Management assertions

From Wikipedia, the free encyclopedia

In a financial audit, management assertions or financial statement assertions is the set of information that the preparer of financial statements (management) is providing to another party. Financial statements represent a very complex and interrelated set of assertions. At the most aggregate level, the financial statements include broad assertions such as "total liabilities as at 31 December are $50 million", "total revenue for the year is $9 million" and "net income for the year is $3 million".

Auditors decompose 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
    • Cutoff — the transactions have been recorded in the correct accounting period
    • Classification — the transactions have been recorded in the proper accounts
  2. Accounts:
    • 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 is appropriately presented and described, and information in disclosures in clearly expressed.
    • Accuracy and Valuation — financial and other information is disclosed fairly and at appropriate amounts.

[edit] References

  • Knechel, Salterio and Ballou (2007). Auditing: Assurance & Risk, 3rd, Thompson South-Western.