Follow us on LinkedIn
Companies and business report their performance for a period using financial statements. When preparing these statements, their management makes several claims. During the audit process, auditors must verify those claims. Based on this verification, they must reach a conclusion in the form of an audit opinion. This process relates to the concept of assertions in auditing.
What are Assertions in auditing?
Assertions are claims made in the financial statements. In most cases, these include two statements, namely the balance sheet and the income statement. Each of them holds specific information. In the case of the balance sheet, it involves account balances at a specified time. On the other hand, the income statement reports financial transactions for a particular period.
Essentially, assertions are claims to establish whether the financial statements are true and fair. These claims are crucial in preparing financial statements. The audit report concludes if financial statements present a true and fair view. Therefore, auditors must examine the assertions made in the financial statements. Based on that examination, they can prepare their audit report.
What are the types of Assertions in auditing?
The types of assertions in auditing fall under two categories. These include claims relating to account balance and transactions and events. In some cases, they may also involve a third category which generalizes assertions for disclosures and presentation. However, they usually get classified under the former two categories.
The assertions under each category are below.
Account balances
There are six assertions related to account balances and related disclosures at the period end. As mentioned above, these apply to the balance sheet. An explanation of what each of these assertions involves is as below.
Accuracy, valuation, and allocation
This assertion includes three claims as follows.
- Account balances in the financial statements are reported at appropriate amounts.
- Any resulting valuation or allocation adjustments have been appropriately recorded.
- The related disclosures have been appropriately measured and described.
Classification
Account balances have been recorded in the proper accounts.
Completeness
All account balances reflect amounts that should have been recorded.
Existence
All account balances actually exist.
Presentation
The descriptions and disclosures of account balances are relevant and easy to understand
Rights and obligations
The reporting entity holds or controls the rights to assets, and liabilities include obligations of the entity.
Transactions and events
There are six assertions related to transactions and events and related disclosures for a period. Unlike the above, these claims relate to the income statement. An explanation of each of these assertions is below.
Accuracy
Amounts and other data have been recorded to reflect the appropriate amounts for transactions.
Classification
Transactions and events have been recorded in the proper accounts.
Completeness
All transactions and events reflect amounts that should have been recorded.
Cut-off
Transactions and events reflect the correct accounting period to which they relate.
Occurrence
The recorded and disclosed transactions and events have actually occurred and relate to the entity.
Presentation
The descriptions and disclosures of transactions and events are relevant and easy to understand
Conclusion
Assertions are claims made by the management when preparing financial statements. These claims are critical in reporting information to reflect a true and fair view. In auditing, assertions are crucial for auditors to conclude their opinion of the financial statements. These assertions differ based on the type of information. Usually, they fall under assertions for accounts balances and transactions and events.
Further questions
What's your question? Ask it in the discussion forum
Have an answer to the questions below? Post it here or in the forum
![Yellen 'probably done' when Biden ends term, may meet Chinese counterpart soon](https://i-invdn-com.investing.com/trkd-images/LYNXMPEK86091_L.jpg)
Hillary Clinton said Kamala Harris should lean into her background as a prosecutor to make a case against Trump during their upcoming debate.
![Vista Outdoor's Board of Directors Comments on Public Communication from MNC Capital](https://i-invdn-com.investing.com/news/World_News_9_M_1440052127.jpg)
![Georgia Tech to end China partnerships following concerns over military ties](https://i-invdn-com.investing.com/trkd-images/LYNXMPEK850SG_L.jpg)