## Audit Assertions

Assertions are representations by management, explicit or otherwise, that are embodied in the financial statements. The auditor uses assertions to consider the types of potential misstatements that may occur and to design appropriate procedures.

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## Assertions for Transactions and Events (P&L items)

Assertion	What It Means	Key Question
Occurrence	Transactions actually happened and relate to the entity	Did this expense/revenue really occur?
Completeness	All transactions that should be recorded are recorded	Are any transactions omitted?
Accuracy	Amounts and data are recorded correctly	Are amounts arithmetically correct?
Cut-off	Transactions are recorded in the correct accounting period	Is this year's transaction recorded this year?
Measurement	Transactions are recorded at appropriate amounts (including adjustments, discounts)	Have discounts, deductions been correctly applied?
Classification	Transactions are recorded in the proper accounts	Is it under the right head?

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## Assertions for Account Balances (B/S items)

Assertion	What It Means	Key Question
Existence	Assets, liabilities, and equity actually exist	Does this asset physically exist?
Rights and Obligations	Entity has right to assets; liabilities are entity's obligations	Does the entity own/control this asset?
Completeness	All balances are included	Are any assets or liabilities omitted?
Valuation	Balances are at appropriate amounts	Is inventory valued at lower of cost and NRV?

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## Assertion-to-Procedure Quick Mapping

Audit Observation	Assertion Tested
Employee costs do not include unauthorised personnel	Occurrence
All inventory items for the year included regardless of location	Cut-off
Sales recorded correctly; discounts properly adjusted	Measurement
Purchase invoices made in the name of the client	Rights and Obligations
Inventory at lower of cost and NRV per AS 2	Valuation

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## Memory Aids

Transactions (OCACMC): Occurrence · Completeness · Accuracy · Cut-off · Measurement · Classification

Balances (ERCO-V): Existence · Rights & Obligations · Completeness · (Occurrence) · Valuation

Worked example

### Example 1

Q (PYP JAN 25 — 5 marks): Identify and explain the assertions tested by the following audit procedures:

(i) Employee benefit expenses do not include cost of any unauthorised personnel.

Assertion: Occurrence — Transactions recognised in the financial statements have occurred and relate to the entity. The auditor verifies that only legitimate employees are included in expense records.

(ii) All items of inventory pertaining to the relevant year shall be included regardless of location.

Assertion: Cut-off — All assets and liabilities are reported in the appropriate period. The auditor ensures year-end inventory is captured in the correct accounting period irrespective of physical location.

(iii) Sales are recorded correctly based on invoices; discounts properly adjusted.

Assertion: Measurement — Transactions are recorded accurately at their appropriate amounts. There are no errors in preparing documents or posting transactions; figures are not misstated.

(iv) The entity owns or controls inventory; purchase invoices are in the name of the client.

Assertion: Rights and Obligations — The entity has the right to assets (ownership/legal title), and liabilities represent the entity's actual obligations.

(v) Inventory recognised at lower of cost and NRV per AS 2.

Assertion: Valuation — Assets, liabilities, and equity balances have been valued appropriately; no overstatement or understatement.

⚠️ Common exam mistakes

Confusing 'Occurrence' (for transactions/P&L) with 'Existence' (for balances/B/S) — occurrence is about events, existence is about physical assets
Mapping the inventory location/period question to 'Completeness' instead of 'Cut-off' — the 'relevant year' language signals a period/cut-off question
Treating 'Measurement' and 'Accuracy' as identical — measurement includes correctness of adjustments and discounts, not just arithmetic accuracy
Forgetting that 'Rights and Obligations' covers both asset ownership AND the entity's liability obligations
Answering by only naming the assertion without explaining what it means — exam answers must define the assertion

Reference:

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Audit Assertions — Classification and Application

Worked example

⚠️ Common exam mistakes