Financial Statement Assertions

[kertaskajang]

Hi friends,

I have difficulties in understanding the concept of the financial statement assertions.

What does financial statement assertions means?

What does it means by " the auditor needs to use assertions for;

1.Classes of transactions
2.Account balances
3.Presentation and disclosure

Could u help me with regards of using assertions in Auditing for these areas:

(i) Receivables
(ii) Inventories
(iii) Liabilities and capital
(iv) cash and bank
(v) Non-current assets

Thanks for everything. Have a nice day.

[Acid]

What does financial statement assertions means?

They are statements or representations which directors of company's personnel make in the financial statements i.e. If they say that they have Inventory of $1000 then they are making an financial assertion.


What does it means by " the auditor needs to use assertions for;

1.Classes of transactions
2.Account balances
3.Presentation and disclosure


These are types of assertions which directors/personnels make .
Class of transactions i.e. They have 100 of current assets and $400 of liability. Asset and Liability are class of transactions.

Account balances are the figures of 100 and 400 above. i.e. the company tells the auditor that they have this much balance in respect of assets and liabilities

Presentation and disclosure are the notes and other info which are provided in FS by auditors. Whatever they say in respect of pres. and discl. are known as assertions they make in that respect.

Auditors need to verify that these assertions are true and fair or not.

I hope this helps.

[Dazy]

Hi,

Acid has given appropriate answer for the first part of your query. I agree with him.

Regarding the second part, hope this will help you:

Receivables

Completeness – verify whether all the sales are properly recorded and review receivables register
Valuation & allocation – Test invoice recording, obtain aging analysis, verify bad debts and other old receivables.
Existence – confirm the balances with customer’s account statement, subsequent receipts may be tested
Rights and obligations – Test customer’s purchase orders, proof of delivery of goods and sales invoices

Non-current assets

Occurrence – verify purchase invoices, documents of title (sale deed of premises etc)
Completeness – match the register of non-current assets with the trial balance, the register of charges should be verified regarding the details of securities for loans
Valuation, allocation and accuracy – verify the invoices to confirm the date of acquisition and value of asset, so that depreciation calculation will be correct subsequently.
Classification – verify respective ledger account. Scrutinise repairs account to see if any asset have been misclassified
Understandability – balance sheet schedule should be cross checked with trial balance


This is just a brief explanation to understand you how to apply the assertions to find the adequate audit evidence. You can apply assertions to the other areas also in the similar manner.

Chapter E1 in GTG textbook deals in detail with all the above concepts.

All the best.:redface: