In auditing and financial reporting, an assertion is a representation management makes about the financial statements, explicitly or implicitly, by presenting them as prepared in accordance with the applicable financial reporting framework. Those representations cover the recognition, measurement, presentation and disclosure of the elements of the statements, and the auditor uses the assertions to consider the different types of potential misstatements that may occur. The word has other senses in ordinary English, in logic and in software testing, and none of them is the financial reporting sense.
The Two Rulebooks, and Why Their Lists Differ
Which list applies depends on the standards the engagement runs under. Generally accepted auditing standards, GAAS, govern audits of non-issuers, meaning entities outside the public company regime, and they set the assertions out in two groups, one for classes of transactions and events for the period under audit, and one for account balances at the period end. Both groups run against the related disclosures as well as the amounts (AU-C 315, .A219).
The transaction group asks what happened during the period.
- Occurrence. Transactions and events that were recorded or disclosed occurred, and they pertain to the entity.
- Completeness. All transactions and events that should have been recorded were recorded, an assertion covered in full under completeness.
- Accuracy. Amounts and other data attached to recorded transactions and events were recorded appropriately.
- Cutoff. Transactions and events sit in the correct accounting period.
- Classification. Transactions and events sit in the proper accounts.
- Presentation. Transactions and events are appropriately aggregated or disaggregated and clearly described.
The balance group asks what is sitting there at period end.
- Existence. Assets, liabilities and equity interests exist.
- Rights and obligations. The entity holds or controls the rights to the assets, and the liabilities are the obligations of the entity.
- Completeness. All assets, liabilities and equity interests that should have been recorded were recorded.
- Accuracy, valuation and allocation. Assets, liabilities and equity interests are included in the financial statements at appropriate amounts, with any resulting valuation or allocation adjustments appropriately recorded.
- Classification. Those items sit in the proper accounts.
- Presentation. Those items are appropriately aggregated or disaggregated and clearly described.
Issuers are audited under Public Company Accounting Oversight Board standards, and those run one flatter combined list: existence or occurrence, completeness, valuation or allocation, rights and obligations, and presentation and disclosure (PCAOB, AS 1105, Audit Evidence, .11).
Neither list is a fixed vocabulary, which is why the count of the assertions is not fixed either. Under GAAS the auditor may express the categories differently, or combine the transaction assertions with the balance assertions, provided all the aspects described are covered (AU-C 315, .A218). The public company standard grants the same latitude, allowing the auditor to work from assertions that differ from its own if they are sufficient to identify the types of potential misstatements and to respond appropriately to the risks of material misstatement (PCAOB, AS 1105, .12).
Which Assertions Actually Get Tested
Not every assertion is tested. An assertion about a class of transactions, account balance or disclosure is a relevant assertion when it has an identified risk of material misstatement, and that determination is made before any consideration of related controls, so it rests on inherent risk (AU-C 315, .12). A class of transactions, account balance or disclosure carrying one or more relevant assertions is a significant one, which is how the standard names where the work concentrates.
The order matters. Identifying the risks of material misstatement is what provides the basis for determining the relevant assertions (AU-C 315, .A216). Risk assessment comes first and the program follows it, a chain worked through in audit challenges in accounting, and how much work each relevant assertion earns turns on the amounts set in materiality in auditing.
Where Assertions Land in a Firm’s Work
An assertion is management’s claim, not the auditor’s test, and an audit program is where the two get lined up. The assertion is the column heading, the procedure written under it is the response to a risk identified against that assertion, and the tickmark recording the work points back at the same assertion. Relevance of evidence is defined the same way, as its relationship to the assertion or to the objective of the control being tested (PCAOB, AS 1105, .07). Which assertion a test of details speaks to follows from the direction it runs in and from what was selected to run it on, separated in vouching, while the control lane asks its question at the same level, covered in tests of controls.
Common Questions
Neither US rulebook prints a list of seven. The public company categories run to five (PCAOB, AS 1105, .11), and the GAAS categories run to twelve across the two groups, or nine once the names that appear in both groups are counted once (AU-C 315, .A219). Seven matches neither, and no count is fixed anyway, because GAAS lets the auditor combine the two groups or express the categories differently, provided all the aspects described are covered (AU-C 315, .A218).
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