To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor’s opinion is based. Certain representations in management assertions auditing this letter are described as being limited to matters that are material. It’s critically important for all transactions in a given accounting period to be recorded properly.
All disclosures that should have been included in the financial statements have been included. Salaries and wages cost recognized during the period relates to the current accounting period. Any accrued and prepaid expenses have been accounted for correctly in the financial statements. 9/ AU sec. 333, Management Representations, establishes requirements regarding written management representations, including confirmation of management responses to oral inquiries. In examining the nine different types of audit assertions, it’s useful to break them out by category, based on their functions and the evidence used to confirm their veracity and completeness. Issued by the International Accounting Standards Board (IASB), the purpose of the IFRS is to provide a consistent, comprehensive set of transparent and globally applicable accounting auditing standards.
Account Balance Assertions:
Completeness, like existence, may examine bank statements and other banking records to determine that all deposits that have been made for the current period have been recorded by management on a timely basis. Auditors may also look for any deposits in the bank that have not been recorded. The entity holds or controls the rights to assets, and liabilities are the entity’s obligations.
For example, if you claim in your management assertion that every employee receives annual cybersecurity awareness training, the auditor must be able to validate that claim by reviewing documentation such as completion certificates. In this article, we will discuss the nature and the usage of each assertion as well as how important it is for management and auditors. At the end of this article, you can also see the summary of all assertions and their usages. 12/ If misstatements are identified in the selected items, see paragraphs and paragraphs of Auditing Standard No. 14. The following auditing standard is not the current version and does not reflect any amendments effective on or after December 31, 2016.
Assertions in Auditing
All transactions that were supposed to be recorded have been recognized in the financial statements. This description presents [COMPANY NAME]’s controls, the applicable Trust Services Criteria, and the types of complementary subservice organization controls assumed in the design of [COMPANY NAME]’s controls. This description does not disclose the actual controls at the subservice organizations. In simple terms, the management assertion tells the auditor how everything is supposed to work so they can evaluate whether that’s how it actually works. The auditor’s final report essentially agrees or disagrees with management’s claims. This is why a management assertion is so important — and why it needs to be as accurate as possible.
Lastly, classification assertions relate to the proper categorization of transactions in the appropriate accounts. Auditors scrutinize these assertions by examining supporting documentation, reviewing transactional workflows, and performing analytical procedures to ensure that the transactions are presented fairly in the financial statements. Relevant tests – auditors often use disclosure checklists to ensure that financial statement presentation complies with accounting standards and relevant legislation. These cover all items (transactions, assets, liabilities and equity interests) and would include for example confirming that disclosures relating to non–current assets include cost, additions, disposals, depreciation, etc. The preparation of financial statements is the responsibility of the client’s management.
Transaction-Level Assertions
The use of assertions therefore forms a critical element in the various stages of a financial statement audit as described below. Management assertions are primarily used by the external auditors at the time of audit of the company’s financial statements. To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements. Certain terms are used in the illustrative letter that are described elsewhere in authoritative literature. Examples are fraud, in AS 2401, Consideration of Fraud in a Financial Statement Audit, and related parties,
in AS 2410, Related Parties.
By gaining this understanding, auditors can identify the types of potential misstatements and the factors that may affect the risk of their occurrence. This knowledge informs the design and implementation of audit procedures tailored to the entity’s context. Assertions related to transactions primarily deal with the daily activities that affect the financial statements. These include assertions of occurrence, where management claims that the transactions recorded have actually taken place during the given period. Completeness is another assertion, ensuring that all transactions that should have been recorded are indeed reflected in the financial statements. Accuracy is concerned with the appropriate recording of transaction amounts, while cut-off assertions verify that transactions are recorded in the correct accounting period.
