Financial Statement Assertions

Policies, procedures, and internal control, including adequate monitoring and reporting, should be designed to ensure operating effectiveness of control objectives for financial reporting are met. These objectives, known as financial statement assertions as defined by the AICPA Statement of Auditing Standards No. 106, include the following: 

Assertions about classes of transactions and events for the period under audit:

• Occurrence. Transactions and events that have been recorded have occurred and pertain to the entity.
• Completeness. All transactions and events that should have been recorded have been recorded.
• Accuracy. Amounts and other data relating to recorded transactions and events have been recorded appropriately.
• Cutoff. Transactions and events have been recorded in the correct accounting period.
• Classification. Transactions and events have been recorded in the proper accounts.

Assertions about account balances at the period end:

• Existence: Assets, liabilities, and equity interests exist.
• Rights and obligations. The entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
• Completeness. All assets, liabilities, and equity interests that should have been recorded have been recorded.
• Valuation and allocation. Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.

Assertions about presentation and disclosure:

• Occurrence and rights and obligations. Disclosed events and transactions have occurred and pertain to the entity.
• Completeness. All disclosures that should have been included in the financial statements have been included.
• Classification and understandability. Financial information is appropriately presented and described and disclosures are clearly expressed.
• Accuracy and valuation. Financial and other information are disclosed fairly and at appropriate amounts.

The assertions are defined to ensure that within the financial reporting is fairly stated for a specific period, such that:

• Only valid transactions are processed (Existence/Validity)
• Transactions are recorded timely and within the proper period. Under accrual basis accounting, revenues are recorded when earned; expenses when incurred. (Occurrence/Cut-off)
• All transactions are processed that should be. Under accrual basis, all transactions, such as accruals, valuation adjustment and management estimates, should be recorded. (Completeness)
• Transactions are calculated using an appropriate methodology under current FASB standards and/or are computationally accurate. Management estimates utilize underlying reasonable expectations. (Valuation). 

1. As of a specific date, assets represent the legal rights of the organization and liabilities reflect legal obligations. (Rights & Obligations)
2. Components of financial statements (or other reporting) are properly classified (by type or account) and described. Financial statement footnotes include all required elements under FASB standards. (Presentation & Disclosure/Classification)