Claims that establish whether or not financial statements are true and fairly represented in auditing Show What are Assertions in Auditing?Assertions are claims that establish whether or not financial statements are true and fairly represented in the process of auditing. Importance of AssertionsAssertions are an important aspect of auditing. Since financial statements cannot be held to a lie detector test to determine whether they are factual or not, other methods must be used to establish the truth of the financial statements. Assertions are defined as “a statement that is believed to be true by the speaker. “An assertion can be anything, e.g., “I assert that fundamental value investing is the best investing philosophy.” However, it is difficult to measure whether the statement is indeed true. Similarly, with financial statements, it is difficult to determine what financial information is free from material misstatement. There are two aspects to material misstatement. Clearly, materiality plays a large role; however, how to measure what information is true and fair or misstated is crucially important. Assertions play a key role in determining what is true and fair when auditing financial records. Assertions in AuditingAssertions are characteristics that need to be tested to ensure that financial records and disclosures are correct and appropriate. If assertions are all met for relevant transactions or balances, financial statements are appropriately recorded. The International Financial Reporting Standards (IFRS) are a set of accounting standards issued by the International Accounting Standards Board (IASB) and the IFRS Foundation aimed towards providing a common set of accounting rules that are consistent, transparent, and comparable internationally. IFRS developed ISA315, which includes categories and examples of assertions that may be used to test financial records. There are two types of assertions, each of which relates to different events: 1. Transaction Level AssertionsTransaction level assertions are made in relation to classes of transactions, such as revenues, expenses, dividend payments, etc. There are five types of transaction-level assertions:
2. Account Balance AssertionsAccount balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity. There are four types of account balance assertions:
3. Presentation and Disclosure AssertionsIt is the third assertion type that can fall under both transaction-level assertions and account balance assertions. It relates to the presentation and disclosure of financial statements. There are four types of presentation and disclosure assertions:
Related Readings Thank you for reading CFI’s guide to Assertions in Auditing. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
What is valuation assertion in audit?The valuation assertion is used to determine that the financial statements presented have all been recorded at the proper valuation. For instance, the reporting of a company's accounts receivable account does not provide a guarantee that the customer will pay the accounts receivable amount owed.
How should an auditor verify the valuation?The auditor should obtain a Schedule of creditors and verify them with the balances of ledger accounts and statements of account received from creditors. 3. He should check the Purchases Book and Purchases Returns Book with the help of invoices, credit notes, etc. He should also check the postings into the Ledger.
What auditing procedure should be performed for investment accounted at fair value?The auditor should test the data used to develop the fair value measurements and disclosures and evaluate whether the fair value measurements have been properly determined from such data and management's assumptions.
What are the relevant assertions for investments?Auditing Investments - A Simple Summary. The primary relevant investment assertions include existence, accuracy, valuation, and cutoff.. Perform a walkthrough of investments by making inquiries, inspecting documents, and making observations.. The directional risk for investments is an overstatement.. |