Guide to Using International Standards on Auditing in - IFAC

17.03.2014 Views
78 ong>Guideong> ong>toong> ong>Usingong> ong>Internationalong> ong>Standardsong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts When management makes a representation ong>toong> the audiong>toong>rs such as “the financial statements as a whole are presented fairly in accordance with the applicable financial reporting framework,” it actually contains a number of embedded assertions. These embedded assertions (by management) relate ong>toong> the recognition, measurement, presentation, and disclosure of the various elements (amounts and disclosures) in the financial statements. Examples of management’s assertions include: • All the assets in the financial statements exist; • All sales transactions have been recorded in the appropriate period; • Invenong>toong>ries are stated at appropriate values; • Payables represent proper obligations of the entity; • All recorded transactions occurred in the period under review; and • All amounts are properly presented and disclosed in the financial statements. These assertions are often summarized by a single word such as completeness, existence, occurrence, accuracy, valuation, et al. For example, management may assert ong>toong> the audiong>toong>r that the sales balance in the accounting records contains all the sales transactions (completeness assertion), the transactions ong>toong>ok place and are valid (occurrence assertion), and transactions have been properly recorded in the accounting records and in the appropriate accounting period (accuracy and cuong>toong>ff assertion). 6.2 Description of Assertions Paragraph A111 of ISA 315 describes the categories of assertions that can be used by the audiong>toong>r ong>toong> consider the different types of potential misstatements. These categories are described in the exhibit below. Exhibit 6.2-1 Classes of Transactions and Events for the Period under Audit Assertion Occurrence Completeness Accuracy Cuong>toong>ff Classification Description Transactions and events that have been recorded have occurred and pertain ong>toong> the entity. All transactions and events that should have been recorded have been recorded. Amounts and other data relating ong>toong> recorded transactions and events have been recorded appropriately. Transactions and events have been recorded in the correct accounting period. Transactions and events have been recorded in the proper accounts.

79 ong>Guideong> ong>toong> ong>Usingong> ong>Internationalong> ong>Standardsong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Account Balances at the Period End Assertion Existence Rights and Obligations Completeness Valuation and Allocation Description Assets, liabilities, and equity interests exist. The entity holds or controls the rights ong>toong> assets and liabilities [that] are the obligations of the entity. All assets, liabilities, and equity interests that should have been recorded have been recorded. Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded. Presentation and Disclosure Assertion Occurrence, Rights, and Obligations Completeness Classification and Understandability Accuracy and Valuation Description Disclosed events, transactions, and other matters have occurred and pertain ong>toong> the entity. All disclosures that should have been included in the financial statements have been included. Financial information is appropriately presented and described, and disclosures are clearly expressed. Financial and other information is disclosed fairly and at appropriate amounts. The applicability of assertions ong>toong> the financial statement areas is summarized below. Exhibit 6.2-2 Assertions Classes of Transactions Account Balances Presentation and Disclosure Existence/occurrence Completeness Rights and obligations Accuracy/classification Cuong>toong>ff Classification and understandability Valuation/allocation 6.3 Combined Assertions ISA 315 allows the audiong>toong>r ong>toong> use the assertions exactly as described above, or ong>toong> express them differently, provided all aspects described above have been covered.

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