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.
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.