Business, Legal & Accounting Glossary
Existence is 1 of 5 audit assertions presented by Statement of Auditing Standards No. 31 (SAS 31).
SAS 31 states, “Assertions about existence or occurrence deal with whether assets or liabilities of the entity exist at a given date and whether recorded transactions have occurred during a given period.”
Unlike audit procedures for other assertions such as Completeness, the Existence & Occurrence assertion requires the auditor to go beyond what has already been recorded on the journal and general ledger. Outside of blind faith, there is now way to determine whether assets or liabilities exist without some manner of outside confirmation.
An example of a matter for which existence can be reasonably assured only through an outside party is a legal confirmation (see confirmation). During the auditor’s initial interviews with the client’s management, the management may very well fail to disclose a contingent liability. If that possible liability is a strict liability settlement that later materializes into an amount that consequentially misstates the final draft of the [[financial statement, it is the auditor’s responsibility for not having contacted the client’s retained legal parties.
Inventory observations are an auditor’s staple for confirming the existence of inventory. It involves the auditor travelling to the storage and/or manufacturing facilities of a client’s operation to determine the physical existence of the inventory as of that date. For this reason, inventory counts are generally completed on or very near the reporting date. As with a legal or other type of confirmation, it is the only way an auditor can base reliance on the true nature of things. Management may omit or include such matters and transactions from its books at will.
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This glossary post was last updated: 23rd April, 2020 | 17 Views.