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If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses. You can purchase one at a time or have a subscription model given you access to all the courses courses which are well organized have other resources like excel files and pdf files to download and no commercials. In this presentation we will take a look at assertions about classes of transactions and related control procedures. So we're going to think about the assertions related to implementing the internal controls. So we're thinking about management putting together their internal controls, their basically sets of checks and balances. We're going to consider the assertions for which they would want to put controls in place for and then the type of control activities the actual putting in place of those controls that would relate to those assertions. Now this is going to be important for us to know because it's often something that people get confused on both in a testing situation and in practice because we often start to just basically memorize different types of controls and we say well you just have to put this control in place and that's just it that's just the way it is because that's where I was last time I learned a system of controls these are the controls you need to put those into place and when we're testing we often do the same thing when we're actually testing these these assertions and the different sets of controls from the audit perspective we do a similar process. We need to test this particular test but from a test standpoint as well as the implementation we need to know the whole process to really do it well because each business is different to some degree so we need to first think about what the assertions are and then think about the types of controls that would be put in place in order to achieve those objectives. Now some of them will be universal obviously everybody has a bank account everybody should be reconciling their bank account and doing certain things over cash and you could basically say hey those controls are universal but you should still basically know the assertions related to it because we want to know the why's and that'll help us really to customize the internal controls which is what we want to do we want to basically say hey what are the risks for this particular organization and then put in a set of controls related to those and one way to think about that is the assertions. Also test questions will break out in this format and two which students have a lot of trouble to to pick up meaning they'll will think about the types of control activities but possibly have difficulty tying those control activities out to the proper assertion so you want to be able to pick that up. So first we have the assertion of occurrence so what type of control activities would be related to the assertion of occurrence we have things like the segregation of duties and remember occurrence basically means you're kind of thinking about the completed work the financial statements the gl with the books being put together and then you're trying to say is this stuff that they put on the books did it actually occur the testing that actually occurred or from the management standpoint we have this stuff in the end product on the financial statements we want to see if that actually happened in terms of occurrence so did it actually happen so we're going from the end result backwards typically so we could have segregation of duties it's going to help with the assertion of occurrence segregation of duties one of the major type of internal controls that we will have because it'll mean that we typically have two people involved in most systems and therefore it's less likely for an occurrence problem be to be due to error or due to something like fraud due to the segregation of duty so a segregation of duties if we don't know an answer to a test question probably a decent guess to go for the separation of duties the segregation of duties pre-numbered documents that are accounted for so if we have the pre-numbered documentation that can help us with the occurrence daily or monthly reconciliation of subsidiary records with independent review so we want to think about the subsidiary records things like the accounts receivable subsidiary ledger breaking out by a customer tying that out to something like the general ledger account with a independent review completeness now we're thinking about completeness now we're kind of thinking about the other side of things occurrence we're going from the end result back completeness we're thinking about is the other transactions that happened that should have been recorded financial transactions but weren't they didn't make it to the geo they didn't make it to the financial statements how can we set up internal controls to reduce that to be able to say that the assertion of completeness has been met and have controls to be somewhat confident of that we could have pre-numbered documents that are accounted for so that pre-numbered documentation is going to give us a check we could have the segregation of duties once again segregation of duties making it less likely that an error happens that we didn't record a transaction if there's more than one person involved in the recording of that transaction process it also makes it less likely that there's something like collusion or some you know you would take collusion two people getting together to commit some type of fraud intentionally not making the financial statements complete for some reason daily or monthly reconciliation of subsidiary records with independent review so we're going to do that same process of looking at those subsidiary ledgers and reviewing them to make sure that they tie out to what is on the actual financial statements things like the accounts receivable subsidiary ledger by customer accounts payable by vendor then we have authorization do we have the proper authorizations within our control system we have general and specific authorization and transactions at important control points we want to make sure that we have those authorizations in in place in those specific control points and that we're basically able to show and show that those actions are taking place that the authorization is happening accuracy internal verification of amounts and calculations monthly reconciliation of subsidiary records by independent persons so obviously accuracy we want to see if things being reported are accurate so we have internal verification of amounts and calculations we want to verify different types of calculations especially calculations possibly that might be a little bit more unusual things like calculating the allowance for doubtful accounts or depreciation and then monthly reconciliation of subsidiary records by an independent person once again will help us with that accuracy because things like the subsidiary ledgers for the accounts receivable and accounts payable making sure that those are lining up and tying out to the ledgers as well as something like inventory and things like that will be tying out to the primary account and then we have the cutoffs which have to do with the end of the period and the beginning of the beer the proper timing of the information is it reported in the proper time period you're thinking of things like adjusting entries with financial statements those are the timing type of entries to make sure that we have properly aligned with the typically accrual principles of revenue recognition and matching or expense recognition those are procedures for prompt recording of transactions and internal review verification so the prompt recording of transactions is going to help us to to not have that problem of say recorded an invoice that was the work was done before the time period ended but we didn't invoice till after the time periods ended and therefore we recorded the revenue afterwards if we the closer we're able to record transactions to the date that the transaction happened the more likely we're going to not have like cutoff issues where we have these timing problems and then we have want internal reviews and verifications next assertion classification and presentation internal review and verification as part of the control activities and the chart of accounts