Management assertions

In a financial audit, management assertions or financial statement assertions is the set of information that the preparer of financial statements (management) is providing to another party. Bir P (1975) "Financial statements represent a very complex and interrelated set of assertions." At the most aggregate level, the financial statements include broad assertions such as "total liabilities as at 31 December are $50 million", "total revenue for the year is $9 million" and "net income for the year is $3 million".

Auditors decompose these broad assertions into a detailed set of statements referred to as management assertions, separated into three categories:

1. Transactions:
   • Occurrence — the transactions actually took place
   • Completeness — all transactions that should have been recorded have been recorded
   • Accuracy — the transactions were recorded at the appropriate amounts
   • Authorization — all transactions were properly authorized
   • Cutoff — the transactions have been recorded in the correct accounting period
   • Classification — the transactions have been recorded in the proper accounts
2. Accounts balances:
   • Existence — assets, liabilities and equity balances exist
   • Rights and Obligations — the entity holds or controls the rights to its assets and owes obligations to its liabilities
   • Completeness — all assets, liabilities and equity balances that should have been recorded have been recorded
   • Valuation and Allocation — assets, liabilities and equity balances are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
3. Presentation and disclosure:
   • Occurrence — the transactions have occurred
   • Rights and Obligations — the transactions pertained to the entity
   • Completeness — all disclosures that should have been included in the financial statements have been included
   • Classification and Understandability — financial statements are appropriately presented and described, and information in disclosures are clearly expressed.
   • Accuracy and Valuation — financial and other information is disclosed fairly and at appropriate amounts.

References

• Knechel, Salterio and Ballou (2007). Auditing: Assurance & Risk (3rd ed.). Thompson South-Western. 
• Template:Http://www.tncpa.org/journal/articles/Auditing Management Assertions.pdf