What are financial statement assertions? Give examples for a balance and for a class of transactions.

What the interviewer wants to hear

• Assertions are management’s implied claims about the figures
• Balance assertions: existence, rights and obligations, completeness, valuation
• Transaction assertions: occurrence, completeness, accuracy, cut-off, classification
• Auditors design procedures for each relevant assertion

Model answer

Assertions are the claims management makes, often implicitly, when it presents a number in the financial statements. For a balance like trade receivables, the assertions include existence, that the customers really owe the amounts; rights and obligations, that the company owns the receivables; completeness, that all amounts owed are included; and valuation, that they are shown at the amount expected to be collected after a loss allowance. For a class of transactions like sales, the assertions are occurrence, accuracy, completeness, cut-off, meaning recorded in the right period, and classification. There are also presentation and disclosure assertions. As an auditor I link risks to specific assertions, because the procedure depends on the assertion. For example, a confirmation tests existence of receivables, while reviewing subsequent receipts and ageing helps with valuation.

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