The Final Audit – the Assertions Revisited

1 Introduction

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We now come to look at the final audit and consider some of the work that is typically done to verify some of the assertions that are made about major items in the client’s financial statements.

This part of the audit is still sometimes referred to as the ‘balance sheet audit’ because it tries to ensure directly that the amounts in the financial statements are free from material misstatement.

In particular, ISA 315 states:

“…management…makes assertions regarding the recognition, measurement and presentation of classes of transactions and events, account balances and disclosures. Assertions used by the auditor to consider the different types of potential misstatements that may occur fall into the following two categories ..."

These assertions relate to the period under audit:

Occurrence – transactions and events that have been recorded or disclosed have occurred and pertain to the entity.
Completeness – all transactions and events that should have been recorded/disclosed have been recorded/disclosed.
Accuracy – amounts have been recorded appropriately and related disclosures have been properly measured and described.
Cut-off – transactions and events have been recorded in the correct accounting period.
Classification – transactions and events have been recorded in the proper accounts.
Presentation – transactions and events are appropriately aggregated (or disaggregated) and clearly described. Related disclosures are relevant and understandable.

First decide whether the requirement concerns a transaction class, a year-end balance or a disclosure. Then name the exact assertion and direction of possible misstatement. Procedures over revenue do not automatically answer a requirement about the receivables balance.

These assertions relate to the period end:

Existence – assets, liabilities and equity interests exist.
Rights and obligations – the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
Completeness – all assets, liabilities and equity interests that should have been recorded have been recorded and all related disclosures included.
Accuracy, valuation and allocation – assets, liabilities and equity interests are included at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. Related disclosures are appropriately measured and described.
Classification – assets, liabilities and equity interests have been recorded in the proper accounts.
Presentation – assets, liabilities and equity interests are appropriately aggregated (or disaggregated) and clearly described. Related disclosures are relevant and understandable.

Learn the assertions:

Note that completeness, accuracy, classification and presentation are relevant to both 'transactions and events' and 'account balances' and their related disclosures.
Understand that occurrence and cut-off relate only to transactions and events.
Understand that existence, rights and obligations and valuation and allocation relate only to account balances.

Answer the questions one at a time. Your progress is saved so you can leave and come back.

Open chapter practice

1 Introduction

2 Assertions about classes of transactions and events and related disclosures

3 Assertions about account balances and related disclosures