What is the existance assertion? The rights and obligation assertion? The completeness assertion?
The existence assertion, rights and obligation assertion, and completeness assertion are three key components of the financial statement assertions, which are essential in conducting audits and evaluating the accuracy and reliability of financial statements.
1. Existence assertion: This assertion states that the assets, liabilities, and equity balances reported in the financial statements actually exist at a given date. It verifies the physical existence of assets and liabilities, such as verifying the existence of inventory or confirming the existence of a bank account.
2. Rights and obligation assertion: This assertion ensures that the entity has legal rights to the assets it reports and that the reported liabilities are valid obligations of the company. It confirms that the assets are owned or controlled by the entity and that the reported liabilities represent legitimate obligations that the entity is liable to pay.
3. Completeness assertion: The completeness assertion ensures that all transactions and accounts that should be included in the financial statements are actually included. It verifies that nothing significant has been omitted, and that all relevant information has been recorded and presented in the financial statements. This assertion is crucial to ensure that the financial statements are not misleading due to the absence of important information.
These assertions, along with others such as valuation, accuracy, and presentation and disclosure, are used by auditors to evaluate the reliability of financial statements to provide reasonable assurance to users of the financial statements.
The existence assertion, rights and obligation assertion, and completeness assertion are three types of assertions used in auditing. Here is a step-by-step explanation of each assertion:
1. Existence Assertion:
- The existence assertion states that assets, liabilities, and equities presented in the financial statements actually exist.
- This assertion ensures that the items reported in the financial statements are real and not fictitious.
- Auditors perform procedures to obtain evidence to support the existence assertion, such as physically inspecting assets or confirming balances with external parties.
2. Rights and Obligation Assertion:
- The rights and obligation assertion ensures that the entity has legal rights to the assets and is responsible for the obligations presented in the financial statements.
- It also verifies that the assets and liabilities are properly classified and disclosed.
- Auditors review relevant contracts, agreements, and legal documents to gather evidence for the rights and obligation assertion.
3. Completeness Assertion:
- The completeness assertion states that all transactions and information that should have been included in the financial statements are not omitted.
- It ensures that all relevant financial data is disclosed to stakeholders.
- Auditors perform procedures such as reconciling account balances and reviewing supporting documentation to assess the completeness assertion.
These assertions, along with other assertions such as valuation, presentation, and disclosure, are used by auditors to provide reasonable assurance regarding the accuracy, reliability, and fairness of the financial statements.
The existence assertion, rights and obligation assertion, and completeness assertion are three important assertions in the field of auditing. These assertions are used to evaluate the accuracy and reliability of the financial statements of an organization.
1. Existence Assertion: The existence assertion ensures that the assets, liabilities, and equity mentioned in the financial statements actually exist and belong to the organization. It requires auditors to verify the physical presence of assets, confirm liabilities with external parties, and ensure that equity transactions are properly recorded.
To verify the existence assertion, auditors typically perform procedures such as physically inspecting assets, confirming balances with third parties, and reviewing documentation supporting the recording of financial transactions.
2. Rights and Obligation Assertion: The rights and obligation assertion ensures that the organization has legal ownership or control over its assets and liabilities. It requires auditors to verify that the reported assets are owned by the organization and the reported liabilities are legal obligations.
To test the rights and obligation assertion, auditors may review ownership documents, contracts, loan agreements, and other legal documents. They may also examine the terms and conditions of contracts or agreements to ensure proper recording of related income or expenses.
3. Completeness Assertion: The completeness assertion ensures that all financial transactions and events that should be included in the financial statements are actually recorded and disclosed. It focuses on the idea that no material transactions or events are omitted.
To assess the completeness assertion, auditors may examine supporting documentation, such as bank statements, invoices, receipts, and contracts. They may also perform analytical procedures to identify any abnormal or missing transactions.
In summary, the existence assertion focuses on the physical existence of assets and liabilities, the rights and obligation assertion confirms legal ownership and control, and the completeness assertion ensures that all relevant financial transactions and events are properly recorded. These assertions help auditors form an opinion on the fairness and reliability of the financial statements.