Alan Kerstetter

ACCTG 403W

Problem 6-30

When auditing a companys financial statements, there are eight general

balance-related audit objectives for the audit of any balance sheet account. These
eight are categorized as existence, completeness, accuracy, classification, cutoff,
detail tie-in, realizable value, and rights and obligations. The balance-related audit
objectives assist auditors with accumulating sufficient appropriate evidence related
to account balances. These objectives are also usually applied to the ending
balances of accounts on the companys balance sheet.
The first general balance-related audit objective is existence, which concerns
whether the amount included on the balance sheet account should actually exist;
therefore, this objective is concerned with overstatements. When applying this
objective to a companys property, plant, and equipment a specific balance related
object concerning existence would be making sure all of the fixed assets physically
exist and are being used for the purpose intended. Next, the general balancerelated audit objective is completeness, which deals with whether all amounts that
should have been included are actually included in the financial statements. This
objective is concerned with any understatements. A specific balance-related audit
objective would consist of verifying that there are no unrecorded fixed assets in
use.
The objective of accuracy concerns the amounts being included on the
companys books at the correct arithmetic amounts. This objective is part of the
valuation and allocation assertion for account balances. An example of this

Alan Kerstetter

ACCTG 403W

Problem 6-30

objective being applied to specific accounts such as property, plant equipment

would be verifying that these assets are recorded at their correct amounts.
Classification is the objective that concerns whether items included on a clients
listing are included in the correct general ledger accounts. This objective is also
another part of the valuation and is closely related to the presentation and
disclosure objective since the general ledger account balances are the accounts
presented and disclosed in the financial statements. For example, a specific
classification balance-related objective would consist of verifying that expense
accounts do not contain amounts that should have been capitalized. If no
capitalized items are expensed then they will be classified correctly and will effect
the financial statements correctly.
The cutoff objective involves testing for the cutoff date of account balances,
thus determining whether the transactions are recorded and included in account
balances in the proper accounting period. Account balances are most likely
misstated by transactions recorded near the end of the accounting period, since
the cutoff date is the date of the balance sheet of an annual audit. This objective
is also part of valuation. A specific balance-related objective for the cutoff objective
would be making sure cash disbursements or accrual transactions for property,
plant, and equipment items are recorded in the proper accounting period. The
detail tie-in objective, which is another part of valuation, deals with whether or not
summary amounts from sub-ledger accounts are accurately prepared, correctly
added, and agree with the total in the general ledger. A specific detail tie-in
balance related objective for an auditor for example could be tying sub-ledger

Alan Kerstetter

ACCTG 403W

Problem 6-30

accounts for property, plant, and equipment to the general ledger and verifying
that the figure agree with one another.
Another part of the valuation assertion is the realizable value objective,
which concerns whether an account balance has been reduced for declines from
historical cost to the net realizable value. This objective only applies to asset
accounts. Two specific balance-related objectives for the realizable value objective
include confirming that depreciation has been determined in accordance with an
acceptable method and is computed correctly or confirming that fixed asset
accounts have been properly adjusted for declines in historical cost on the
companys books.
Most assets must be owned before they are considered to be acceptable to
be included in a companys financial statements; therefore, the last balancerelated audit objective is the rights and obligation objective. This concerns
liabilities as well, since they also must belong to the entity to be included in their
financial statements. For example a specific balance-related audit objective would
be verifying that a company has a valid title or the contractual rights for the use of
equipment owned or leased on their financial statements.
All of the balance-related audit objectives, except valuation, have a one-onone relationship with managements assertions; valuation is more complex and is
broken down into five separate audit objectives. The balance-related audit objects
all directly correspond to the related specific balance-related objectives, thus
meaning that once general balance-related objectives are developed the related

Alan Kerstetter

ACCTG 403W

Problem 6-30

specific balance-related objectives for each account balance on the financial

statements can then be developed.