Audit assertions are the building blocks of management’s claims regarding the truth and fairness of the transactions, balances, disclosures, and other information in the financial statement.

While auditing financial statements, the auditor is liable to ensure each assertion applicable to the relevant information gives a true and fair view. So, if auditors are satisfied with assertions regarding sufficient and appropriate audit evidence, a clean audit opinion is issued and vice versa.

Assertions related to transactions, events, and related disclosures

Following are the assertions related to transactions, events & related disclosures given in the financial statement.

1. Occurrence- refers to all transactions recorded in the financial statement that actually occurred and pertain to the entity being audited.
2. Completeness– It refers to recording all transactions in the financial statement. In other words, no transaction related to business remains unrecorded.
3. Accuracy– It’s about the appropriateness of the transactions recorded in the financial statement. 
4. Classification– It’s about posting transactions in the correct chart of accounts.
5. Cut off—This refers to recording transactions in the correct accounting period in accordance with the applicable financial reporting framework.
6. Presentation—This means all the relevant disclosure/information was disclosed in an easy-to-understand format and structure, as per the applicable financial reporting framework.

Assertions related to account balances and related disclosure

Following are the assertions related to balances and disclosures in the financial statement.

1. Existence refers to the real existence of different balances in the financial statement, such as assets, liabilities, and equity.
2. Completeness– Refers to recording transactions that should have been recorded in the financial statement.
3. Accuracy– refers to the appropriateness of transactions recorded in the financial statement.
4. Classification refers to selecting the correct chart of accounts while posting entries in the accounting system.
5. Presentation refers to a clear, contextual description of related disclosures in an understandable form that is in accordance with the applicable financial reporting framework.  

How do you audit assertions related to income statements?

Let’s discuss how to audit assertions in the income statement.

1. Occurrence—It’s audited to ensure only sales/expenses that were actually incurred were recorded. A relevant test is to trace source documents like invoices, dispatch/receiving notes, etc.
2. Completeness—The auditing purpose is to ensure that all business transactions were recorded. A relevant test is tracing sales orders with the invoices posted.
3. Accuracy—This assertion’s auditing purpose is to ensure there has been no error in the accounting records. Relevant tests are recalculation, reperformance, reconciliation, etc.
4. Cut off – The testing aims to ensure accounting transactions are recorded in the correct accounting period. A relevant test ensures sales are recorded during the dispatch period.
5. Classification—The testing purpose is to ensure accounting transactions are posted in the correct chart of accounts. A relevant test is to go through the accounts selected while posting.
6. Presentation—This assertion means disclosures and descriptions of the transactions are easy and relevant. The relevant test is to analyze the relevant notes separately.

How to audit assertions related to the balance sheet?

Let’s discuss how to audit assertions related to the balance sheet can be tested.

1. Existence—Tis assertion states the assets and liabilities recorded in the balance sheet haven’t been overstated. The relevant tests are physical verification, bank confirmation, receivable circulation, etc.
2. Completeness—The purpose of this testing is to ensure there have been no omissions while recording assets, liabilities, and equity. A relevant test is to review the account for fixed assets and compare the receiving notes and payable statement with the recorded balances.
3. Rights and obligations—This assertion means the entity has rights on the recorded assets, and its obligation is to pay recorded liabilities. The relevant test for assets is reviewing property documents and deeds, etc. For liabilities, the relevant test is reviewing the loan facility agreement, etc.
4. Accuracy, valuation, and allocation—This assertion refers to recording the appropriate value of the assets and liabilities in the financial statement.
5. Classification—This assertion concerns recording assets, liabilities, and equity in the appropriate chart of accounts. A relevant test is reviewing transactions posted in the chart of accounts to identify any discrepancies.
6. Presentation—This assertion means the description and disclosure are relevant, easy, and to the point. The relevant test is to go through the disclosure checklist in accordance with the accounting standard and confirm disclosures related to non-current assets.

Wrap up

Assertions are the building blocks of management claims related to the accuracy and completion of the financial statement.

The assertions for an income statement include occurrence, completeness, accuracy, cutoff, classification, and presentation.

For the balance sheet, the assertion includes existence, completeness, rights & obligations, accuracy, valuation & allocation, classification, and presentation, etc.