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Week 3, Discussion Question 3
What are the key management assertions related to equity? What are the most
important assertions related equity? How will auditors test these assertions?
Presentation & Disclosure: High or Maximum: Some companies use equity instruments that
are in economic substance debt. These should not be included in shareholders’ equity. The
auditor will often perform tests of details to evaluate the quality and accuracy of financial
statement classifications and disclosures.
Rights & Obligations: High: An important inherent risk represents understanding the
collateral that may be pledged as security for a loan. The auditor will usually directly confirm
equity transactions and balances with the registrar or transfer agent.
Existence & Occurrence: Moderate: The existence of recorded equity transactions and
balances is not a significant inherent risk. The auditor will usually directly confirm equity
transactions and balances with the registrar or transfer agent.
Completeness: Moderate: There is only a modest risk associated with unrecorded equity
transactions. The auditor will usually directly confirm equity transactions and balances with
the registrar or transfer agent.
Valuation or Allocation: Moderate: The valuation of recorded equity is not high. The
calculations associated with equity are not complex. The auditor will usually directly confirm
equity transactions and balances with the registrar or transfer agent.

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Week 3, Discussion Question 3 What are the key management assertions related to equity? What are the most important assertions related equity? How will auditors test these assertions? Presentation & Disclosure: High or Maximum: Some companies use equity instruments that are in economic substance ...
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