List the major financial statement assertions. Define the assertions about account balance at the period end.
The major financial statement assertions, also known as management assertions, are the set of principles that auditors use to evaluate the reasonableness of the financial statements. These assertions help auditors assess the accuracy, completeness, and validity of the financial information presented.
The assertions about account balance at the period end are related specifically to the balance sheet and include the following:
1. Existence: This assertion states that all assets, liabilities, and equity balances presented in the financial statements actually exist and are valid at the period end.
2. Rights and Obligations: This assertion ensures that the company has legal ownership or rights over the assets presented on the balance sheet, and that the liabilities represent the company's obligations to pay.
3. Completeness: This assertion states that all relevant and material account balances are included in the financial statements, ensuring that nothing significant is omitted or hidden.
4. Valuation and Allocation: This assertion focuses on the appropriate valuation of assets, liabilities, and equity balances, making sure they are recorded at their fair value and allocated correctly within the financial statements.
5. Accuracy: This assertion relates to the accuracy of the account balances, ensuring that they are calculated correctly and free from material misstatements.
6. Cut-off: This assertion ensures that transactions and events are recorded in the correct accounting period, and that there are no timing errors or misclassifications.
By evaluating these assertions, auditors can provide reasonable assurance about the reliability of the financial statements, giving users confidence in the information presented.
The major financial statement assertions, also known as management assertions, are guiding principles or criteria used by auditors to assess the reasonableness of financial statements. These assertions provide a framework for auditors to evaluate the completeness, accuracy, and validity of the financial information presented by an entity. The major financial statement assertions can be categorized into three main groups:
1. Assertions about account balances at the period end: These assertions focus on asserting that the account balances reflected in the financial statements are accurate, complete, and properly valued as of the end of the reporting period. These assertions include:
- Existence: Ensures that the recorded account balances exist as of the end of the reporting period.
- Rights and obligations: Verifies that the entity has legal ownership or rights to the assets, and the obligations recorded are valid as of the period-end.
- Completeness: Ensures that all relevant account balances and related transactions are included in the financial statements.
- Valuation and allocation: Ensures that the account balances are correctly valued and allocated, reflecting their realizable or market values, and comply with applicable accounting standards.
- Presentation and disclosure: Verifies that the account balances and related transactions are properly presented and disclosed in the financial statements, in accordance with applicable accounting standards and regulatory requirements.
These assertions are vital in assessing the accuracy and integrity of the financial statements and providing reasonable assurance to users of the financial information.
The major financial statement assertions, also known as management assertions, are guidelines for auditors to evaluate the reasonableness of the financial statements. They provide a framework to assess the accuracy, completeness, and validity of transactions and account balances reported in the financial statements. The major financial statement assertions are divided into three categories:
1. Assertions about classes of transactions and events:
a. Occurrence: Transactions and events reported in the financial statements actually occurred.
b. Completeness: All transactions and events that should be recorded are included in the financial statements.
c. Accuracy: Amounts and other data relating to transactions and events have been recorded accurately.
d. Cutoff: Transactions and events have been recorded in the correct accounting period.
e. Classification: Transactions and events are recorded in their appropriate accounts.
2. Assertions about account balances at the period end:
a. Existence: Assets, liabilities, and equity interests exist at the period end.
b. Rights and obligations: The organization has a legal or beneficial ownership or obligation over assets, liabilities, and equity interests.
c. Completeness: All assets, liabilities, and equity interests that should be recorded are included.
d. Valuation and allocation: Assets, liabilities, and equity interests are recorded at their appropriate amounts.
e. Presentation and disclosure: Account balances are properly presented and described in the financial statements.
To further explain the assertions about account balance at the period end:
1. Existence: This assertion ensures that the assets, liabilities, and equity interests recorded on the financial statements actually exist as of the period end. Auditors will gather evidence to support this assertion by physically verifying the existence of assets and reviewing supporting documentation for liabilities and equity interests.
2. Rights and obligations: This assertion confirms that the organization has the legal or beneficial right to own or control the recorded assets and liabilities as of the period end. Auditors will review legal agreements, contracts, and other relevant documentation to ensure that the organization has the proper rights and obligations.
3. Completeness: This assertion ensures that all assets, liabilities, and equity interests that should be included in the financial statements have been recorded. Auditors will perform analytical procedures, review supporting documentation, and evaluate management's processes for identifying and recording all relevant balances.
4. Valuation and allocation: This assertion focuses on whether the account balances are recorded at their appropriate monetary amounts. Auditors will assess the reasonableness of valuations by comparing them to market prices, performing independent valuations, or using other appropriate techniques.
5. Presentation and disclosure: This assertion ensures that the account balances are properly presented and described in the financial statements, complying with applicable accounting standards and regulations. Auditors will assess the clarity, adequacy, and consistency of the financial statement disclosures to ensure they provide users with relevant and reliable information.
By considering these assertions, auditors are able to evaluate the reliability and accuracy of the account balances reported in the financial statements.