Management assertions are claims made by members of management regarding certain aspects of a business.
The concept is primarily used concerning the audit of a company’s financial statements, where the auditors rely upon a variety of assertions regarding the business. The auditors test the validity of these assertions by conducting several audit tests.
Management assertions fall into the following 3 classifications;
The following five items are classified as assertions related to transactions, mostly regarding the income statement:
All transactions and events that have been recorded have occurred and pertain to the entity.
All transactions and events that should have been recorded.
Amounts and other data relating to recorded transactions and events have been recorded appropriately.
Transactions and events have been recorded in the correct accounting period.
Account Balance Assertions
The following four items are classified as assertions related to the ending balances in accounts, and so relate primarily to the balance sheet:
Assets, liabilities and equity interests exist.
Rights and obligations
The entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
Valuation and allocation
Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
Presentation and Disclosure Assertions
The following five items are classified as assertions related to the presentation of information within the financial statements, as well as the accompanying disclosures:
Occurrence and rights and obligations
Disclosed events and transactions have occurred and pertain to the entity.
All disclosures that should have been included in the financial statements have been included.
Classification and understandability
Accuracy and valuation
Financial and other information are disclosed fairly and at appropriate amounts.