements
Your question: How can the two be correlated?
Completeness: Is to ensure that the business transaction is properly recorded, ie: A car. When a car is being purchased it should properly be record in
1. The book of prime entry : the journal voucher and the Fixed asset register
2. The Ledger book : Cost account, depreciation account and accumulated depreciation
3. The trial balance : Debit side for cost and credit side for cash or credit
4. The financial statements: the income statement for depreciation the balance sheet for cost and accumulated depreciation
Ownership/obligation: you need to prove that you own the car before you can record in the financial record above. So how you prove it? That is what required auditor to counter check in the exam. Audit client need to prove the ownership to the auditor and auditor need to get the evidence.
For the above and the following, bear in mind it is for the audit client to assure the financial assertion and the auditor to obtain reasonable assurance (evidence).
Valuation: the Audit Client need to ensure that the right valuation is being recorded! For example: Inventory cost it should be at the lower of cost or NRV! That is valuation, the client put in a valuation and the auditor obtains evidence that the valuation is right.
Existence: The recorder need to ensure that those business transactions actually exist and auditor obtain evidence on that. There are three key areas where auditor needs to obtain evidences!
Disclosure: All business transaction needs to be properly disclosed.
FOR All COVED, the Company need to ensure that it exist and auditor is to obtain evidence on that
On that basis the COVED become the objectives for the auditor to carry their audit on financial statement.
So let reverse the statement for the Auditor.
1. Auditor need to obtain reasonable assurance that “business transaction” is completely recorded in the financial records for examples:………………………………………….
2. Auditor need to obtain reasonable assurance that the “business transaction” is own by the company or company is obliged with. For example……………………………….
3. Auditor need to obtain reasonable assurance that “business transaction” is properly valued. For example…………………………………………
4. Auditor need to obtain reasonable assurance that business transaction exist for example………………..
5. Auditor need to obtain reasonable assurance is properly disclosed for example………………….

For the next post we look at the audit testing. Take care