Question

Consider the following substantive procedures. For each substantive procedure, select the assertion(s) for which the substantive procedure is designed to detect misstatements. You may use an assertion below more than once. Confirm equity transactions with the company's registrar or transfer agent. Is it all equity assertions or completeness of long-term debt or existence and completeness of long-term debt or existence, completeness, and valuation and allocation of equity or occurrence, accuracy, cutoff, and classification debt or occurrence, completeness, accuracy, cutoff, and classification of equity or occurrence, accuracy, and cutoff of debt transactions or occurrence and rights and obligations for debt.

Answer 1

The substantive procedure of confirming equity transactions with the company's registrar or transfer agent is designed to primarily address the "existence" and "completeness" assertions for equity.

Existence Assertion:

Confirming equity transactions helps ensure that the reported equity actually exists. By directly verifying with the registrar or transfer agent, the auditor seeks evidence that the equity transactions claimed by the company are valid and occurred.

Completeness Assertion:

The confirmation process also contributes to addressing completeness. It involves verifying that all relevant equity transactions have been recorded and disclosed in the financial statements. Confirmations from the registrar or transfer agent help identify any unrecorded or undisclosed equity transactions.

While existence and completeness are the primary assertions addressed by this procedure, it indirectly provides support for the "valuation and allocation" assertion for equity. Confirmations help ascertain whether the reported values of equity are accurate and appropriately allocated in the financial statements.

In contrast, the substantive procedure does not directly address assertions related to long-term debt. The confirmation of equity transactions is specific to equity and does not provide evidence regarding the occurrence, accuracy, cutoff, and classification of debt transactions.