Learn about audit assertions – the claims that financial statements are fairly represented. Explore transaction-level, account balance, and presentation & disclosure assertions.
What is Audit Assertion? It’s one of the basic questions that is being asked or come to the mind during the Audit. If we look the Oxford dictionary for the meaning of ‘ASSERTION’ we will found ‘A statement that you strongly believe is true’.
In Audit also, Auditor need to present true and fair view on financial statements. But how will they do so? As we all know, financial statement is compiled summary statement prepared by Management which does not carry transactions details so even management need assurance. Process of preparing financial statements starts much before the preparation of financial statements like recording of each and every financial transactions then preparing trail balance and the finally financial statements which is Balance sheets and Profit & Loss Accounts.
So, coming to our topic, Assertion is a kind of claim that financial statement or particular transaction has been fairly represented in all respect. Auditor need to perform procedures to test the validity of management assertions and to provide independent opinion. Below are Audit assertions that used to test financial transaction whether it is at the level of Transaction, Account balance or presentation and disclosure:
1. Occurrence
2. Completeness
3. Valuation
4. Rights & Obligations
5. Presentation and Disclosure.
Let’s understand each one of above at their individual level-
1. Transaction level Assertions: Transaction level assertions applies at the classes of transaction like revenue, expenses etc. while recording. So while Auditing or more precisely while doing VOUCHING in audit we are actually doing this. When we see the transaction level voucher we check and verify follows-
1. Occurrence
2. Completeness
3. Accuracy
4. Cut-off and
5. Classification
While VOUCHING when we see the invoice/ bill copy which verify that transaction has actually taken place, when we further see that this transaction has been recorded, we check the Completeness, when it is accurately reflecting in the Financial statements, that’s accuracy, when we further check cut-off by checking that it is accurately recorded in the correct period and when it is appropriately represented it’s verify classification.
2. Account Balance Assertions: It applies to balance sheet items, such as assets, liabilities and equity. So basically it verifies that whatever items coming under these heads are correct. Assets, liability and equity balance exists which verify existence. All relevant transaction under these heads has been recorded is Completeness. Organisation have rights against the Assets and Obligation against the Liability is Rights & Obligations and finally these items has been correctly valued is Valuation.
3. Presentation and Disclosure Assertions: It basically relates with the presentation and disclosure of financial statements:
When transactions, balances and relevant records are disclosed accurately and at appropriate valuations that is Accuracy & Valuation. When transactions are accurately and properly classified that is Classification. When all transaction are recorded and completed then it is Completeness and similarly if all transaction are occurred and belongs to the entity it’s Occurrence.
Finally, in a lucid manner it may be understood and concluded from above that Assertion is a verification of the claim for the relevant class of transaction, balance and presentation that it is complete in all respect.
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(Writer is a professional, may be reached at mishramco@gmail.com. This write up is for academic purpose only and views expressed are personal in nature).
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