Financial statement assertions

Financial statement assertions are claims made by an organization's management regarding its financial statements. The assertions form a theoretical basis from which external auditors develop a set of audit procedures. These assertions are as follows:

  • Accuracy. All of the information contained within the financial statements has been accurately recorded.
  • Completeness. All of the information that should be disclosed has been included within the financial statements and accompanying footnotes, so that readers have a complete picture of the results and financial position of the entity.
  • Cut-off. Transactions have been compiled into the correct reporting period.
  • Existence. The information recorded in the financial statements actually occurred during the year; fraudulent transactions are most likely to violate this assertion.
  • Rights and obligations. The entity is entitled to the assets it is reporting, and is reporting all of its obligations as liabilities.
  • Understandability. The information contained within the financial statements has been clearly presented, with no intent to obfuscate the results or financial position of the entity.
  • Valuation. The transactions that are summarized in the financial statements were properly valued; this is a particular concern when transactions must be either initially or subsequently recorded at their market value.

If audit procedures result in a conclusion that any of the preceding assertions are not correct, then the auditors may need to conduct additional audit procedures, or they may not be able to provide a clean audit opinion at all.

If management is committing fraud in generating financial statements, it is possible that all of the preceding assertions will prove to be false.