AS 1105: Audit Evidence

management assertions in auditing

Opposite to right and obligation, we test the audit assertion of cut-off for income statement transactions only. Relevant tests – the test for transactions of checking purchase invoice postings to the appropriate accounts in the general ledger will be relevant again. Also that research expenditure is only classified as development expenditure if it meets the criteria specified in IAS® 38 Intangible Assets. Classification – that transactions are recorded in the appropriate accounts – for example, the purchase of raw materials has not been posted to repairs and maintenance. Relevant test – reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy. In order to test completeness, the procedure should start from the underlying documents and check to the entries in the relevant ledger to ensure none have been missed.

management assertions in auditing

As the ASB redrafted the standards for clarity, it also converged the standards with the International Standards on Auditing (ISAs), issued by the International Auditing and Assurance Standards Board (IAASB). Although the purpose of redrafting the auditing standards is for clarity and convergence and not to create additional requirements, auditors will need to make some adjustments to their practices as a result of this project. The AICPA developed a Learning and Implementation Plan to prepare for the transition, management assertions in auditing as well as additional information, including transition guidance and training, located in the Financial Reporting Center. As part of the clarity project, the “AU-C” identifier was established to avoid confusion with references to existing “AU” sections. The “AU-C” identifier had been scheduled to revert back to the AU identifier at the end of 2013, by which time the previous sections would be superseded for all engagements. However, in response to user requests, the AU-C identifier will be retained indefinitely.


When using information produced by a service organization or a service auditor’s report as audit evidence, see AU sec. 324, Service Organizations, and for integrated audits, see Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. 11AS 2305, Substantive Analytical Procedures, establishes requirements on performing analytical procedures as substantive procedures. Account balance assertions apply to the balance sheet items, such as assets, liabilities, and shareholders’ equity. Similarly, with financial statements, it is difficult to determine what financial information is free from material misstatement. Management need not repeat all of the representations made in the previous representation
letter. Classification – means that assets, liabilities and equity interests are recorded in the proper accounts.

1/ Auditing Standard No. 14, Evaluating Audit Results, establishes requirements regarding evaluating whether sufficient appropriate evidence has been obtained. Auditing Standard No. 3, Audit Documentation, establishes requirements regarding documenting the procedures performed, evidence obtained, and conclusions reached in an audit. For instance, the reporting of a company’s accounts receivable account does not provide a guarantee that the customer will pay the accounts receivable amount owed.


Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used concerning auditing a company’s financial statements, where the auditors rely upon various assertions regarding the business. The audit assertions can provide us the clues on the potential misstatements that might occur on financial statements. Likewise, we usually use these assertions to assess external financial reporting risks. Omnibus Statement on Auditing Standards—2013
This section addresses making reference to the audit of a component auditor in the auditor’s report on group financial statements.

  • Candidates must be able to link relevant procedures to the specific assertion required.
  • Account balances include all the asset, liabilities and equity interests included in the statement of financial position at the period end.
  • (vi) Presentation – assets, liabilities and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.
  • The following is a list of additional representations that may be appropriate in certain situations.
  • For example, an auditor may want to examine payroll records to make sure that all salaries and wages expenses have been recorded in the proper period.

Auditors may also look for any deposits in the bank that have not been recorded. Sufficient and appropriate disclosures have been made on related transactions, events and account balances. Completeness – that there are no omissions and assets and liabilities that should be recorded and disclosed have been. Relevant tests – physical verification of non–current assets, circularisation of receivables, payables and the bank letter. Obviously there is a link between the two because if the auditor performs tests to confirm the occurrence of sales this will also provide some assurance about the existence of receivables, although the auditor may perform other tests specifically focussed on existence. Amounts and other data relating to recorded transactions and events have been recorded appropriately.

Reliance on Management Representations

We confirm, to the best of our knowledge and belief, [as of (date of auditor’s report),] the following representations made to you during your audit(s). Had the test been the other way selecting sample of non–current assets in the factory and tracing to the non–current asset register, that would have confirmed completeness. Confirms completeness as the auditor may identify non–current assets that have not been capitalised and is therefore the correct answer. Relevant tests – A review of the repairs and expenditure account can sometimes identify items that should have been capitalised and have been omitted from non–current assets.

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IFRS developed ISA315, which includes categories and examples of assertions that may be used to test financial records. The qualitative discussion of materiality used in the illustrative letter is adapted from FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The superseded AU sections were removed from Professional Standards at the end of 2013, as scheduled. The ASB has completed the Clarity Project with the issuance of SAS No. 128, Using the Work of Internal Auditors, which is effective for audits of financial statements for periods ending on or after December 15, 2014. No information has come to our attention that would cause us to believe that any of those previous
representations should be modified. 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.

  • To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor’s opinion is based.
  • In the absence of any separate requirement in the particular circumstances of the engagement, the auditor’s opinion on the financial statements does not cover other information, and the auditor has no responsibility for determining whether such information is properly stated.
  • 11/ AU sec. 329, Substantive Analytical Procedures, establishes requirements on performing analytical procedures as substantive procedures.
  • The auditors test the validity of these assertions by conducting a number of audit tests.
  • We are the American Institute of CPAs, the world’s largest member association representing the accounting profession.

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. Written Representations
This section addresses the auditor’s responsibility to obtain written representations from management and, when appropriate, those charged with governance in an audit of financial statements. The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports
This section addresses the auditor’s responsibilities relating to other information, whether financial or nonfinancial information (other than financial statements and the auditor’s report thereon), included in an entity’s annual report.

The primary focus of SAS No. 142, including its objective, is on considering the attributes and factors of information that contribute to an assessment of whether sufficient appropriate audit evidence has been obtained. This standard is based on the premise that the auditor should evaluate information to be used as audit evidence notwithstanding the source from which it is obtained, or the procedures used to obtain the information. New attributes of information for the auditor to consider include whether the information is corroborative or contradictory to management assertions, the authenticity of the evidence and its susceptibility to bias.

management assertions in auditing

For example, notes payable transactions should never be classified as an accounts payable transaction, with the same being true for interest payable transactions. For example, an auditor may want to examine payroll records to make sure that all salaries and wages expenses have been recorded in the proper period. This may include an examination of payroll records, a payroll journal, an active employee list, and any payroll accruals that were made and reversed in the period being examined. Completeness helps auditors verify that all transactions for the period being examined have been properly entered in the correct period.

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