AS 1105: Audit Evidence

Valuation and allocation assertions pertain to the appropriate valuation of assets and liabilities and the correct allocation of revenues and expenses. Auditors evaluate these assertions by inspecting physical assets, confirming balances with third parties, assessing valuation models, and analyzing liabilities to confirm their existence and valuation at the balance sheet date. Relevant tests – auditors often use disclosure checklists to ensure that financial statement presentation complies with accounting standards and relevant legislation. These cover all items (transactions, assets, liabilities and equity interests) and would include for example confirming that disclosures relating to non–current assets include cost, additions, disposals, depreciation, etc.

AS 1105: Audit Evidence

Accuracy is concerned with the appropriate recording of transaction amounts, while cut-off assertions verify that transactions are recorded in the correct accounting period. Lastly, classification assertions relate to the proper categorization of transactions in the appropriate accounts. Auditors scrutinize these assertions by examining supporting documentation, reviewing transactional workflows, and performing analytical procedures to ensure that the transactions are presented fairly in the financial statements. The reliability of management assertions is a fundamental aspect of the audit process.

• 12/ If misstatements are identified in the selected items, see paragraphs and paragraphs of Auditing Standard No. 14.
• To the best of our knowledge and belief, no events have occurred subsequent to date of latest balance sheet reported on by the auditor and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.
• The quality of audit evidence is paramount, and auditors prioritize evidence that is relevant and reliable.
• The auditor’s professional skepticism is an indispensable tool in evaluating assertions.
• Auditors scrutinize these assertions by examining supporting documentation, reviewing transactional workflows, and performing analytical procedures to ensure that the transactions are presented fairly in the financial statements.
• Completeness – this means that transactions that should have been recorded and disclosed have not been omitted.
• The nature of related party transactions, balances and events has been clearly disclosed in the notes of financial statements.

Selecting Specific Items

The credibility of management’s claims is also influenced by the entity’s internal control environment. A robust system of internal controls reduces the risk of misstatement, thereby enhancing the reliability of the assertions. Auditors assess the design and implementation of these controls, and their effectiveness over the reporting period, to determine the level of reliance that can be placed on the management’s statements. Management assertions form the bedrock upon which auditors assess the financial statements of a company. They are categorized based on the different aspects of financial reporting that they address, each with its own set of criteria that must be evaluated by the auditor. Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial statements.

Using Information Produced by the Company

Hence, the financial statements contain management’s assertions about the transactions, events and account balances and related disclosures that are required by the applicable accounting standards such as US GAAP or IFRS. Thus, as auditors, we have responsibilities to perform suitable auditing procedures in order to provide the evidence necessary to persuade that there is no material misstatement related to each of the relevant assertions in the financial statements. The quality of audit evidence is paramount, and auditors prioritize evidence that is relevant and reliable.

Account Balance Assertions

Transactions include sales, purchases, and wages paid during the accounting period. Account balances include all the asset, liabilities and equity interests included in the statement of financial position at the period end. In other words, audit assertions are sometimes called financial statements Assertions or management assertions. Disclosed events, transactions, balances and other financial matters have been classified appropriately and presented clearly in a manner that promotes the understandability of information contained in the financial statements. All related parties, related party transactions and balances that should have been disclosed have been disclosed in the notes of financial statements.

• All transactions that were supposed to be recorded have been recognized in the financial statements.
• To test for occurrence the procedures will go the other way and start with the entry in the ledger and check back to the supporting documentation to ensure the transaction actually happened.
• Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the VALUATION of X Co’s inventory.
• These cover all items (transactions, assets, liabilities and equity interests) and would include for example confirming that disclosures relating to non–current assets include cost, additions, disposals, depreciation, etc.

Objective

In contrast, audit assertions are the tools or lenses used by auditors to examine and test those claims. Both are fundamental to the audit process, with the former being the subject of the audit and the latter guiding the methodology of the audit. Furthermore, the historical accuracy of management’s assertions plays a role in their current management assertions audit validity. Auditors consider the entity’s track record, looking for patterns of inaccuracies or misstatements in prior periods. This historical perspective can inform the auditor’s judgment about the likelihood of material misstatements in the current period’s financial statements. As the significance of the specialist’s work and risk of material misstatement increases, the persuasiveness of the evidence the auditor should obtain for those assessments also increases.

Analytical Procedures

• No information has come to our attention that would cause us to believe that any of those previous representations should be modified.
• Relevant tests – the test for transactions of checking purchase invoice postings to the appropriate accounts in the general ledger will be relevant again.
• Opposite to right and obligation, we test the audit assertion of cut-off for income statement transactions only.
• 1/ Auditing Standard No. 14, Evaluating Audit Results, establishes requirements regarding evaluating whether sufficient appropriate evidence has been obtained.
• Long term liabilities such as loans can be agreed to the relevant loan agreement.
• The consideration of management assertions during the various stages of audit helps to reduce the audit risk.

This mindset involves a questioning mind and a critical assessment of audit evidence. It requires auditors to challenge the assumptions and estimates made by management, especially in areas susceptible to significant judgment or where there bookkeeping is a higher risk of management bias. Professional skepticism also means being alert to audit evidence that contradicts or brings into question the reliability of documents and responses to inquiries provided by management.