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[3] [4] Financial statement assertions provide a framework to assess the risk of material misstatement in each significant account balance or class of transactions. [5] Both United States and International auditing standards include guidance related to financial statement assertions, although the specific assertions differ.
The auditor uses assertions in assessing risks by considering potential misstatements that may occur, and thereby designing audit procedures that are responsive to the particular risks. Assertions used by the auditor fall into the following categories: (a) Assertions about classes of transactions and events for the period ended: Occurrence
Lists of assertion-level control objectives are available in most financial auditing textbooks. Excellent examples are also available in AICPA Statement on Auditing Standards No. 110 (SAS 110) [6] for the inventory process. SAS 106 includes the latest guidance on financial statement assertions. [7]
In 1951, the first 24 Statements on Auditing Procedure were codified [6] The Codification also contains a summary history of the process of standardizing auditing practice up to 1951 (see pp. 5–8). In 1954, the Committee on Auditing Procedure finished work on the booklet Generally Accepted Auditing Standards: Their Significance and Scope. [7]
In the control testing stage, audit evidence is used by the auditor to consider the mix of audit test of controls and audit substantive tests. [9] In the substantive testing stage, audit evidence is defined as the information that the auditor needs to support the appropriation of financial statement assertions. [10]
For example, an auditor may: physically examine inventory as evidence that inventory shown in the accounting records actually exists (existence assertion); inspect supporting documents like invoices to confirm that sales did occur (occurrence); arrange for suppliers to confirm in writing the details of the amount owing at balance date as evidence that accounts payable is a liability (rights ...
A company’s balance sheet is generally broken down into three major categories, including: Assets: Includes cash, cash equivalents , marketable securities, accounts receivable, inventory ...
The American Institute of Certified Public Accountants began codifying the Statements on Auditing standards semiannually in 1976. The Codification of Statements on Auditing Standards is generally issued in January, and the U.S. Auditing Standards is issued as part of the AICPA Professional Standards in June of each year.