03-02-2010, 09:00 PM
There are numbers of headings in the financial statements, eg Revenue, expenditure, non-current assets, inventories, payables etc
For each of these items in the financial statements, the management is making assertions
Assertions like the factory is owned by the company, the company has an obligation to pay debt, has a right towards recievable, the expenses occured during the year etc etc
Therefore Auditors need evidence that these assertions are valid
The financial statement assertions are as follows
=> <u>Classes of transactions(income statement) assertions</u>
Occurence- did the transaction take place?
completeness-are all transactions that should have been included, actually included?
Accuracy- The amounts and other data related to recorded transactions have been recorded appropriately
Cut-off- transactions and events have been recorded in the correct accounting period
Classification- transactions and events have been recorded in the proper accounts
=><u>Account balances at year end(balance sheet) assertions</u>
Existence- assets, liabilities and equity exist
Rights and obligations- the company has a right to hold or control the asset and liabilities are obligations of the company
Completeness- All assets, liabilities and equity interest that should have been recorded have actually been recorded
Valuations and allocations- assets, liabilities and equity interest are recorded at appropriate amounts and any valuations or allocations are appropriately recorded
=> <u>Assertions about presentation and disclosure</u>
Occurence and rights and obligations-disclosed events, transactions and events have occured and belong to the entity
Completeness-All disclosures that should have been included in the financial statements have been included
Classification and understandability-Financial information is appropiately presented and described, and disclosures are understandable
Accuracy and valuation- Information is disclosed at accurate and appropiate amount
Example
For a balance sheet item inventory, the directors are asserting in the financial statements that
Existence- the inventory really exists
Rights- the company has a right towards the inventory
Completeness- All of the inventory has been recorded
valuation- The inventory has been recorded at appropriate amounts
I hope you have understood
For each of these items in the financial statements, the management is making assertions
Assertions like the factory is owned by the company, the company has an obligation to pay debt, has a right towards recievable, the expenses occured during the year etc etc
Therefore Auditors need evidence that these assertions are valid
The financial statement assertions are as follows
=> <u>Classes of transactions(income statement) assertions</u>
Occurence- did the transaction take place?
completeness-are all transactions that should have been included, actually included?
Accuracy- The amounts and other data related to recorded transactions have been recorded appropriately
Cut-off- transactions and events have been recorded in the correct accounting period
Classification- transactions and events have been recorded in the proper accounts
=><u>Account balances at year end(balance sheet) assertions</u>
Existence- assets, liabilities and equity exist
Rights and obligations- the company has a right to hold or control the asset and liabilities are obligations of the company
Completeness- All assets, liabilities and equity interest that should have been recorded have actually been recorded
Valuations and allocations- assets, liabilities and equity interest are recorded at appropriate amounts and any valuations or allocations are appropriately recorded
=> <u>Assertions about presentation and disclosure</u>
Occurence and rights and obligations-disclosed events, transactions and events have occured and belong to the entity
Completeness-All disclosures that should have been included in the financial statements have been included
Classification and understandability-Financial information is appropiately presented and described, and disclosures are understandable
Accuracy and valuation- Information is disclosed at accurate and appropiate amount
Example
For a balance sheet item inventory, the directors are asserting in the financial statements that
Existence- the inventory really exists
Rights- the company has a right towards the inventory
Completeness- All of the inventory has been recorded
valuation- The inventory has been recorded at appropriate amounts
I hope you have understood
