What is meant by Assertions in audit or auditing?

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.

Similarly, it is primarily the responsibility of the management of the entity to prepare financial statements in which all the assets, liabilities, incomes, expenses etc are recognized, measured, presented and disclosed in accordance with the applicable financial reporting framework (for example, international accounting standards) or in other words it is the responsibility of the management to prepare such financial statements that give true and fair view of the business.

When such financial statements are prepared, published and made available to the users of the financial statements then it means management has taken care of recognition and measurement principle and information has been presented and disclosed appropriately so that financial statements are giving true and fair view of the business.

These claims of management which are automatically understood as a result of publication of financial statements are known as management’s assertions.

Example
When an investor holds published financial statements in his hands and looks at the inventory with its monetory value given against it, then it relies on such value because he assumes that as it is the responsibility of the management to prepare true and fair view therefore, management has done the correct valuation of the year ended inventory. And by publishing the financial statements management has made the assertion that the value of inventory is correct! This is management’s assertion or simply assertion.

Assertions and International Standard on Auditing (ISA) 315

ISA 315 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 315 categorizes the different assertions in three categories which are further classified as follows:

  1. Assertions about classes of transactions and events:
    1. Occurrence: transactions and events so recorded in the financial statements actually occurred and relates to the same period.
    2. Completeness: all such transactions and events that required recording have been recorded
    3. Accuracy: transactions and ancillary information have been recorded with accurate amounts
    4. Cutoff: only those transactions and events have been recorded that pertains to the accounting period under consideration
    5. Classification: transactions and events have been recorded in the related accounts properly
  2. Assertions about account balances at the period end:
    1. Existence: all the assets, liabilities and other interests that appear in the financial statements actually exist.
    2. Rights and obligations: the assets presented in the financial statements are actually assets for which entity holds the ownership right or has all the necessary controls the right to use the asset. Similarly, the liabilities recorded are actually the obligations of the entity.
    3. Completeness: all the assets, interests and obligations of the entity that required recording have been recorded in the financial statements
    4. Valuation and allocation: all the assets, obligations and equity interests have been valued appropriately and if any allocation was need than it has been done already.
  3. Assertions about presentation and disclosure:
    1. Occurrence and rights and obligations: transactions, events and the related or other matters disclosed in the financial statements actually occurred.
    2. Completeness: all the necessary disclosures that required recording have been recorded.
    3. Classification and understandability: financial information in the financial statement has been presented appropriately with clear expression of disclosures to the extent possible to help users of financial statements.
    4. Accuracy and valuation—financial or non-financial information is disclosed in the financial statements fairly.

5 COMMENTS

  1. From my own point of view

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