All You Need To Know About Management Assertions in Auditing

Author : netashaadams
Publish Date : 2021-06-01 14:29:46
All You Need To Know About Management Assertions in Auditing

Business entities always need audited financial statements to provide a vivid picture to all stakeholders. Be it a creditor, an investor, or a stakeholder, everyone would like to see and know your financial standing. Apart from these parties, the financial documents are equally important for financial planning and forecasting. But you will always present audited financial statements to these parties. Talking of the audited statements, have you ever heard the term management assertions in auditing? No? Don't worry! This article will explain everything about this term. Keep walking with us!

What are Management Assertions in an audit?

No matter how big or small, business entities abide by the higher accounting and auditing authorities. While a firm is being audited, the company's management will make certain assertions or claims about the accuracy and completeness of the data provided. Also known as the audit assertions, these are the claims of the management to avoid any material misstatement in the financial records/documents.

Once the management assertions are made, the auditor will collect evidence to prove the veracity of these assertions. They will test various aspects of financial data collected and the disclosures. Upon successful evaluation and auditing, the auditors will declare the firm compliant with the IFRS rules and regulations. Understanding the compliance factors is easier when you have Top audit firms in Dubai on your side.

Why are These Assertions Important?

Financial statements cannot be held upon false assertions. The objective of assertions is to determine whether the statements about the financial statements and other records are true. They play a vital role in determining the material misstatements present in the financial records of a company. These assertions act as the basis for testing the accuracy and correctness of financial records.

Types of Management Assertions:

The management can either explicitly (direct) make the assertions or go the implicit (indirect) way. When we talk about the types of management assertions, there are various to discuss. Do you want to know what these types are? Keep reading to know!

1. Transaction level assertion:

The first of the three master groups is the transaction-level assertion. It is used when reviewing transactions and journal entries. There are various sub-categories to this group with some degrees of overlap. Let us discuss them one by one in detail.

i) Accuracy:

Auditors will compare specific entries or financial records with the transactions to ensure accuracy. Some examples are:

  • Confirming accurate calculations
  • Confirming the recorded transactions
  • Reviewing internal records

ii) Classification:

Notwithstanding the financial information under audit, auditors additionally consider the real budget summaries to ensure clarity. They incorporate suitably related disclosures and are arranged as per accounting principles and the law. Examples are:

  • Reviewing purchase invoices
  • Confirming salaries and wages
  • Verifying special exceptions (capitalization of research costs)

iii) Completeness:

All the financial transactions need to be recorded properly and completely. It is critical to check the completeness of various accounting transactions in a given accounting period. Auditors verify the following points when confirming completeness:

  • Verifying all salaries and wages are properly recorded
  • Examining bank statements to verify deposits
  • Comparing inventory levels to sales data

iv) Cut-off:

When it comes to auditing inventories and payrolls, cut-off proves of utmost importance. Auditors use the cut-off type to see if the financial transactions are recorded within the specified accounting period. Some of the examples are given below:

  • Confirming salaries and wages recorded in the current accounting period
  • Verifying accrued or prepaid expenses are recorded in the right period
  • Tracing shipping documents to verify purchases and sales are recorded in the correct accounting period.

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v) Existence:

The management asserts the liabilities, equities, and assets to be accurate and properly recorded in a fiscal year. The auditor needs to check the veracity of the assertion to collect audit evidence. The evidence will establish a fair connection between the values asserted and the values on the document. Examples are discussed here:

  • Confirming inventory recorded on the balance sheet
  • Verifying accounts receivable balances
  • Examining bank records to confirm account balances and transactions
  • Verifying cashflow reports

vi) Occurrence:

The auditor will also check whether the recorded financial transaction has actually occurred. To avoid any material misstatement, the auditor will check for occurrence. Some examples are:

  • Cross-checking A/R balances with sales records
  • Checking payroll records
  • Conforming recorded transactions are directly connected to the entities

vii) Rights and obligations:

Is it true that the recorded numbers about assets, liabilities, and owner equities are the same? Well, to confirm it, the auditor will check one by one. They will ensure if these recordings belong to your company. Examples are:

  • Verifying bank account balances
  • Confirming ownership of assets
  • Verifying outstanding obligations or other liabilities

Make your accounting operations transparent with audit professionals!

Audited financial statements are necessary for any firm to do well on various firms. Be it attracting new investors or seeking a loan from a bank; audited financial statements can make things easy for you. Hire the best auditors in the town to streamline your accounting operations!

 



Category : business

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