Management Assertions
Management is responsible for the preparation of financial statements that give a true and fair view, but
what does this really mean?
For each item in the financial statements, management is making assertions.
The auditors need evidence that these financial statements are valid!
‘In representing that the financial statements are in accordance with the applicable financial reporting
framework, management implicitly or explicitly makes assertions regarding the recognition,
measurement and presentation of classes of transactions and events, account balances and
disclosures’.
Consequently, auditors use these assertions when considering the potential types of misstatements
that may occur and when designing and performing appropriate audit procedures.
Transactions include sales, purchases, and wages paid during the accounting period.
Account balances include all the asset, liabilities and equity interests included in the statement of
financial position at the period end.
ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity
and Its Environment identifies the following assertions:
1. Assertions about classes of transactions and events and related disclosures for the period under
audit
2. Assertions about account balances and related disclosures at the period end
Page | 88
, Assertions about classes of transactions and events and related disclosures for the period under audit
1. Occurrence – the transactions and - This means that the transactions recorded or disclosed
events that have been actually happened and relate to the entity. For example,
recorded or disclosed, have that a recorded sale represents goods which were
occurred, and such transactions ordered by valid customers and were dispatched and
and events pertain to the entity. invoiced in the period. An alternative way of putting this
is that sales are genuine and are not overstated.
- Relevant test – select a sample of entries from the sales
account in the nominal ledger and trace to the
appropriate sales invoice and supporting goods
dispatched notes and customer orders.
2. Completeness – all transactions - No omission
and events that should have been
recorded have been recorded and - Relevant test – select a sample of customer orders and
all related disclosures that should check to despatch notes and sales invoices and the
have been included in the posting to the sales account in the nominal ledger.
financial statements have been
included. Note the difference in the direction of the above test. In
order to test completeness, the procedure should start from
the underlying documents and check to the entries in the
relevant ledger to ensure none have been missed. To test for
occurrence the procedures will go the other way and start
with the entry in the ledger and check back to the supporting
documentation to ensure the transaction actually happened.
3. Accuracy – amounts and other - This means that there have been no errors while
data relating to recorded preparing documents or in posting transactions to
transactions and events have ledgers. The new reference to disclosures being
been recorded appropriately, and appropriately measured and described means that the
related disclosures have been figures and explanations are not misstated.
appropriately measured and
described. - Relevant test – calculation checks on invoices, payroll,
etc.
4. Cut–off – transactions and events - That transactions are recorded in the correct accounting
have been recorded in the correct period.
Page | 89
Management is responsible for the preparation of financial statements that give a true and fair view, but
what does this really mean?
For each item in the financial statements, management is making assertions.
The auditors need evidence that these financial statements are valid!
‘In representing that the financial statements are in accordance with the applicable financial reporting
framework, management implicitly or explicitly makes assertions regarding the recognition,
measurement and presentation of classes of transactions and events, account balances and
disclosures’.
Consequently, auditors use these assertions when considering the potential types of misstatements
that may occur and when designing and performing appropriate audit procedures.
Transactions include sales, purchases, and wages paid during the accounting period.
Account balances include all the asset, liabilities and equity interests included in the statement of
financial position at the period end.
ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity
and Its Environment identifies the following assertions:
1. Assertions about classes of transactions and events and related disclosures for the period under
audit
2. Assertions about account balances and related disclosures at the period end
Page | 88
, Assertions about classes of transactions and events and related disclosures for the period under audit
1. Occurrence – the transactions and - This means that the transactions recorded or disclosed
events that have been actually happened and relate to the entity. For example,
recorded or disclosed, have that a recorded sale represents goods which were
occurred, and such transactions ordered by valid customers and were dispatched and
and events pertain to the entity. invoiced in the period. An alternative way of putting this
is that sales are genuine and are not overstated.
- Relevant test – select a sample of entries from the sales
account in the nominal ledger and trace to the
appropriate sales invoice and supporting goods
dispatched notes and customer orders.
2. Completeness – all transactions - No omission
and events that should have been
recorded have been recorded and - Relevant test – select a sample of customer orders and
all related disclosures that should check to despatch notes and sales invoices and the
have been included in the posting to the sales account in the nominal ledger.
financial statements have been
included. Note the difference in the direction of the above test. In
order to test completeness, the procedure should start from
the underlying documents and check to the entries in the
relevant ledger to ensure none have been missed. To test for
occurrence the procedures will go the other way and start
with the entry in the ledger and check back to the supporting
documentation to ensure the transaction actually happened.
3. Accuracy – amounts and other - This means that there have been no errors while
data relating to recorded preparing documents or in posting transactions to
transactions and events have ledgers. The new reference to disclosures being
been recorded appropriately, and appropriately measured and described means that the
related disclosures have been figures and explanations are not misstated.
appropriately measured and
described. - Relevant test – calculation checks on invoices, payroll,
etc.
4. Cut–off – transactions and events - That transactions are recorded in the correct accounting
have been recorded in the correct period.
Page | 89
