Financial Statement Assertions its name itself tell the complete story of what it meant. Monetary of cash in the reports and confidential documents of the company. These types of documents are very confidential for the organization and mostly these are used by the management of the organization. It tells you the complete story about the growth, asset, liabilities, etc. of the company. In this blog, we are going to discuss what is Financial Statement Assertion and its type?. So tell begin with us…
Financial Statement Assertions are made for the management people to know the company’s internal and external financial statements. These statements are prepared by auditors according to the rules and laws. These auditors are authorized people who verify the company financial statement accuracy and also check company pays tax accordingly. This is an official statement of the company and it helps us to figure out the companies truthful assets and liabilities.
- It is a management confidential financial statement that is made to figure out the accuracy of the company.
- Investors depend on this statement to know the earning ratio of the company. This statement helps investors to make a decision whether they will invest in this company or not.
- All the companies must give a clear picture of the existence, accuracy, volubility and etc thing.
- FASB requires companies to prepare their financial statements by following the GAAP.
Financial statement assertions are the set of documentation that are prepared to tell the financial statements of the company to another party. It is a very complex and interrelated set of documentation of the reports. There are five different types of financial statement assertions that are collected by the auditors to verify every item in the financial statement
- Existence: Existence specifies that weather the given assets and liabilities of the company are exist at that particular time when the recorded transaction is specified. This assertion on the existence is to check the recorded entity is actually exists in the given time period. It is also required to check actually present at the specified time and date. It is not sufficient that only we check and test books where the record of the assets and liabilities there. We should have physical proof of the existence of the asset and liabilities.
- Completeness: A assertions in completeness specify whether all transactions and accounts are prepared that are present in the financial statements. Checking the completeness of a financial statement is to ensure that all the transactions of assets and liabilities are given in the financial statement are correctly included. the auditors show and prove with the help of evidence that all the recorded transactions are included.
- Valuation: Assertions of valuation specify whether all the assets, liability, revenue, and expense component are present in the financial statements at their original value. Valuation also checks different items and components of the financial statement whether all these are included with the right amount. The list of components are assets, liabilities, expenses, and revenue. The auditor audit the statement with the help of GAAP.
- Rights and Obligations: Assertions about rights and obligations specify that the assets are the rights of the entity and liabilities are the obligations of the dying entity at a given date. It also ensures that all the assets and liabilities are included in the financial statement are belong to the company. This is to check whether the assets that are included in the financial statement are the rights and the liabilities are the obligations of the company. All the liabilities which are included in the statement are the companies liabilities, not another party. For the accuracy of the sheet sometimes special purpose entities have been created.
- Presentation and Disclosure: Assertions about presentation and disclosure specify whether all the particular components of the financial statements are properly specified, described, and disclosed. This assertion is to ensure that all the items in the financial statements are classified in the right order and in the right way. It is important to check and analyze that the account balance is correctly calculated as well as specified properly in the statement.