Professional Documents
Culture Documents
1. What is Assertions?
-Existence: In this assertion auditors’ job is to find the existence of assets & liabilities
that are shown in the financials. For example- If there is inventrory of
100,000 shown in balance sheet then auditor have to verify its existence.
-Occurrence: any transaction that is recorded in the financials have been taken place or
not.
-Accuracy: All the transactions recorded are accurate or not. To find that auditor need
to verify it from bills or relevant vouchers etc.
-Valuations: all the assets & liabilities shown in financials are recorded as per proper
valuation methods or not.
-Rights & Obligations: to check that all the assets, liabilities and equity are the
property of company or not.
-Classifications: all the transactions, assets & liabilities shown in under the relevant
head or sub-head or not.
-Cut-off: all the transactions and balances are recorded in the appropriate accounting
period.
Transaction assertions
Occurrence – this means that the transactions recorded or disclosed actually happened
and relate to the entity. For example, that a recorded sale represents goods which were
ordered by valid customers and were despatched and invoiced in the period. An alternative
way of putting this is that sales are genuine and are not overstated.
Relevant test – select a sample of entries from the sales account in the general ledger and
trace to the appropriate sales invoice and supporting goods dispatched notes and customer
orders.
Completeness – this means that transactions that should have been recorded and
disclosed have not been omitted.
Relevant test – select a sample of customer orders and check to dispatch notes and sales
invoices and the posting to the sales account in the general ledger.
Note the difference in the direction of the above test. In order to test completeness, the
procedure should start from the underlying documents and check to the entries in the
relevant ledger to ensure none have been missed. To test for occurrence the procedures will
go the other way and start with the entry in the ledger and check back to the supporting
documentation to ensure the transaction actually happened.
Accuracy – this means that there have been no errors while preparing documents or in
posting transactions to ledgers. The reference to disclosures being appropriately measured
and described means that the figures and explanations are not misstated.
Relevant test – reperformance of calculations on invoices, payroll, etc, and the review of
control account reconciliations are designed to provide assurance about accuracy.
Relevant test – recording last goods received notes and dispatch notes at the inventory
count and tracing to purchase and sales invoices to ensure that goods received before the
year end are recorded in purchases at the year end and that goods dispatched are recorded in
sales.
statement of profit or loss. Materiality needs to be considered when judgements are made
about the level of aggregation and disaggregation.
Relevant test – confirm that the total employee benefits expense is analysed in the notes to
the financial statements under separate headings– ie wages and salaries, pension costs,
social security contributions and taxes, etc.
Existence – means that assets and liabilities really do exist and there has been no
overstatement – for example, by the inclusion of fictitious receivables or inventory. This
assertion is very closely related to the occurrence assertion for transactions.
Rights and obligations – means that the entity has a legal title or controls the rights to
an asset or has an obligation to repay a liability.
Relevant tests – in the case of property, deeds of title can be reviewed. Current assets are
often agreed to purchase invoices although these are primarily used to confirm cost. Long
term liabilities such as loans can be agreed to the relevant loan agreement.
Completeness – that there are no omissions and assets and liabilities that should be
recorded and disclosed have been. In other words there has been no understatement of
assets or liabilities.
Relevant tests – A review of the repairs and expenditure account can sometimes identify
items that should have been capitalised and have been omitted from non–current assets.
Reconciliation of payables ledger balances to suppliers’ statements is primarily designed to
confirm completeness although it also gives assurance about existence.
Relevant tests – Vouching the cost of assets to purchase invoices and checking
depreciation rates and calculations.
Classification – means that assets, liabilities and equity interests are recorded in the
proper accounts.
Relevant tests – the test for transactions of checking purchase invoice postings to the
appropriate accounts in the general ledger will be relevant again. Also that research
expenditure is only classified as development expenditure if it meets the criteria specified in
IAS® 38 Intangible Assets.
Audit Interview Questions
Presentation – this means that the descriptions and disclosures of assets and liabilities are
relevant and easy to understand. The points made above regarding aggregation and
disaggregation of transactions also apply to assets, liabilities and equity interests.
Relevant tests – auditors often use disclosure checklists to ensure that financial statement
presentation complies with accounting standards and relevant legislation. These cover all
items (transactions, assets, liabilities and equity interests) and would include for example
confirming that disclosures relating to non–current assets include cost, additions, disposals,
depreciation, etc.