Management Assertions

A company’s auditor checks the business activities , internal processes and policy guidelines and the various financial reporting statements. Assertions allow the auditor to test the financial activities of the company. Management assertionsmeans the claims made by the management of the company by the publication of financial reports for the users.

Management must work within the framework of the international reporting(IFRS, GAAP) and industry standards to prepare the financial statements. International Standards on Auditing(ISA) 315 Provides all the necessary information and provision on the direct or indirect assertions that are made in financial statements.

According to International Standards of auditing (315) Assertion is defined as � representations made by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur.�

Depending on the Audit procedure auditor obtains bank confirmation, take balance sheet items and test the individual items in the ledger balance and perform testing. Audit checks the assertions so as to check the fair reporting of financial details.

Audit Assertion is of 3 types:
For Profit & Loss Account and Income Statement ( Transaction Assertion)
For Balance Sheet (Account Balance Assertion)
Presentation and Disclosure Assertion.
Transaction Assertion
Completeness: All transactions and events are recorded.
Occurrence: Transactions and events are recorded in the financial statements as they occurred and within the time period.
Cutoff : Transactions and events coming within the accounting period are recorded.
Accuracy : All transactions and events are recorded with accurate amount.
Classification: Transaction and events are recorded in proper accounts.

Account Balance Assertion:
Completeness : All assets, liabilities need to be recorded in the financial statements.
Right & Obligation : All assets and liabilities must have right of ownership and obligation related to the institutions.
Existence : All the assets, liabilities and other items that appear in the financial statement must actually exist.
Valuation : All assets and liabilities are valued and allocated properly and represented in financial statements.

Presentation and Disclosure Assertion :
These assertions ensure that the financial statements are reported in accordance with international reporting and industry standards. All the necessary information need to be presented in the financial statements.
Completeness : All the information need to be recorded that has some significane.
Occurrence : All the transactions and events that actually occurred need to be mentioned in the financial statement.
Right & Obligation : All transactions must show the entity account.
Classification : All transactions need to be properly classified and presented in proper financial statements.
Accuracy : The information need to be accurate.

When the auditor tests the financial statements of a company they usually test it with assertions . Other than the above mentioned assertions auditors need to have a wworking knowledge of indusrty reporting style and the internal working of the company . These includes :

Operating Environment Knowledge
Auditor need to understand the operating environment of the company by reading the policies and guidelines , procedures and reporting parties. They need to understand the industry reporting system.

Control Knowledge
Auditor need to have understanding about the control processes within the company and how proper calculations are done in the company.

Control Testing
An Auditor need to test the internal control processes to check their effectiveness against the industry standards

Account Balance Test
An auditor tests the account balances of the company to ensure that they are properly represented and verified.

Account Details Tests
An auditor tests the account details to ensure that the individual account balance match with the financial statement balances.
Auditor check all these financial statements to ensure that they are accurate and necessary details are included in it for the benefit of the users.

Last Updated on : 18th June 2013

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