CHANGES MADE TO ISA 315 WITH RESPECT

TO FINANCIAL STATEMENT ASSERTIONS

Prior to revision the financial statement assertions were listed under three
headings:
 Assertions about classes of transactions and events for the period under audit
 Assertions about account balances at the period end
 Assertions about presentation and disclosure

The revision to ISA 315 effectively incorporates the assertions about

presentation and disclosure into the assertions about transactions and
account balances – reducing the number of headings from three to two. The
aim of combining the presentation and disclosure assertions is to focus
auditors on the related disclosures when addressing the underlying
transactions and events and account balances.
Transactions include sales, purchases, and wages paid during the
accounting period. Account balances include all the asset, liabilities and
equity interests included in the statement of financial position at the period
end.
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.
The assertions listed in ISA 315 (Revised) are as follows (the changes made
to the ISA are underlined):
Assertions about classes of transactions and events and related disclosures for the period under audit
(i) Occurrence – the transactions and events that have been recorded or
disclosed, have occurred, and such transactions and events pertain to the entity.
(ii) Completeness – all transactions and events that should have been
recorded have been recorded and all related disclosures that should have been included in the financial
statements have been included.
(iii) Accuracy – amounts and other data relating to recorded transactions and
events have been recorded appropriately, and related disclosures have been appropriately
measured and described.
(iv) Cut–off – transactions and events have been recorded in the correct
accounting period.
(v) Classification – transactions and events have been recorded in the proper
accounts.
(vi) Presentation – transactions and events 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.

Assertions about account balances and related disclosures at the period end
(i) Existence – assets, liabilities and equity interests exist.
(ii) Rights and obligations – the entity holds or controls the rights to assets,
and liabilities are the obligations of the entity.
(iii) Completeness – all assets, liabilities and equity interests that should
have been recorded have been recorded and all related disclosures that should have been
included in the financial statements have been included.
(iv) Accuracy, valuation and allocation – assets, liabilities and equity interests have been included in the
financial statements at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately
recorded and related disclosures have been appropriately measured and described.
(v) Classification – assets, liabilities and equity interests have been recorded in the proper accounts.
(vi) Presentation – assets, liabilities and equity interests re 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.

INTEGRATION OF PRESENTATION AND

DISCLOSURE ASSERTIONS
The previous assertions about presentation and disclosure have been
integrated as follows:
 Occurrence and rights and obligations – this has been absorbed into the occurrence assertion under transactions. The
reference to rights and obligations is retained in the account balance assertions.
 Completeness – reference to disclosure has been absorbed into completeness assertions of both transactions and
account balances.
 Classification and understandability – classification remains an assertion in relation to transactions and has been
added as an account balance assertion. The reference to understandability is included in the new assertion of
presentation which is now included in both the transactions and account balances assertions. The presentation
assertion in both has a new reference to transactions and account balances being appropriately aggregated or
disaggregated.
 Accuracy and valuation – absorbed into the transactions assertion of accuracy and the account balance assertion has
been extended to accuracy, valuation and allocation.
INTERPRETATION OF ASSERTIONS AND
APPROPRIATE AUDIT TESTS
In many cases the meaning of the assertions is fairly obvious and in
preparation for their FAU or F8 exam candidates are reminded of the
importance to learn and be able to apply the use of assertions in the course
of the audit. Particularly, candidates need to be able to identify and explain
the assertions, identify which assertion is being tested by a particular audit
procedure and to describe audit procedures for relevant assertions in testing
a specific transaction or balance, now bearing in mind that the relevant
disclosures should also be considered when deriving appropriate
procedures.
Below is a summary of the assertions, a practical application of how the
assertions are applied and some example audit procedures relevant to each.

