management assertions auditing

The implicit or explicit claims by the management on the preparation and appropriateness of financial statements and disclosures are known as management assertions. Management assertions are claims made by members of management regarding certain aspects of a business. The concept is primarily used concerning auditing a company’s financial statements, where the auditors rely upon various management assertions auditing assertions regarding the business. In addition to the financial data under review, auditors also consider the actual financial statements to ensure they are clear, include the appropriate related disclosures, and are formatted in accordance with accounting standards and the law. Management assertions are the claims or representations made by management in the financial statements.

management assertions auditing

What Are the Audit Assertions? Definition, Types, And Explanation

If the evidence gathered suggests that an assertion is not supported, the auditor will perform additional procedures to resolve the matter. This iterative process continues until the auditor obtains reasonable assurance about the assertions under consideration. The main goal of SOC 2 reporting is to assess whether a particular system satisfies the requirements for the relevant Trust Services Criteria (TSC).


In many cases, an auditor will look at individual customer accounts, including payments. To verify that the amount recorded as paid is the same as received from the customer. All disclosures that should have been included in the financial statements have been included. Organizations of all sizes and types, from megacorporations to small businesses to nonprofits, prepare financial statements they are obliged to prepare and present as transparently and accurately as possible when audited.

Analytical Procedures

The final category encompasses assertions on presentation and disclosure, which are crucial for users of financial statements to make informed decisions. Occurrence and rights and obligations assertions relate to the disclosure of events and transactions that have occurred and pertain to the entity. Completeness of information is vital to ensure that all disclosures that should have been included in the financial statements are present. Classification and understandability assertions require that financial information is appropriately presented and that disclosures are clear and comprehensible to users. Finally, accuracy and valuation assertions ensure that financial and other information is disclosed fairly and at appropriate amounts.

Account Balance Assertions:

Assertions assist auditors in considering a wide range of issues that are relevant to the authenticity of financial statements. The consideration of management assertions during the various stages of audit helps to reduce the audit risk. Audit assertions, financial statement assertions, or management’s assertions, are the claims made by the management of the company on financial statements. The moment the financial statements are produced, the assertions or the claims of management also exist, e.g., all items in the income statement are assured to be complete and accurate, etc. Your financial statements are your promise or your assertion that everything contained in those statements is accurate. Unless you’re an auditor or CPA, you’ll never have to worry about testing audit assertions, and if you continue to enter financial transactions accurately, you won’t have much to worry about during the audit process.

Footnotes (Appendix A of AS 1105 – Audit Evidence):

Transactions have been classified and presented fairly in the financial statements. Opposite to right and obligation, we test the audit assertion of cut-off for income statement transactions only. Auditors may look at other assets as well to determine whether they are the property of the business or are just being used by the business. Liabilities are another area that auditors will review to determine that any bills paid from the business belong to the business and not the owner. Amounts and other data relating to recorded transactions and events have been recorded appropriately. All transactions and events that have been recorded have occurred and pertain to the entity.

How the management assertion fits into a SOC 2 report

This standard explains what constitutes audit evidence and establishes requirements regarding designing and performing audit procedures to obtain sufficient appropriate audit evidence. Management assertions form the bedrock upon which auditors assess the financial statements of a company. They are categorized based on the different aspects of financial reporting that they address, each with its own set of criteria that must be evaluated by the auditor. It is the third assertion type that can fall under both transaction-level assertions and account balance assertions. [COMPANY NAME] management has prepared this description of [COMPANY NAME] (the “service organization”) [SYSTEM NAME] system for the period of [MONTH, DAY, YEAR] to [MONTH, DAY, YEAR] (“description”). The description is based on the AICPA criteria listed in Section 200 of the Description Criteria for a Description of a Service Organization’s System in a SOC 2 Report document.

management assertions auditing

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