Auditing Assignment: What is Assertion ?

What is Assertion ?

According to Oxford dictionary, it defines that an assertion as a confident and forceful statement of fact or belief. It is same as stating an opinion or making a claim.

Management assertion is required to be made or claims from company executives to the public regarding certain aspects of business. In order to audit the financial statements of a company, auditors will rely on many classifications of assertion about the business and test management’s assertions and form an opinion to which the attest to the public.

There are three classifications of management assertions : transaction and events for the period under audit, account balances at the period end as well as presentation and disclosures. Firstly, assertions that related to transactions and events, mostly found in the income statement for the period under audit :

Classification - All transactions and events have been recorded within the proper account in the general ledger.
Occurrence – Transactions and events that have been recorded that actually occurred and pertain to the entity.
Completeness - All business transactions and events that should have been recorded.
Accuracy – Amounts and other data that related to record transactions and events have been record appropriately.
Cutoff - All transactions were recorded within the correct accounting period.

Besides that, assertions that related to the account ending balances and primarily to the balance sheet at the period end :

Completeness - All reported assets, liabilities, and equity interests have been fully reported.
Existence - All account balances exist for assets, liabilities, and equity interests.
Rights and obligations - The entity hold or controls the rights to the assets it owns and is obligated under its reported liabilities.
Valuation - All assets, liabilities, and equity equity interests are included in financial statements have been recorded at their proper valuations.

Last but not least, assertions that related to the presentation of information within the financial statements, as well as the accompanying disclosures:

Accuracy and valuation - All information disclosed is in the correct amounts, and which reflect their proper values.
Completeness - All transactions that should be included in financial sattements ave been included.
Occurrence - The assertion is that disclosed transactions have indeed occurred.
Rights and obligations - The assertion is that disclosed rights and obligations actually relate to the reporting entity.
Understandability and classification - All information included in the financial statements has been appropriately presented and is clearly understandable.

Each assertion type is intended for a different aspect of the financial statements, with the first set related to the income statement, the second set to the balance sheet, and the third set to the accompanying disclosures.

If the auditor is unable to obtain a letter containing management assertions from the senior management of a client, the auditor is unlikely to proceed with audit activities. One reason for obtaining the letter is because management has engaged in fraud in producing the financial statements.