What are Management Assertions in Auditing?
Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used concerning auditing a company’s financial statements, where the auditors rely upon various assertions regarding the business.
The auditors test the validity of these assertions by conducting several audit tests. Management assertions in auditing fall into the following 3 classifications;
Transaction-Level Assertions in Auditing
The following five items are classified as assertions related to transactions, mostly regarding the income statement:
Occurrence
All transactions and events that have been recorded have occurred and pertain to the entity.
Completeness
All transactions and events should have been recorded.
Accuracy
Amounts and other data relating to recorded transactions and events have been recorded appropriately.
Cutoff
Transactions and events have been recorded in the correct accounting period.
Classification
Transactions and events have been recorded in the proper accounts.
Account Balance Assertionsin in Auditing
The following four items are classified as assertions related to the ending balances in accounts and so relate primarily to the balance sheet:
Existence
Assets, liabilities, and equity interests exist.
Rights and obligations
The entity holds or controls the rights to assets, and liabilities are the entity’s obligations.
Completeness
All assets, liabilities, and equity interests should have been recorded.
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 in Auditing
The following four 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.
Completeness
All disclosures that should have been included in the financial statements have been included.
Classification and understandability
Financial information is appropriately presented and described, and disclosures are clearly expressed.
Accuracy and valuation
Financial and other information are disclosed fairly and at appropriate amounts.