TRANSACTION ASSERTIONS
Occurrence – this means that the transactions recorded or disclosed actually
happened and relate to the entity. For example that a recorded sale
represents goods which were ordered by valid customers and were
despatched and invoiced in the period. An alternative way of putting this is
that sales are genuine and are not overstated.
Relevant test – select a sample of entries from the sales account in the nominal
ledger and trace to the appropriate sales invoice and supporting goods
despatched notes and customer orders.
Completeness – this means that transactions that should have been recorded and
disclosed have not been omitted.
Relevant test – select a sample of customer orders and check to despatch notes
and sales invoices and the posting to the sales account in the nominal
ledger.
Note the difference in the direction of the above test. 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.
To test for occurrence the procedures will go the other way and start with the
entry in the ledger and check back to the supporting documentation to
ensure the transaction actually happened.
Accuracy – this means that there have been no errors while preparing
documents or in posting transactions to ledgers. The new reference to
disclosures being appropriately measured and described means that the figures and
explanations are not misstated.
Relevant test – calculation checks on invoices, payroll, etc, and the review of
control account reconciliations are designed to provide assurance about
accuracy.
Cut–off – that transactions are recorded in the correct accounting period.
Relevant test – recording last goods received notes and despatch notes at the
inventory count and tracing to purchase and sales invoices to ensure that
goods received before the year–end are recorded in purchases at the year
end and that goods despatched are recorded in sales.
Classification – transactions recorded in the appropriate accounts – for
example,the purchase of raw materials has not been posted to repairs and
maintenance.
Relevant test – check purchase invoices postings to nominal ledger accounts.
Presentation – this means that the descriptions and disclosures of transactions
are relevant and easy to understand. There is a new reference to
transactions being appropriately aggregated or disaggregated. Aggregation
is the adding together of individual items. Disaggregation is the separation of
an item, or an aggregated group of items, into component parts. The notes to
the accounts are often used to disaggregate totals shown in the profit or loss
account. Materiality needs to be considered when judgements are made
about the level of aggregation and disaggregation.
Relevant test – check the total employee benefits expense is analysed in the
notes to the financial statements under separate headings– ie wages and
salaries, pension costs, social security contributions and taxes, etc.

ACCOUNT BALANCE ASSERTIONS

means that assets and liabilities really do exist and there has been
Existence –
no overstatement – for example,by the inclusion of fictitious receivables or
inventory. This assertion is very closely related to the occurrence assertion for
transactions.
Relevant tests – physical verification of non–current assets, circularisation of
receivables, payables and the bank letter.
 means that the entity has a legal title or controls the rights to
Rights and obligations –
an asset or has an obligation to repay a liability.
Relevant tests – in the case of property, deeds of title can be checked. Current
assets are often checked to purchase invoices although these are primarily
used to confirm cost. Long term liabilities such as loans can be checked to
the relevant loan agreement.
Completeness – that there are no omissions and assets and liabilities that should
be recorded and disclosed have been. In other words there has been no
understatement of assets or liabilities.
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. Reconciliation of payables ledger balances to suppliers’
statements is primarily designed to confirm completeness although it also
gives assurance about existence.
Accuracy, valuation and allocation – means that amounts at which assets, liabilities and
equity interests are valued, recorded and disclosed are all appropriate. The
reference to allocation refers to matters such as the inclusion of appropriate
overhead amounts into inventory valuation.
Relevant tests – Vouching the cost of assets to purchase invoices and checking
depreciation rates and calculations.
Classification – means that assets, liabilities and equity interests are recorded in
the proper accounts.
Relevant tests – the test for transactions of checking purchase invoice postings to
the appropriate accounts in the nominal ledger will be relevant again. Also
that research expenditure is only classified as development expenditure if it
meets the criteria specified in IAS 38.
Presentation – this means that the descriptions and disclosures of assets and
liabilities are relevant and easy to understand. The points made above
aggregation and disaggregation of transactions also apply to assets,
liabilities and equity interests.
Relevant tests – auditors often use disclosure checklists to ensure that financial
statement presentation complies with accounting standards and relevant
legislation. These cover all items (transactions, assets, liabilities and equity
interests) and would include for example checking that disclosures relating
to non–current assets include cost, additions, disposals, depreciation, etc.