Assertions or management assertions in audit or auditing simply means what management claims. For example, if a management states that internal controls are effective then it is a claim or assertion made by management. Show
Assertions and International Standard on Auditing (ISA) ISA points out that in preparing financial statements make direct or indirect assertions regarding the recognition, measurement, presentation of elements of financial statements and disclosures made in the financial statements. If these assertions are correct then financial statements will automatically be reliable. ISA categorizes the different assertions in three categories which are further classified as follows: 1. Assertions about classes of transactions: A. Occurrence: transactions and events so recorded in the financial statements actually occurred and relates to the same period. B.Completeness: all such transactions and events that required recording have been recorded C.Accuracy: transactions and ancillary information have been recorded with accurate amounts D.Cutoff: only those transactions and events have been recorded that pertains to the accounting period under consideration F.Classification: transactions and events have been recorded in the related accounts properly 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 AssertionsAssertions 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 AuditingAssertions 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 AssertionsTransaction 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:
2. Account Balance AssertionsAccount balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity. There are four types of account balance assertions:
3. Presentation and Disclosure AssertionsIt 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:
Related Readings Thank you for reading CFI’s guide to Assertions in Auditing. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
What are the assertions for transactions and events?Transactions include sales, purchases, and wages paid during the accounting period. Account balances include all the asset, liabilities and equity interests included in the statement of financial position at the period end.
Which of the following assertions is about account balances at the period end?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.
What are the 7 assertions of audit?There are numerous audit assertion categories that auditors use to support and verify the information found in a company's financial statements.. Existence. ... . Occurrence. ... . Accuracy. ... . Completeness. ... . Valuation. ... . Rights and obligations. ... . Classification. ... . Cut-off.. Which assertion relates to the following statement transactions and events have been recorded in the correct accounting period?The completeness assertion relates to whether all transactions and events that occurred during the period have been recorded. ***Opposite of occurrence assertion... failure to complete is to leave an account understated... Someone has left something out on purpose.
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