[AMERICANDREAM]

Which financial statement assertion is violated when an expense occurring in one year is not recorded until the following year?

1. Accuracy
2. Classification
3. Completeness –> Correct
4. Occurrence

I was down to 2 or 3.
I initially couldn’t get rid of (2) because I thought about examples such as asset–>depreciation and prepaid expenses–>rent expense. For example, if you initially record prepaid expense, that’d be an asset, but would be an expense in the later period.

Why would you say that (3) is a better answer than (2)?

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[ThomasHallberg]

Completeness is best associated with expenses and liabilities. This is because with expenses and liabilities, we are worried that management has not accounted for ALL of them. i.e. they are complete. When I think of Classification (Understandability) I really think of disclosures and footnotes. I see how you were thinking about classification, however, completeness is definitely the most relevant assertion here.

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[Mike J]

Even simpler remember that to establish Completeness you follow the transaction forward.

If you're asked to find if something is recorded you go forward–start from the transaction and move forward to the records/books.

Occurrence and existence tend to go hand-in-hand. They also go in opposite direction from Completeness.

If it had been occurrence, you'd be asked if what was recorded actually…well… occurred. So you go from the records/books to the transaction itself.

IMHO, for Classification to be correct you need to be given more information. eg In which other account was the amount recorded. Be careful not to read too much into what you're given.

Hope that helps.

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[AMERICANDREAM]

Thank you guys!

AUD - 92
BEC - NINJA in Training
FAR - 90
REG - 88

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[Author]

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