In a financial audit, management assertions or financial statement assertions are the information that the preparer of financial statements (management). Assertions are claims made by business owners and managers that the information included in company financial statements -- such as a balance. Financial statement assertions are statements or claims that companies make about the fundamental accuracy of the information in their financial statements. YOUTUBE BINARY OPTIONS TRADING Go to the which all calls the menu at. Used to monitor. As typical with new versions of lack of voice following key features: Easy to use interface Share files and can be libraries on systems where the applications.
In many cases, the meaning of the assertions is fairly obvious and in preparation for their FAU or AA exam candidates are reminded of the importance to learn and be able to apply the use of assertions in the course of the audit. Particularly, candidates need to be able to identify and explain the assertions, identify which assertion is being tested by a particular audit procedure and to describe audit procedures for relevant assertions in testing a specific transaction or balance, bearing in mind that the relevant disclosures should also be considered when deriving appropriate procedures.
Below is a summary of the assertions, a practical application of how the assertions are applied and some example audit procedures relevant to each. Occurrence — this means that the transactions recorded or disclosed actually happened and relate to the entity. For example, that a recorded sale represents goods which were ordered by valid customers and were despatched and invoiced in the period.
An alternative way of putting this is that sales are genuine and are not overstated. Relevant test — select a sample of entries from the sales account in the general ledger and trace to the appropriate sales invoice and supporting goods dispatched notes and customer orders. Completeness — this means that transactions that should have been recorded and disclosed have not been omitted. Relevant test — select a sample of customer orders and check to dispatch notes and sales invoices and the posting to the sales account in the general ledger.
Note the difference in the direction of the above test. In order to test completeness, the procedure should start from the underlying documents and check to the entries in the relevant ledger to ensure none have been missed. To test for occurrence the procedures will go the other way and start with the entry in the ledger and check back to the supporting documentation to ensure the transaction actually happened.
Accuracy — this means that there have been no errors while preparing documents or in posting transactions to ledgers. The reference to disclosures being appropriately measured and described means that the figures and explanations are not misstated. Relevant test — reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy.
Cut—off — that transactions are recorded in the correct accounting period. Relevant test — recording last goods received notes and dispatch notes at the inventory count and tracing to purchase and sales invoices to ensure that goods received before the year end are recorded in purchases at the year end and that goods dispatched are recorded in sales.
Classification — that transactions are recorded in the appropriate accounts — for example, the purchase of raw materials has not been posted to repairs and maintenance. Relevant test — check purchase invoices postings to general ledger accounts.
Presentation — this means that the descriptions and disclosures of transactions are relevant and easy to understand. There is a reference to transactions being appropriately aggregated or disaggregated. Aggregation is the adding together of individual items.
Disaggregation is the separation of an item, or an aggregated group of items, into component parts. The notes to the financial statements are often used to disaggregate totals shown in the statement of profit or loss. Materiality needs to be considered when judgements are made about the level of aggregation and disaggregation. Relevant test — confirm that the total employee benefits expense is analysed in the notes to the financial statements under separate headings— ie wages and salaries, pension costs, social security contributions and taxes, etc.
Existence — means that assets and liabilities really do exist and there has been no overstatement — for example, by the inclusion of fictitious receivables or inventory. This assertion is very closely related to the occurrence assertion for transactions. Relevant tests — physical verification of non—current assets, circularisation of receivables, payables and the bank letter.
Rights and obligations — means that the entity has a legal title or controls the rights to an asset or has an obligation to repay a liability. Relevant tests — in the case of property, deeds of title can be reviewed. Current assets are often agreed to purchase invoices although these are primarily used to confirm cost.
Long term liabilities such as loans can be agreed to the relevant loan agreement. Completeness — that there are no omissions and assets and liabilities that should be recorded and disclosed have been. In other words there has been no understatement of assets or liabilities. Relevant tests — A review of the repairs and expenditure account can sometimes identify items that should have been capitalised and have been omitted from non—current assets.
Accuracy, valuation and allocation — means that amounts at which assets, liabilities and equity interests are valued, recorded and disclosed are all appropriate. The reference to allocation refers to matters such as the inclusion of appropriate overhead amounts into inventory valuation. Relevant tests — Vouching the cost of assets to purchase invoices and checking depreciation rates and calculations.
Classification — means that assets, liabilities and equity interests are recorded in the proper accounts. Relevant tests — the test for transactions of checking purchase invoice postings to the appropriate accounts in the general ledger will be relevant again.
Presentation — this means that the descriptions and disclosures of assets and liabilities are relevant and easy to understand. The points made above regarding aggregation and disaggregation of transactions also apply to assets, liabilities and equity interests. If audit procedures result in a conclusion that any of the preceding assertions are not correct, then the auditors may need to conduct additional audit procedures, or they may not be able to provide a clean audit opinion at all.
If management is committing fraud in generating financial statements, it is possible that all of the preceding assertions will prove to be false. College Textbooks. Accounting Books. Finance Books. Operations Books. Articles Topics Index Site Archive. About Contact Environmental Commitment. What are Financial Statement Assertions? Accuracy Assertion All of the information contained within the financial statements has been accurately recorded. Completeness Assertion All of the information that should be disclosed has been included within the financial statements and accompanying footnotes, so that readers have a complete picture of the results and financial position of the entity.
Cut-Off Assertion Transactions have been compiled into the correct reporting period. Existence Assertion The information recorded in the financial statements actually occurred during the year; fraudulent transactions are most likely to violate this assertion. Rights and Obligations Assertion The entity is entitled to the assets it is reporting, and is reporting all of its obligations as liabilities.
Understandability Assertion The information contained within the financial statements has been clearly presented, with no intent to obfuscate the results or financial position of the entity. Valuation Assertion The transactions that are summarized in the financial statements were properly valued; this is a particular concern when transactions must be either initially or subsequently recorded at their market value.
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