Why do auditors use assertions?

 

Assertions are representations by management that are embodied in the financial statements and used by the auditor to consider the different types of potential misstatements that may occur.

Assertions may fall into the following categories:

Assertions about classes of transactions and events, and related disclosures, for the period under audit:

·        Occurrence—transactions and events that have been recorded or disclosed have occurred, and such transactions and events are related to the company.

·        Completeness—all transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included.  

·        Accuracy—amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described.

·        Cutoff—transactions and events have been recorded in the correct accounting period.

·        Classification—transactions and events have been recorded in the proper accounts.

·        Presentation—transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.

 

 Assertions about account balances, and related disclosures, at the period end

·        Existence—assets, liabilities and equity interests exist.

·        Rights and obligations—the company holds or controls the rights to assets, and liabilities are the obligations of the company.

·        Completeness—all assets, liabilities and equity interests that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included.

·        Accuracy, valuation and allocation—assets, liabilities and equity interests have been included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measured and described.

·        Classification—assets, liabilities and equity interests have been recorded in the proper accounts.

·        Presentation—assets, liabilities and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.

 The auditor determines relevant assertions and the significant classes of transactions, account balances and disclosures.  This provides the basis for the auditor’s understanding of the company’s information system and assists in identifying and assessing risks of material misstatement.  

ISA 315