Question

Conceptually, management makes assertions about the financial statements. (1) Define, or explain, what is meant by management assertions. (2) How does the concept of management assertions help the auditor in auditing an entity's financial statements? Discuss.

Answer 1

managements assertions are the claims made by management regarding certain of business like some items in profit and loss statement some items in balance sheet or cash flow statement contain some uncertainity so management take some assertions in order complete the financial statement. the concept is mainly used in regards of audit. auditor rely upon assertions made by management and check the corectness of assertion taken. management assertion fall into three calassification

transaction level assertions, account balance assertions,presentation and disclosure assertions

transaction level assertions contain 5 items as follows

accuracy- assertion is the the full amount of all transaction were recorded

classification- transacton are classified in correct acount

completeness-all events and transaction are recorded

cutoff- recorded transaction belong to corect reporting perio

occurrence- the assertion that recored transaction was already took place

account balance assertion contain 4 items

completeness- all assets and liability and equity are reported fully

existenc-all account balance exist (assets, liability, equity)

valuation-all are recored as per proper valuation

presentation and disclosure assertions includes 5 items

accuracy-all informtion are correctly disclosed

completeness-all transaction should have to be disclosed had disclosed

occurrence-assertion that transaction was corectly occured

rights and obligation-assertions that reported items like assets liability are related to entity

understanbility-assertio that items included in financial statement are approprietly prsented and clear to understand

auditor can do his audit works easily due to this assertion auditor can do audits test and procedure in order to check the corectness of assertions used by management. even he can get a management representation regarding the assertion used by them