If you have trouble remembering assertions, memorize them. I asked you to do that in the...two lessons ago I believe. But as a reminder, the assertions from which we chose is then was existence, completeness, valuation, rights and obligations, presentation and disclosure. And if we were worried about...if objective 2 had been written a little differently, suppose you would say something like, verify that all gift card balances are recorded at the proper entity, okay? Caribou versus CVS and Walgreens, then you're going to be getting into a rights and obligations assertion. If you want to talk about existence, well that would be all deferred revenues that are recorded and you're trying to ensure that they're not fictitious which relates to this first objective that we took a look at here, verifying that all gift card liabilities are real. It's a little bit strange to call it a liability because it's one of the good liabilities, right? All deferred revenues are real. Now let's take the next step. We've linked it to assertion, and of course the process is RMM assessment, what assertions are with respect to an assertion, then you develop an objective and then you look at what audit procedures to perform. What we're going to look at now is a set of audit procedures, and I want you to think about, which of these procedures would help address the 2 objectives that we just looked at. So let's go through the procedures. Select a sample of sales invoices and match to gift cards sub ledger, or general ledger, to ensure the sale was recorded. That's one. Second one, examine and re-perform management's hindsight analysis of abandonment. What we're looking at, not to make you dizzy, is these 2 objectives. Verifying that unredeemed gift cards are recognized as deferred revenue and not revenue and also verifying that all gift card balances are recorded. So one thing you could do is select a sample of sales, match with the gift cards sub ledger or general ledger to ensure it was recorded. That does sound helpful for that second one, doesn't it? Audit procedure 2, this is if we were worried about breakage in the goal was mostly about breakage we would look at that here, but neither objective 1 nor 2 really would be helped very much by this audit procedure. Another thing we could do is test a sample of gift card balances for unclaimed property compliance. This, again is really related to the abandonment, the breakage idea. It's not really...something that order would maybe want to look at, but this is not really related to those two objectives that we just looked at. Number 4, select a sample of sales invoices and match to gift cards sub ledger or general ledger to ensure the sale was recorded in the proper amount. That's really getting at objective 1. What I'm talking about here, in step 4, what the client could do that would be incorrect is debit cash when the gift card is sold and instead of crediting deferred revenue, book it as revenue right away. So the two objectives verifying that unredeemed gift cards are recognized first as deferred revenue and not revenue. That's very handily addressed by this audit procedure, audit procedure 4. Objective 2, verifying that all gift card balances are in fact recorded. That's very much helped by audit procedure 1. So this lesson, is designed to help you start to see the building blocks of an audit. In conjunction with the prior lesson, we see that you go from assessing the risk of material misstatement, when it is high or medium, the auditor needs to have detection risk be low or medium in order for overall audit risks to be sufficiently low. In order to get the detection risk down to an appropriately low level, the auditor has to be assessing those risks at the assertion level and with every assertion, in the financial statements, there is a corresponding objective that the auditor has for testing at assertion and then there's also a set of procedures that the auditor can perform. Where we will go next is, in later in the course is, they will actually execute these tests, get evidence back from these test, and then assess whether the risk of material misstatement is sufficiently low.
