[linkman311]

I’m having trouble with nearly every question dealing with applying them or answering which one is being tested. Here’s an example of one:

“An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management’s assertions about:

a) Understandability and classification

b) Completeness

c) Occurrence

d) Valuation and accuracy

Correct answer is A.”

Basically whenever I see these I can at best eliminate two but and I’m usually stuck between Understandability, Valuation, or Completeness. In this question, I guessed “D” because I thought you would view the renewal to make sure it was valued properly.

Anyways, I’ve always had trouble grasping some conceptual issues and this is one of them. When you encounter these kind of questions, what is your thought process? It seems like there are always two justifiable answers every time I come across these.

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[NYCaccountant]

This is one of the easy ones because it states “renewal of a note payable shortly after the balance sheet date” this is a significant subsequent event which needs to be disclosed in the financials, hence presentation and disclosure type assertion, which relates to understandability and classification. Valuation and accuracy is wrong because you're not adjusting a number in the financials, you're including a footnote. If the note was renewed before the balance sheet, you would have to adjust the note and then I would consider the valuation and accuracy assertion to be correct.

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[jfnewcombe]

That procedures is to ensure classification. If a note payable due in the next year (current liability) is refinanced after the balance sheet date but before the financial statement date, it would be due in later years (non-current liability).

[linkman311]

Thanks for the explanation, what I'm also looking for it tips on how to approach all these questions – this was just an example of one. Maybe I just need to step and think of it from a broader viewpoint.

Confidence is a prerequisite for success

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AUD - 1/1
BEC - 1/1
REG - Q4

Have Becker, wish I got Roger

[AGI]

To linkman311:

Hi. I think one way you can crack this by writing a list of “if you see ________, it means ________”

Write stories to yourself to explain why the answer is such and such..

After some practice, you will get it.

For example:

1. If you see the word “AR” and “Bad Debt”, it means Valuation. This is because I need to figure out bad debt expense so I can net the AR on balance sheet (financial report).

2, If I see “cut off”, 95% of times it means completeness. If the number is not present (cut) clearly, that means the procedure to prepare for balance sheet (with all the J/E, G/L, adjustments, blah blah blah) is not complete! (I guess you can also write “if I am missing 50 cents off my sales, my number is not complete!”)

NY - CPA

New York - NYC
Passed CPA Exam (11/2014)
In search for a position in NYC that will fulfills the license requirement.

[linkman311]

^^ Thanks for the tip, I will have to go through and do that. I wish a list like this could magically appear…

Confidence is a prerequisite for success

FAR - 1/1
AUD - 1/1
BEC - 1/1
REG - Q4

Have Becker, wish I got Roger

[Author]

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