Assertions relating to classes of transactions
Assertions Explanation
Occurrence Transactions recognized in
the financial statements
have occurred and relate to
the entity.
Completeness All transactions that were
supposed to be recorded
have been recognized in the
financial statements.
Accuracy Transactions have been
recorded accurately at their
appropriate amounts.
Cut-off Transactions have been
recognized in the correct
accounting periods.
Classification Transactions have been
classified and presented
fairly in the financial
statements.
Assertions relating to assets, liabilities and equity balances at the period end
Assertions Explanation
Existence Assets, liabilities and
equity balances exist at the
period end.
Completeness All assets, liabilities and
equity balances that were
supposed to be recorded
have been recognized in
the financial statements.
Rights & Entity has the right to
Obligations ownership or use of the
recognized assets, and the
liabilities recognized in the
financial statements
Examples: Salaries & Wages Cost
Salaries & wages expense has been incurred
during the period in respect of the personnel
employed by the entity. Salaries and wages
expense does not include the payroll cost of any
unauthorized personnel.
Salaries and wages cost in respect of all
personnel have been fully accounted for.
Salaries and wages cost has been calculated
accurately. Any adjustments such as tax
deduction at source have been correctly
reconciled and accounted for.
Salaries and wages cost recognized during the
period relates to the current accounting period.
Any accrued and prepaid expenses have been
accounted for correctly in the financial
statements.
Salaries and wages cost has been fairly allocated
between:
-Operating expenses incurred in production
activities;
-General and administrative expenses; and
-Cost of personnel relating to any self-
constructed assets other than inventory.
Examples: Inventory balance
Inventory recognized in the balance sheet exists
at the period end.
All inventory units that should have been recorded
have been recognized in the financial statements.
Any inventory held by a third party on behalf of the
audit entity has been included in the inventory
balance.
Audit entity owns or controls the inventory
recognized in the financial statements. Any
inventory held by the audit entity on account of
another entity has not been recognized as part of
inventory of the audit entity.
 represent the obligations of
the entity.

Valuation Assets, liabilities and
equity balances have been
valued appropriately.
Inventory has been recognized at the lower of cost
and net realizable value in accordance with IAS 2
Inventories. Any costs that could not be
reasonably allocated to the cost of production (e.g.
general and administrative costs) and any
abnormal wastage has been excluded from the
cost of inventory. An acceptable valuation basis
has been used to value inventory cost at the
period end (e.g. FIFO, AVCO, etc.)

Assertions relating to presentation and disclosures

Assertions Explanation Examples: Related Party Disclosures

Occurrence Transactions and events Transactions with related parties

disclosed in the financial disclosed in the notes of financial
statements have occurred and statements have occurred during the
relate to the entity. period and relate to the audit entity.

Completeness All transactions, balances, All related parties, related party

events and other matters that transactions and balances that should
should have been disclosed have been disclosed have been
have been disclosed in the disclosed in the notes of financial
financial statements. statements.

Classification & Disclosed events, transactions,
Understandability 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.
The nature of related party transactions,
balances and events has been clearly
disclosed in the notes of financial
statements. Users of the financial
statements can clearly determine the
financial statement captions affected by
the related party transactions and
balances and can easily ascertain their
financial effect.

Accuracy & Transactions, events, balances Related party transactions, balances and
Valuation and other financial matters have events have been disclosed accurately
been disclosed accurately at at their appropriate amounts.
their appropriate amounts.

Use and Application

Auditors are required by ISAs to obtain sufficient & appropriate audit evidence in respect of all material
financial statement assertions. The use of assertions therefore forms a critical element in the various
stages of a financial statement audit as described below.
 Stage of Application of Assertions
Audit

Planning As part of the risk assessment procedures, auditors are required to understand the
entity and its environment including the assessment of the risk of material
misstatement (ROMM) due to fraud and error at the financial statement and
assertion level. (ISA 315.3 )

The assessment of ROMM at the financial statement and assertion level provides
the basis for determining the nature, timing and extent of audit procedures that are
necessary to obtain sufficient and appropriate audit evidence in response to those
assessed risks. (ISA 200.A36)

Testing Substantive tests are performed to identify material misstatements at the assertion
level. In case of assertions whose ROMM has been assessed as significant and no
tests of control are planned to be performed, the substantive procedures should
include tests of detail (i.e. substantive analytical procedures alone cannot be
considered as sufficient and appropriate audit evidence for assertions with a
significant risk of material misstatement. (ISA 330.21)

Tests of control (TOCs) are performed to assess the operating effectiveness of

controls at the financial statement and assertion level. TOCs are necessary to
validate the auditor's expectation of the operating effectiveness of controls (as
acquired from the risk assessment procedures performed at the planning stage) and
also in case where the performance of substantive procedures alone cannot provide
sufficient and appropriate audit evidence in respect of a specific assertion. (ISA
330.8)

Completion Auditor shall conclude whether sufficient and appropriate audit evidence has been
obtained for all material financial statement assertions taking into account any
revisions in the assessment of ROMM at the assertion level. (ISA 330.25-6)

Where an auditor is unable to obtain sufficient and appropriate audit evidence in

respect of a material financial statement assertion, he is required to modify the audit
report accordingly. (ISA 330.27)