When it comes to auditing, especially in management audit, there are few statements made related with financial report and also as a proof and comments. These statements called audit asertion. This asertion usually appear in form of declaration or declaration structure completely.
Asertion audit gave few statements and comments implicitly to audited third faction of financial report or performance report.
For financial report which comprised historically and chronologically, this need few steps and divided into few types according to its comment form.
In this article, we will explain in detail about asertion in audit. We will take you to understand about the definition of asertion, its 5 types, and examples related to its functions and benefits from management audit.
Learn this complete explanation here.
Defeinition of Asertion Audit
Let's we know about its definition first, What is asertion audit?
According to its general definition, asertion audit, or asertion of management is a representative of management in form of statement or press release and classification for a transaction in financial report.
Therefore, a report of audit will be watched and more communicative between auditor and also the company especially when knowing its result and process.
Because the audit Management Statement requires the auditor to seek answers from the management and vice versa, requires the management to explain all the evidence on audit report.
Meanwhile according to its specific definition, asertion of audit is a structural declaration from the management for all spendings and earnings, or transactions in financial report.
It can be concluded this component of audit as direct statement or clarification (press release) as form of responsibility of audited financial report to the auditor.
This statement can be released from the management implicitly or explicitly. But its existention is mandatory so auditor will know the reason behind every earnings.
5 Types of Asertion Audit
After we understand about its definition specifically or generally, you need to know because its complex process and depends on its form of the report, therefore asertion audit is divided into five types.
Here are the five types of audit assertions.
1. The presence or absence of (existence & occurrence)
This type related to which assets or cash entities in specific dates and if transactions were audited or not during specific periods.
The example of asertion audit is company management claimed that the product stock are ready to be marketed and audited in balance sheet for sale.
Likewise, management also explain that sales in profit and loss report is also part of product exchange with cash or another payment methods.
2. The Audit Committee (Completeness))
This type of audit assertion refers to the explanation that the company's explanation includes all transactions and accounts that must be presented in the financial statements.
This type allows company management to claim and declare that they have entered all records and entries of goods or money thoroughly.
An example is when a company wants to certify that all sales and purchase records have been recorded in a report to the auditor.
3. Assertion of Rights and obligations
This type is a clarification condition where assets are the company rights or even liabilty from them.
For example, a company states that the capitalised lease amount on the balance sheet represents the cost of acquiring the property rights leased by the entity in reflecting its liabilities.
4. Valuation and Allocation
This type related to its management clarification for component assets, obligations, earnings, and liablity which can be included in the report with detailed sum.
For example, a management states that assets are recorded at cost and acquired in a systematically structured allocation.
Similarly, in receivables, management will state that the trade receivables recorded in the report are at net realisable value.
5. Assertions presentation and disclosure (Presentation & Disclosure)
Is a type that refers to a specific component of the classified financial statements. Which is properly explained and disclosed by the management.
For example, management assumes that liabilities classified as long-term debt in the report do not mature within one year.
Likewise. management will also state that amounts presented as extraordinary items in the income statement should be reported and disclosed correctly and clearly.
Functions of Asertion Audit
After knowing the five types of audit management assertions, you need to know the functions of audit management assertions. The functions of audit assertions are as follows.
Reveal Every Reports which Need Accountabilities
In some types above, there are few reports which altough not containing errors, the management need to give clarifications.
One of its functions of management asertion of audit is to reveal a report which not known by auditor.
Increase Precision
By giving statement of every report, auditor will be more precisely in analyzing and scanning so it would be easier in finding any mistakes in financial reports.
Bridging for Auditor and Company Management
Not to forget main function is became a communication bridge between auditor and company in making and scanning validity of financial report.
If a financial report have deficiency, auditor is able to ask it directly to the management before management asertion from previous manager.
This make auditor and management more synergic and increase audit efficiency.
Increase Transparency
With communication between auditors and management, there will be greater transparency in financial statements. Auditors do not need to find additional data or further investigate reports that have clear statements.
Benefits of Asertion Audit
After understand four functions of audit clarifications from management, going to its benefits. Here are few benefits which you often found.
Increase Accuracy and Validity
One of the benefits of audit assertions is to improve the accuracy and validity of financial statements. With clear audit assertions, the validity of the report will be more valid.
Improving Corporate Compliance and Risk Management
Audit assertions are also useful in improving the company's compliance with the auditor's advice. Then the auditor will also improve risk management capabilities if there is something in the report that needs to be addressed.
Increase Reputation and Confidence
The trust and reputation of a company depends on the clarity of its financial statements. With clear audit management assertions, the audit component of the report will be clearer and benefit the company for a long time.
Examples of Asertion Audit
The examples of audit assertions are as follows. Suppose a company sends its financial statements to the auditor, the management will first provide an explanation either in writing or not.
If there is a report that allows for errors such as in the income or expense section, management will formally explain the section to the auditor so that the auditor can mark the section.
Closing
That's the full explanation of this article regarding audit assertions by management. You already know the definition, five types of audit assertions, functions, benefits, and examples.
Audit assertions are a very useful audit component for auditors and companies. The auditor will find it easier with clear clarification from management.
Vice versa, the company will be more trusted by auditors and increase the company's transparency in managing financial reports.
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