Introduction

Audit assertions play a crucial role in ensuring the accuracy and reliability of financial statements. As per ISA 315 (Revised 2019), auditors rely on specific assertions to assess the completeness, accuracy, and validity of financial information.

This guide explores audit assertions, their significance, and how auditors apply them in interim and final audit procedures. It also provides practical examples and test methods to help candidates understand how to approach audit-related questions effectively.

Interim and Final Audit Procedures

Interim Audit

During the interim audit, the system of internal control is documented and evaluated. This assessment helps auditors determine the appropriate mix of tests of control and substantive procedures. The primary focus at this stage is on transactions that have occurred during the period.

Final Audit

The final audit focuses on the financial statements and the assertions regarding assets, liabilities, and equity interests. At this stage, the auditor designs substantive procedures to ensure that all relevant assertions have been tested to obtain reasonable assurance.

Understanding Assertions in Audits

Assertions are claims made by management regarding the accuracy and completeness of financial statements. They apply to both:

Transactions and events recorded in the financial statements.
Account balances and related disclosures at the reporting period-end.

Assertions help auditors determine the areas where misstatements may occur and design appropriate audit procedures.

Categories of Assertions Under ISA 315 (Revised 2019)

ISA 315 classifies assertions into two groups:

1. Assertions About Classes of Transactions and Events (During the Period)

These assertions relate to transactions recorded during the accounting period and their disclosures:

Occurrence – Ensures that transactions and events recorded actually occurred and pertain to the entity.
Completeness – Confirms that all transactions that should have been recorded are included.
Accuracy – Verifies that amounts and other data have been recorded correctly.
Cut-off – Ensures transactions are recorded in the correct accounting period.
Classification – Transactions are recorded in the proper accounts.
Presentation – Ensures that transactions are appropriately described and disclosures are clear and understandable.

2. Assertions About Account Balances and Related Disclosures (At the Period End)

These assertions focus on the balances of assets, liabilities, and equity at the end of the reporting period:

Existence – Ensures that assets, liabilities, and equity interests exist.
Rights and Obligations – Confirms the entity holds the rights to assets and has obligations for liabilities.
Completeness – Ensures that all assets, liabilities, and equity interests are recorded.
Accuracy, Valuation, and Allocation – Verifies the correctness of recorded balances and disclosures.
Classification – Assets, liabilities, and equity are recorded in the correct accounts.
Presentation – Ensures proper aggregation or disaggregation of financial information for clear disclosure.

Application of Assertions in Audit Procedures

Understanding how to test assertions is essential for auditors. Below are examples of audit procedures for each assertion.

1. Assertions for Transactions

Assertion	Definition	Example Audit Procedure
Occurrence	Transactions recorded actually took place.	Select a sample of sales from the general ledger and trace to sales invoices, dispatch notes, and customer orders.
Completeness	All transactions that should be recorded are included.	Select a sample of customer orders, trace them to dispatch notes, sales invoices, and postings in the sales ledger.
Accuracy	Transactions are correctly recorded without errors.	Recalculate invoice totals and payroll figures to confirm accuracy.
Cut-off	Transactions are recorded in the correct period.	Check last goods received notes and dispatch notes, ensuring purchases and sales are recorded in the right period.
Classification	Transactions are recorded in the proper accounts.	Review purchase invoices and verify correct posting to general ledger accounts.
Presentation	Transactions are clearly described and properly disclosed.	Check if total employee expenses are properly classified (e.g., salaries, pension costs, taxes).

2. Assertions for Account Balances

Assertion	Definition	Example Audit Procedure
Existence	Ensures that assets and liabilities exist.	Physical verification of assets, confirmation of receivables, bank balance confirmations.
Rights and Obligations	Entity holds rights to assets and obligations for liabilities.	Review title deeds for property, loan agreements for borrowings.
Completeness	Ensures that all balances are included.	Compare payables ledger balances with supplier statements.
Accuracy, Valuation, and Allocation	Assets, liabilities, and equity are recorded at appropriate values.	Review asset purchase invoices, check depreciation calculations.
Classification	Balances are recorded in the correct accounts.	Ensure research expenses are classified correctly under IAS 38.
Presentation	Financial statement disclosures are clear and correct.	Use disclosure checklists to verify compliance with IFRS and local regulations.

Why Assertions Matter in Audits

Assertions are critical because:

They help auditors identify risks of material misstatements in financial statements.
They guide the selection of appropriate audit procedures to obtain sufficient and appropriate evidence.
They ensure compliance with financial reporting frameworks such as IFRS and GAAP.
They provide assurance to stakeholders regarding the reliability of financial statements.

Conclusion

Assertions, as outlined in ISA 315 (Revised 2019), are fundamental in audit planning and execution. By understanding these assertions and applying relevant audit procedures, auditors can provide reasonable assurance that financial statements are free from material misstatements and present a true and fair view of an entity’s financial position.

Key Takeaway: Candidates preparing for FAU or AA exams should focus on learning assertions, recognizing their application in different audit scenarios, and understanding relevant audit procedures for testing them effectively.

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Audit Assertions Under ISA 315 (Revised 2019)