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Audit Assertions

Audit assertions and procedures allow auditors to test internal controls, policies, and financial reporting processes. There are five key assertions: presentation and disclosure ensure compliance with standards; existence or occurrence verify assets and transactions; rights and obligations confirm ownership and obligations; completeness ensures all required reports are included; and valuation or allocation properly appraise assets and allocate costs. Audit procedures indicate steps to test controls and account balances.

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Yasin Zahedi
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238 views

Audit Assertions

Audit assertions and procedures allow auditors to test internal controls, policies, and financial reporting processes. There are five key assertions: presentation and disclosure ensure compliance with standards; existence or occurrence verify assets and transactions; rights and obligations confirm ownership and obligations; completeness ensures all required reports are included; and valuation or allocation properly appraise assets and allocate costs. Audit procedures indicate steps to test controls and account balances.

Uploaded by

Yasin Zahedi
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Audit Assertions

Audit assertions and procedures allow an auditor to carry out testing activities on a business
organization’s internal controls, policies or guidelines and financial reporting processes.
Assertions relate to financial statement tests, and include presentation and disclosure, existence
or occurrence, rights and obligations, completeness and valuation or allocation. Audit procedures
indicate steps in testing internal controls and financial account balances.

1. Presentation and Disclosure


Presentation ensures that a business entity’s financial statements are reported in
accordance with generally accepted accounting principles and industry standards.
Accurate presentation means that accounts are reported in specific ways in financial
statements–for example, short- and long-term. Disclosures provide supplemental
information to a reader of financial reports.

2. Existence or Occurrence
Existence tests check whether an asset or a liability can be verified physically. For
example, an auditor might verify the existence of stock inventories at warehouses.
Occurrence tests could inform an auditor about the date and place a business transaction
happened.

3. Rights and Obligations


An auditor tests whether a business entity has rights to its assets–what it owns–or has
legal obligations for its liabilities–what it owes. For example, an auditor might verify a
bond agreement to confirm Company ABC’s debt.

4. Completeness
Completeness in financial reporting means that a business entity’s financial statements
include four reports: a balance sheet, a statement of profit and loss, a statement of cash
flows and a statement of stockholders’ equity.

5. Valuation or Allocation
Valuation tests check whether a corporation appraises its assets or liabilities properly. For
instance, an auditor might ask how Company XYZ values its real-estate assets.
Allocation techniques could relate to how a business entity allocates costs to products,
segments or time periods.

Operating Environment Knowledge


An auditor understands an organization’s operating environment by reading corporate policies
and guidelines, departmental procedures and segment-level standards. An auditor also could
acquire such knowledge by reading industry publications, inquiring from external auditors and
reading prior years’ reports.

Control Knowledge
An auditor acquires knowledge about controls existing in a process, or in an area under review,
by discussing with a variety of experts–such as accountants, risk managers, tax specialists and
traders. For example, an auditor might ask a risk manager to explain the process for calculating a
bond option’s price.

Control Testing
An audit specialist applies generally accepted auditing standards (GAAS) to ensure that internal
controls, processes and procedures are “adequate” and “effective.” Adequate controls explain in
detail steps involved in task performance and decision-making processes. Effective controls
remedy deficiencies properly.

Tests of Account Balances


An auditor test account balances when a business entity’s control environment is not adequate or
effective. For example, an audit specialist reviewing Insurance and Co.’s premiums receivable
balances might assess whether premium amounts are computed properly.

Tests of Account Details


An auditor conducts detailed tests of accounts and account groups to ensure that individual
account balances agree with financial statement balances. For example, an auditor might review
individual policyholders’ accounts to verify that the sum of these accounts agree with amounts
reported on an insurance company’s balance sheet.

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