Financial Statement Assertions

Financial Audit
Financial Statement Assertions

Financial statement assertions are the set of information
that the preparer of financial statements is providing to another party.
Financial statements represent a very complex and interrelated set of
assertions.
There are basically five different financial statement assertions that the
auditors collect to justify each and very item in the financial statement.
Financial statement assertions are classified into the following five:

1. Existence: The assertion on existence is made to check whether the specified
assets and liabilities are present at the given date. It is also required to check
that the transactions that are recorded took place at the specified date. In
order to test these items of the financial statement, it is not sufficient that only
books are consulted which record the assets or the liabilities. There should be
proof of the existence of the physical assets or liability. For checking existence
help
is
also
sought
from
outside.
2. Completeness: Checking completeness of a financial statement is to analyze
whether all the transactions that are already given in the financial statement
are rightfully included. In order to abide by the completeness assertion, the
auditors prove with the help of sufficient evidence that all the recorded
transactions deserve to be included. This is further supported with an external
document so as to provide evidence regarding the occurrence of the
transaction.
3. Valuation: Valuation basically checks whether the different components of
the financial statement have been included in the right proportion. The
components are assets, liabilities, expense and revenue. The auditor does this
with
the
help
of
GAAP.
4. Rights and obligations: This is to check whether the assets that are included
in the financial statement are the rights and the liabilities are the obligations of
the company. In order to ensure this, sometimes special purpose entities are
created.
5. Presentation and Disclosure: This assertion is to ensure whether the items in
the financial statements are classified in the right way. It is important to check
that the account balance is calculated as well as disclosed properly.
Auditors cut these broad assertions into a detailed set of statements

referred to as management assertions, separated into three
categories:
1. Transactions:
Occurrence: The transactions actually took place
Completeness: All transactions that should have been recorded have
been recorded
Accuracy: The transactions were recorded at the appropriate amounts.
Authorization: All transactions were properly authorized
Cutoff: The transactions have been recorded in the correct accounting
period
Classification:
The transactions have been recorded in the proper
accounts
2. Accounts balances:
Existence: Assets, liabilities and equity balances exist
Rights and Obligations: The entity holds or controls the rights to its
assets and owes obligations to its liabilities
Completeness:
All assets, liabilities and equity balances that should
have been recorded have been recorded
Valuation and Allocation:
Assets, liabilities and equity balances are
included in the financial statements at appropriate amounts and any
resulting valuation or allocation adjustments are appropriately
recorded.
3. Presentation and disclosure:
Occurrence: The transactions have occurred
Rights and Obligations: The transactions pertained to the entity
Completeness: All disclosures that should have been included in the
financial statements have been included
Classification and Understandability:
Financial statements are
appropriately presented and described, and information in disclosures
is clearly expressed.
Accuracy and Valuation: Financial and other information is disclosed
fairly and at appropriate amounts.
Substantive tests performed by the auditor consist of tests of details of

transactions and tests of details account balances, and analytical procedures.
The objective of substantive tests is to detect material misstatements in the
financial statements.
The auditor selects particular substantive tests to achieve audit objectives and
considers, among other things, the risk of material misstatement of the
financial statements.
The ten commonly used audit techniques:
Physical Examination
Confirmation
Vouching
Tracing
Reperformance
Observation
Reconciliation
Inquiry
Inspection
Analytical Procedures

Financial Statement Assertions

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What are the five financial statement assertions?

What are the three categories that auditors cut the broad assertions into?

Financial Audit

Financial Statement Assertions

Financial statement assertions are classified into the following five:

Auditors cut these broad assertions into a detailed set of statements

Substantive tests performed by the auditor consist of tests of details of

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