Also referred to as financial statement assertions or management assertions, audit assertions are used to establish the accuracy of financial statements. Auditors implement tests while performing audits to confirm the validity of these assertions. Our team of expert auditors at GCS Malta outline 8 audit assertions in this article.
Audit Assertions
- Existence
The existence assertion verifies that assets, equity balances, and liabilities exist as stated in the financial statements. Examples of how an auditor would test this assertion may include examining supporting evidence, such as bank statements for any bank balances, or performing a stocktake to verify existence of inventories held as per the Company’s books.
- Occurrence
While similar to existence, the occurrence assertion is used to check that the transactions reflected in the financial statements have taken place. To test occurrence, auditors can select a sample of entries from the sales account and trace the respective sales invoices.
- Accuracy
This assertion looks at specific transactions and seeks to assess the accuracy of the recorded entry amount. Keeping the same example of sales testing, the auditor would check that the amounts recorded in the Company’s books agree with the sample of invoices and/or sales agreements obtained for audit purposes.
- Completeness
Completeness refers to verification that all transactions for the period under review are being appropriately reflected within the financial statements. While occurrence and completeness are very similar in thought, to test for completeness, the procedure would start from the underlying documents to the entries in the relevant ledger to ensure that none have been missed, rather than the other way round.
- Valuation
The valuation assertion checks that assets, equity balances, and liabilities have been valued appropriately. For example, in the case of property, plant, and equipment (PPE), auditors can vouch for the cost to purchase invoices while also assessing the reasonableness of depreciation rates and recalculating depreciation charges.
- Rights & Obligations
This assertion addresses whether the entity has ownership rights or the right to benefit from assets recorded in the financial statements and whether the liabilities presented represent actual obligations of the entity being audited. Proof of these rights and obligations may be obtained by examining any related agreements.
- Classification
Classification assertion verififies that the financial statements follow the appropriate format, are easy to follow, and include all the required information and disclosures. For example, although trade payables, notes payable, and interest payable are all considered payables, these would need to be reported separately.
- Cut-off
Auditors assess whether transactions are recorded in the correct accounting period for the cut-off assertion. For instance, if a sales invoice covers services spanning more than one year, the auditor checks that only that portion of revenue relating to the period under review is being recorded in the entity’s books.
Audit assertions categories
The audit assertions explained above are typically split into 3 different categories:
| Transaction level assertions | Account balance assertions | Presentation & disclosure assertions | |
| Assertion | occurrence, accuracy,
completeness, classification, cut-off |
existence,
completeness, valuation, rights & obligations |
occurrence, completeness, classification |
| Used when | examining journal entries and transactions | examining asset, liability and equity balance | determining appropriate format and clarity |
Why GCS Malta?
At GCS Malta, our team of professional auditors have ample experience in both internal and external auditing. Contact us today for more information on how we can assist you.
