Which relevant assertions apply to account balances at the end of the period?
Businesses and nonprofits regularly prepare their balance sheet, income statement, etc. at the end of an accounting period to provide a clear, correct, and complete record of their financial standing. These documents are useful not only for strategic planning and forecasting, but for auditors, who rely on the organizations they audit to be truthful. Show
Making sure the audit assertions in your company’s financial statements are honest and accurate will help you navigate audits more quickly and efficiently, ensure you comply with all applicable financial reporting regulations, and give your planning team, investors, and other stakeholders a clear picture of your company’s performance and financial health. What are Audit Assertions?Organizations of all sizes and types, from megacorporations to small businesses to nonprofits, prepare financial statements they are obliged to prepare and present as transparently and accurately as possible when audited. Public companies, for example, are required by law to have an annual audit of their financial statements. Also known as management assertions or financial statement assertions, audit assertions are the claims made by management certifying the financial statements presented are complete and accurate. They may be explicit (i.e., stated directly) or implicit (i.e., implied rather than directly stated). The goal for companies making such assertions is to minimize (or, ideally, avoid) the risk of material misstatement by failing to provide financial data that is, in fact, complete and accurate. For certified public accountants (CPAs) and other auditors, determining the veracity of these assertions involves testing various aspects of the financial records and disclosures. Should the auditors collect appropriate audit evidence to confirm the company’s financial statements pass these tests, the company can be confident their disclosures are complete, accurate, and compliant with accounting standards such as the International Financial Reporting Standards (IFRS). Issued by the International Accounting Standards Board (IASB), the purpose of the IFRS is to provide a consistent, comprehensive set of transparent and globally applicable accounting auditing standards. When performing an audit of financial statements, auditors follow the IASB’s ISA 315 standards to ensure they’ve followed the proper risk assessment procedures—and develop testing protocols for both internal controls and substantive procedures in addition to verifying the accuracy, organization, and completeness of financial information recorded for the accounting period being audited.
The Nine Types of Audit AssertionsIn examining the nine different types of audit assertions, it’s useful to break them out by category, based on their functions and the evidence used to confirm their veracity and completeness. Generally speaking, you can sort them into three master groups, with some degree of overlap between the three: Transaction-Level Assertions are used when reviewing transaction data and journal entries. They include:
Account Balance Assertions are used to examine assets and liabilities, along with equity totals. They include:
Presentation and Disclosure Assertions are used to confirm data is clear, complete, and in the correct format. They include:
Let’s take a closer look at each of the different assertion types and how they work. 1. AccuracyWhen testing for accuracy, auditors compare specific records to the actual associated transactions. Examples include:
2. ClassificationIn addition to the financial data under review, auditors also consider the actual financial statements to ensure they are clear, include the appropriate related disclosures, and are formatted in accordance with accounting standards and the law. Examples include:
3. CompletenessIt’s critically important for all transactions in a given accounting period to be recorded properly. When confirming completeness, auditors verify that this is the case. Examples include:
4. Cut-OffAs with completeness, auditors use cut-off to determine transactions are recorded within the proper accounting period. Cut-off has special significance when reviewing payroll and inventory levels. Examples include:
5. ExistenceThis assertion confirms the liabilities, assets, and equity balances recorded in a financial statement actually (you guessed it) exist. The auditor is required to collect whatever evidence is necessary to establish a connection between the values on the document and their real world counterparts. Examples include:
6. OccurrenceSimilar to existence, occurrence is used to verify that recorded transactions have actually occurred. Examples include:
7. Rights and ObligationsAuditors use this assertion to confirm assets, liabilities, and equity recorded in a company’s financial statements actually belong to that same company. Examples include:
8. UnderstandabilityFinancial statements are of limited utility if they’re not readily understood by stakeholders. Testing this assertion confirms data is presented in a way that provides crystal-clear accessibility with regard to the parties, account balances, and related disclosures involved in all transactions for a given accounting period. Examples include:
9. ValuationAuditors use the valuation assertion to confirm all financial statements are recorded with the proper value. This is important in understanding (for example) a company’s debt profile or ensuring stakeholders have a properly contextualized grasp of readily available assets and cash flow. Examples include:
Make Your Audit Assertions with ConfidenceAudits don’t have to be frightening or even uncomfortable. Take the time to familiarize yourself with the different types of audit assertions and how analytical procedures used to test them helps establish the truthful disclosure of a company’s financial standing. By doing so, you’ll be well-prepared to face the audit procedure with financial information that’s compliant, complete, and correct. Stakeholders will get the clear understanding they need, and your team will have useful and accurate data they can rely on for effective financial planning and decision making. Which of the following assertions are related to account balances?The account balance category addresses the balance sheet. The four assertions included in this category are occurrence, rights & obligations, completeness, and valuation & allocation.
What are the relevant assertions for accounts receivable?The primary relevant accounts receivable and revenue assertions are: Existence and occurrence. Completeness. Accuracy.
What are the relevant assertions for accounts payable?The primary relevant accounts payable and expense assertions are:. Existence.. Completeness.. Cutoff.. Occurrence.. What are the specific assertions related to the balances in the statement of income?There are generally five accounting assertions that the preparers of financial statements make. They are accuracy and valuation, existence, completeness, rights and obligations, and presentation and disclosure.
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