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Af 316 - Audit Assertions
Af 316 - Audit Assertions
Definition
Audit Assertions are the implicit or explicit claims and representations made by the management
responsible for the preparation of financial statements regarding the appropriateness of the various
elements of financial statements and disclosures.
Audit Assertions are also known as Management Assertions and Financial Statement Assertions.
Explanation
For example, if a statement of financial position of an entity shows buildings with carrying
amount of TZS. 100 million, the auditor shall assume that the management has claimed that:
The buildings recognized in statement of financial position exist at the period end;
The buildings are valued accurately in accordance with the measurement basis;
All buildings owned and controlled by the entity are included within the carrying amount
of TZS. 100 million.
Occurrence Transactions recognized in the Salaries & wages expense has been
financial statements have occurred incurred during the period in respect
and relate to the entity. of the personnel employed by the
entity. Salaries and wages expense
does not include the payroll cost of
any unauthorized personnel.
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Completeness All transactions that were supposed Salaries and wages cost in respect of
to be recorded have been recognized all personnel have been fully
in the financial statements. accounted for.
Accuracy Transactions have been recorded Salaries and wages cost has been
accurately at their appropriate calculated accurately. Any
amounts. adjustments such as tax deduction at
source have been correctly
reconciled and accounted for.
Cut-off Transactions have been recognized Salaries and wages cost recognized
in the correct accounting periods. during the period relates to the
current accounting period. Any
accrued and prepaid expenses have
been accounted for correctly in the
financial statements.
Classification Transactions have been classified Salaries and wages cost has been
and presented fairly in the financial fairly allocated between:
statements. -Operating expenses incurred in
production activities;
-General and administrative
expenses; and
-Cost of personnel relating to any
self-constructed assets other than
inventory.
Assertions relating to assets, liabilities and equity balances at the period end
Completeness All assets, liabilities and equity All inventory units that should
balances that were supposed to be have been recorded have been
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recorded have been recognized in the recognized in the financial
financial statements. statements. Any inventory held
by a third party on behalf of the
audit entity has been included
in the inventory balance.
Rights & Obligations Entity has the right to ownership or Audit entity owns or controls
use of the recognized assets, and the the inventory recognized in the
liabilities recognized in the financial financial statements. Any
statements represent the obligations of inventory held by the audit
the entity. entity on account of another
entity has not been recognized
as part of inventory of the audit
entity.
Valuation Assets, liabilities and equity balances Inventory has been recognized
have been valued appropriately. at the lower of cost and net
realizable value in accordance
with IAS 2 Inventories. Any
costs that could not be
reasonably allocated to the cost
of production (e.g. general and
administrative costs) and any
abnormal wastage has been
excluded from the cost of
inventory. An acceptable
valuation basis has been used to
value inventory cost at the
period end (e.g. FIFO, LIFO,
etc.)
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disclosed in the financial parties disclosed in the notes
statements have occurred and of financial statements have
relate to the entity. occurred during the period
and relate to the audit entity.
Auditors are required by ISAs to obtain sufficient & appropriate audit evidence in respect of all
material financial statement assertions. The use of assertions therefore forms a critical element in
the various stages of a financial statement audit as described below.
Stage of
Application of Assertions
Audit
Planning As part of the risk assessment procedures, auditors are required to understand the
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entity and its environment including the assessment of the risk of material
misstatement (ROMM) due to fraud and error at the financial statement and
assertion level. (ISA 315.3)
The assessment of ROMM at the financial statement and assertion level provides
the basis for determining the nature, timing and extent of audit procedures that
are necessary to obtain sufficient and appropriate audit evidence in response to
those assessed risks.
Completion Auditor shall conclude whether sufficient and appropriate audit evidence has
been obtained for all material financial statement assertions taking into account
any revisions in the assessment of ROMM at the assertion level. (ISA 330.25-6)
Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity
of financial statements. The consideration of management assertions during the various stages of
audit helps to reduce the audit risk.