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Inhaltsverzeichnis Show

What are Management Assertions?
Transaction-Level Assertions
Account Balance Assertions
Presentation and Disclosure Assertions
What are Assertions in Auditing?
Importance of Assertions
Assertions in Auditing
What assertion does confirmations test?
What is verification of assets explain the main objectives of verification of assets?
What are the 5 financial statement assertions?
What is the procedure for verification of assets?

What are Management Assertions?

Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used in regard to the audit of a company's financial statements, where the auditors rely upon a variety of assertions regarding the business. The auditors test the validity of these assertions by conducting a number of audit tests. Management assertions fall into the following three classifications.

Transaction-Level Assertions

The following five items are classified as assertions related to transactions, mostly in regard to the income statement:

Accuracy. The assertion is that the full amounts of all transactions were recorded, without error.
Classification. The assertion is that all transactions have been recorded within the correct accounts in the general ledger.
Completeness. The assertion is that all business events to which the company was subjected were recorded.
Cutoff. The assertion is that all transactions were recorded within the correct reporting period.
Occurrence. The assertion is that recorded business transactions actually took place.

Account Balance Assertions

The following four items are classified as assertions related to the ending balances in accounts, and so relate primarily to the balance sheet:

Completeness. The assertion is that all reported asset, liability, and equity balances have been fully reported.
Existence. The assertion is that all account balances exist for assets, liabilities, and equity.
Rights and obligations. The assertion is that the entity has the rights to the assets it owns and is obligated under its reported liabilities.
Valuation. The assertion is that all asset, liability, and equity balances have been recorded at their proper valuations.

Presentation and Disclosure Assertions

The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:

Accuracy. The assertion is that all information disclosed is in the correct amounts, and which reflect their proper values.
Completeness. The assertion is that all transactions that should be disclosed have been disclosed.
Occurrence. The assertion is that disclosed transactions have indeed occurred.
Rights and obligations. The assertion is that disclosed rights and obligations actually relate to the reporting entity.
Understandability. The assertion is that the information included in the financial statements has been appropriately presented and is clearly understandable.

There is a fair amount of duplication in the types of assertions across the three categories; however, each assertion type is intended for a different aspect of the financial statements, with the first set related to the income statement, the second set to the balance sheet, and the third set to the accompanying disclosures.

If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements.

Claims that establish whether or not financial statements are true and fairly represented in auditing

What are Assertions in Auditing?

Assertions are claims that establish whether or not financial statements are true and fairly represented in the process of auditing.

Importance of Assertions

Assertions are an important aspect of auditing. Since financial statements cannot be held to a lie detector test to determine whether they are factual or not, other methods must be used to establish the truth of the financial statements.

Assertions are defined as “a statement that is believed to be true by the speaker. “An assertion can be anything, e.g., “I assert that fundamental value investing is the best investing philosophy.”

However, it is difficult to measure whether the statement is indeed true. Similarly, with financial statements, it is difficult to determine what financial information is free from material misstatement.

There are two aspects to material misstatement. Clearly, materiality plays a large role; however, how to measure what information is true and fair or misstated is crucially important.

Assertions play a key role in determining what is true and fair when auditing financial records.

Assertions in Auditing

Assertions are characteristics that need to be tested to ensure that financial records and disclosures are correct and appropriate. If assertions are all met for relevant transactions or balances, financial statements are appropriately recorded.

The International Financial Reporting Standards (IFRS) are a set of accounting standards issued by the International Accounting Standards Board (IASB) and the IFRS Foundation aimed towards providing a common set of accounting rules that are consistent, transparent, and comparable internationally.

IFRS developed ISA315, which includes categories and examples of assertions that may be used to test financial records.

There are two types of assertions, each of which relates to different events:

1. Transaction Level Assertions

Transaction level assertions are made in relation to classes of transactions, such as revenues, expenses, dividend payments, etc.

There are five types of transaction-level assertions:

Occurrence: Transactions that are recognized in the financial records as having occurred, i.e., did it really happen?
Completeness: Transactions that are completed and supposed to be recorded have been recognized in the financial statements, i.e., did it include all transactions?
Accuracy: Transactions have been accurately reflected within the financial statements at appropriate amounts, i.e., have correct prices, quantities, and calculations been used?
Cut-off: Transactions that have been recognized in correct and relevant accounting time periods.
Classification: Transactions have been classified properly and fairly presented in the financial statements.

2. Account Balance Assertions

Account balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity.

There are four types of account balance assertions:

Existence: The assets, equity balances, and liabilities exist at the period ending time.
Completeness: The assets, equity balances, and the liabilities that are completed and supposed to be recorded have been recognized in the financial statements.
Rights and Obligations: The entity has ownership rights or the right to benefit from recognized assets on the financial statements. Liabilities recognized in the financial statements represent the actual obligations of the entity.
Valuation: The assets, equity balances, and liabilities have been valued appropriately.

3. Presentation and Disclosure Assertions

It is the third assertion type that can fall under both transaction-level assertions and account balance assertions. It relates to the presentation and disclosure of financial statements.

There are four types of presentation and disclosure assertions:

Accuracy and Valuation: Transactions, balances, and other financial records have been disclosed accurately and at the appropriate valuations.
Classification and Understandability: Transactions, events, balances, and other financial records have been classified properly and presented in a clear manner that promotes understandability to the users of the financial statements.
Completeness: Transactions, events, balances, and other financial records have been disclosed completely within the financial statements.
Occurrence: Transactions, events, balances, and other financial records have occurred and are related to the entity.

What assertion does confirmations test?

Confirmation requests can be designed to elicit evidence that addresses the completeness assertion: that is, if properly designed, confirmations may provide evidence to aid in assessing whether all transactions and accounts that should be included in the financial statements are included.

What is verification of assets explain the main objectives of verification of assets?

Objectives of Verification are: To show correct valuation of assets and liabilities. To know whether the balance sheet exhibits a true and fair view of the state of affairs of the business. To find out the ownership and title of the assets. To find out whether assets were in existence.

What are the 5 financial statement assertions?

There are five assertions, including accuracy and valuation, existence, completeness, rights and obligations, and presentation and disclosure.

What is the procedure for verification of assets?

According to Joseph Lancaster “Verification of assets is a process by which the auditor substantiates the accuracy of the right-hand side of the Balance Sheet, and must be considered as having three distinct objects : (a) the verification of the existence of assets (b) the valuation of assets and (c) the authority of ...