The Simple Way to Learn the Eight Audit Assertions
Whether you are CPA candidate or accounting students you need to master the audit assertions.
What are the audit assertions or management assertions?
The audit assertions are the assumptions and expectations that the auditor has about the financial statements and the underlying transactions and events that they represent. These assertions include:
| Existence | Assertion that the assets, liabilities, and equity presented on the financial statements exist and are recorded in the company’s accounting records. |
| Rights and obligations | Assertion that the company has the rights to the assets and the obligations to the liabilities shown on the financial statements. |
| Completeness | Assertion that all transactions and events that should be recorded on the financial statements have been recorded. |
| Valuation and allocation | Assertion that the assets, liabilities, and equity have been recorded at their appropriate values and allocated to the appropriate accounts. |
| Presentation and disclosure | Assertion that the financial statements are presented and disclosed in accordance with the relevant accounting standards. |
| Occurrence | Assertion that the transactions and events recorded on the financial statements have actually occurred. |
| Accuracy and completeness | Assertion that the financial statements are accurate and complete in all material respects |
| Classification and presentation | Assertion that the financial statements are properly classified and presented in accordance with the relevant accounting standards |
Resources to learn the 8 Audit Assertions
Farhat Accounting lectures provide excellent resources to learn and master the audit assertions whether you are an accounting student taking an audit course CPA candidate preparing for the CPA exam.
Click on link to see description of the course.
An audit assertion is a statement made by the management of a company regarding its financial statements. It is the responsibility of the auditor to evaluate the truthfulness and accuracy of these assertions in order to provide an independent opinion on the financial statements. The audit assertions typically relate to the existence, rights, and obligations of the company, as well as the presentation and disclosure of its financial information.
Management assertions are implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements. In most cases they are implied. Adam company. asserts that cash of $827,568 was present in the company’s bank accounts as of the balance sheet date. Unless otherwise disclosed in the financial statements, management also asserts that the cash was unrestricted and available for normal use. Management further asserts that all required disclosures related to cash are accurate and are understandable. Similar assertions exist for each asset, liability, owners’ equity, revenue, and expense item in the financial statements. These assertions apply to classes of transactions and events and related disclosures, and account balances and related disclosures.
Audit Assertions Under PCAOB
Management assertions are directly related to the financial reporting framework used by the company (usually U.S. GAAP or IFRS), as they are part of the criteria that management uses to record and disclose accounting information in financial statements. The definition of auditing in Chapter 1, in part, states that auditing is a comparison of information (financial statements) to established criteria (assertions established according to accounting standards). Auditors must therefore understand the assertions to do adequate audits.
Audit assertions are implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements. In most cases they are implied. Management further asserts that all required disclosures related to cash are accurate and are understandable. Similar assertions exist for each asset, liability, owners’ equity, revenue, and expense item in the financial statements. These assertions apply to classes of transactions and events and related disclosures, and account balances and related disclosures.
Audit assertions are directly related to the financial reporting framework used by the company (usually U.S. GAAP or IFRS), as they are part of the criteria that management uses to record and disclose accounting information in financial statements. Auditors must therefore understand the assertions to do adequate audits.
Examples of Audit assertions
For example, one common audit assertion is the existence of assets. The auditor will review the company’s records and supporting documentation to ensure that all assets listed on the balance sheet actually exist and are properly recorded. This helps to prevent fraudulent reporting of assets, which could impact the accuracy of the financial statements.
Another audit assertion is the valuation of assets. The auditor will evaluate the methods and assumptions used by the company to determine the fair value of its assets, and ensure that they are reasonable and in accordance with generally accepted accounting principles. This is important because the value of assets can impact the financial statements, such as the calculation of net income and the determination of net worth.
Overall, audit assertions provide assurance to stakeholders that the company’s financial information is accurate and reliable, and help to prevent fraudulent reporting.
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