Question

Briefly explain each management assertion related to classes of transactions and events for the period under audit.

Answer 1

Management assertions are claims made by the managers about certain aspects of business. It is used in regard to the audit of a company's financial statements, where the auditors rely upon a variety of assertions regarding the business.

Mostly the following five items are classified as assertions related to transactions and events:-

1. Accuracy : The assertion is that the full amounts of all transactions and events were recorded without error.

2. Classification : The assertion is that all transactions and events are recorded within the proper accounts in general ledger.

3. Completeness: The assertion is that all the business transactions and events subjected to the company were recorded with due care.

4. Cutoff: The assertions is that all transactions and events were recorded with in proper and correct reporting period .

5. Occurrence : The assertion is that recorded business transactions actually took place.

Account balance assertions : The following four items are classified as assertions related to the ending balances in accounts and related to the balance sheet.

1. Completeness: The assertion is that all reported assets,liabilities and equity balances have been fully recorded

2. Existence : It is that all account balances exist for assets ,liabilities and equity.

3. Rights and obligations : It is that the entity has the right to the assets it owns and it obligated under it's reported liability.

4. Valuation : It is that all asset ,liability and equity have been recorded at their proper valuation.

Presentation and disclosure assertions : The following five items are classified as assertions related to the presentation anof information within financial statements .

1 Accuracy : The assertion is that all information disclosed is in the correct amounts and which reflects their proper values.

2. Completeness : The assertion is that all transactions that should be disclosed have been disclosed .

3. Occurrence : It is that disclosed transactions have indeed occurred.

4. Rights and obligations : It is that disclosed rights and obligations actually relate to the reporting entity.

5. Understand ability : The assertion is that the information included in the financial statements has been appropriately presented and is clearly understandable.