The Use of Assertions in Obtaining AuditThe Use of Assertions in Obtaining Audit Evidence

The Use of Assertions in Obtaining Audit Evidence

19 Those charged with governance are responsible for the fair presentation of a financial report that reflects the nature and operations of the entity. In representing that the financial report gives a true and fair view (or is presented fairly, in all material respects) in accordance with the applicable financial reporting framework, those charged with governance and management implicitly or explicitly make assertions regarding the recognition, measurement, presentation and disclosure of the various elements of a financial report and related disclosures.

20 The auditor shall use assertions for classes of transactions, account balances, and presentation and disclosures in sufficient detail to form a basis for the assessment of risks of material misstatement and the design and performance of further audit procedures.

21 Under paragraph 20 of this Auditing Standard, the auditor needs to use assertions in assessing risks by considering the different types of potential misstatements that may occur, and thereby designing audit procedures that are responsive to the assessed risks. Other Auditing Standards, such as ASA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, ASA 330 The Auditor’s Procedures in Response to Assessed Risks, ASA 501 Existence and Valuation of Inventory and ASA 505 External Confirmations, discuss specific situations where the auditor is required to obtain audit evidence at the assertion level.

22 Assertions used by the auditor fall into the following categories:

(a) Assertions about classes of transactions and events for the period under audit:

(i) Occurrence - transactions and events that have been recorded have occurred and pertain to the entity.

(ii) Completeness - all transactions and events that should have been recorded have been recorded.

(iii) Accuracy - amounts and other data relating to recorded transactions and events have been recorded appropriately.

(iv) Cut-off - transactions and events have been recorded in the correct accounting period.

(v) Classification - transactions and events have been recorded in the proper accounts.

(b) Assertions about account balances at the period end:

(i) Existence - assets, liabilities, and equity interests exist.

(ii) Rights and obligations - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.

(iii) Completeness - all assets, liabilities and equity interests that should have been recorded have been recorded.

(iv) Valuation and allocation - assets, liabilities, and equity interests are included in the financial report at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.