Audit and Assurance Practice Exam

The assertion that is relevant to whether the cash balances reflect the true underlying economic value of those assets is valuation or allocation. This assertion focuses specifically on assessing whether the recorded amounts of assets accurately represent their fair value in accordance with relevant accounting principles. For cash balances, valuation is particularly important because it ensures that the amounts reported are not only correct in terms of mathematical accuracy but also that they truly reflect the current economic conditions, such as any impairment or necessary adjustments due to foreign currency fluctuations or interest rates. If cash is reported at an amount that does not represent its fair economic value, it could mislead users of the financial statements regarding the company’s actual financial position. While existence deals with whether the cash balances actually exist, rights and obligations concern the ownership of those cash balances, and completeness addresses whether all cash transactions and balances have been recorded, none of these directly assess whether the recorded values reflect their economic reality, which is precisely what the valuation or allocation assertion targets.