Page 90 - CA Inter Bhaskar Vol 1

RISK ASSESSMENT AND INTERNAL CONTROL CA RAVI TAORI

Accuracy and valuation-financial and other information are disclosed fairly and at
appropriate amounts.
Classif cation and understandability-financial information is appropriately presented i
and described, and disclosures are clearly expressed.

RMM at Assertion Level AUDIT BHASKAR CH 03 - PART 01
Risks of material misstatement at the assertion level for classes of transactions, account
balances, and disclosures need to be considered because such consideration directly assists in
determining the nature, timing, and extent of further audit procedures at the assertion level
necessary to obtain sufficient appropriate audit evidence. In identifying and assessing risks of
material misstatement at the assertion level, the auditor may conclude that the identified risks
relate more pervasively to the financial statements as a whole and potentially affect many
assertions.
Assertions may The auditor may use the assertions as described above or may express them differently provided all
be expressed aspects described above have been covered. For example, the auditor may choose to combine the
differently by assertions about transactions and events with the assertions about account balances.
Some Auditors
When making assertions about the financial statements of certain entities, especially, for example,
where the Government is a major stakeholder, management may often assert that transactions and
events have been carried out in accordance with legislation or proper authority. Such assertions may fall
within the scope of the financial statement audit.
Negative A specific mention is required about these things for a proper appreciation of the item and the financial
Assertion position. Negative assertions are also encountered in the financial statements and the same may be
expressed or implied. For example, if it is stated that there is no contingent liability it would be an
expressed negative assertion; on the other hand, if in the balance sheet there is no item as “building”, it
would be an implied negative assertion that the entity did not own any building on the balance sheet
date.
Overall Every financial statement contains an overall representation in addition to the specific assertions so far
Assertions discussed. Each financial statement purports to present something as a whole in addition to its
component details. For example, an income statement purports to present “the results of operations” a
balance sheet purports to present “financial position”. The auditor's opinion is typically directed to these
overall representations. But to formulate and offer an opinion on the overall truth of these statements he
has first to inquire into the truth of many specific assertions, expressed and implied, both positive, and
negative, that makes up each of these statements. Out of his individual judgments of these specific
assertions he arrives at a judgement on the financial statement as a whole.

Identifying Examples
Assertions Let us elaborate this with the help of two illustrations. We must clearly understand that each item
Examples contained in financial statements asserts something to the readers of the accounts to indicate the
(QNO-315.23) ownership, existence, quantity of various things, etc. Auditing is concerned with the testing of the
(MCQ-315.19) authenticity of the information thus conveyed.

Example 1: When we find in the balance sheet, an item under current assets reading as “cash in
hand - Rs 8,000” the obvious assertions that would strike the mind are the following:
The firm concerned had Rs 8,000 in hand in valid notes and coins on the balance sheet day;
That the cash was free and available for expenditure to the firm; and

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