Audit assertions

When management presents a receivables balance of 1.2 million, it is implicitly claiming several things: the customers exist, the entity has the right to collect, nothing is missing, the amount is recoverable, and it is classified and disclosed properly. These implicit claims are assertions. Auditors use them to break "is this balance right?" into specific questions they can design procedures for.

ISA 315 (Revised 2019) groups assertions into two categories, each covering the related disclosures:

Classes of transactions and events (for the period): occurrence (it happened and relates to the entity), completeness (everything that should be recorded is), accuracy (amounts recorded correctly), cut-off (recorded in the right period), classification (in the right accounts) and presentation (appropriately aggregated, described and disclosed).

Account balances (at the period end): existence, rights and obligations, completeness, accuracy, valuation and allocation, classification and presentation.

Older textbooks show a third category, "presentation and disclosure". The 2019 revision folded disclosures into the two categories above. The auditor may describe assertions differently, provided every aspect is covered.

An assertion is relevant when there is an identified risk of material misstatement for it. Revenue's relevant assertions are usually occurrence and cut-off (overstatement); payables and accruals usually completeness (understatement); inventory often existence and valuation.

Direction of testing. To test for overstatement (occurrence, existence), start from the recorded amount and vouch back to evidence — a recorded sale to a delivery note signed by the customer. To test for understatement (completeness), start from evidence outside the record and trace forward — from delivery notes to the sales ledger, or from payments made after year end back to the year-end payables listing. Testing in the wrong direction gives evidence about the wrong assertion.