Management Assertions

International Standards on Auditing deals with audit assertion in details.

ISA 315 (IDENTIFYING AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT THROUGH UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT) defines assertion as representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements that may occur.

ISA 200 deals with components of audit risks that occure on the level of assertion.

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. Bir P (1975) "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 (Income statement):
   • 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 balances (Balance sheet):
   • 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 are clearly expressed.
   • Accuracy and Valuation — financial and other information is disclosed fairly and at appropriate amounts.