In a financial audit

Financial audit

A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion...

, management assertions or financial statement assertions is the set of information that the preparer of financial statements

Financial statements

A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...

 (management

Management

Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...

) is providing to another party. Bir P (1975) "Financial statements represent a very complex and interrelated set of assertions." At the most aggregate level, the financial statements include broad assertions such as "total liabilities as at 31 December are $50 million", "total revenue for the year is $9 million" and "net income for the year is $3 million".

Auditors decompose these broad assertions into a detailed set of statements referred to as management assertions, separated into three categories:

1. Transactions:
   • Occurrence — the transactions actually took place
   • Completeness — all transactions that should have been recorded have been recorded
   • Accuracy — the transactions were recorded at the appropriate amounts
   • Authorization — all transactions were properly authorized
   • Cutoff — the transactions have been recorded in the correct accounting period
   • Classification — the transactions have been recorded in the proper accounts
2. Accounts balances:
   • Existence — assets, liabilities and equity balances exist
   • Rights and Obligations — the entity holds or controls the rights to its assets and owes obligations to its liabilities
   • Completeness — all assets, liabilities and equity balances that should have been recorded have been recorded
   • Valuation and Allocation — assets, liabilities and equity balances are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
3. Presentation and disclosure:
   • Occurrence — the transactions have occurred
   • Rights and Obligations — the transactions pertained to the entity
   • Completeness — all disclosures that should have been included in the financial statements have been included
   • Classification and Understandability — financial statements are appropriately presented and described, and information in disclosures are clearly expressed.
   • Accuracy and Valuation — financial and other information is disclosed fairly and at appropriate amounts.