Question

Identify the IAASB ISA that provides guidance on management assertions. List the management assertions identified in the IAASB ISA and compare and contrast the IAASB management with those of the PCAOB.

Answer 1

1. ISA 315 - "Identifying and assessing the risks of material misstatement through understanding the entity and its environment" provides guidance on the management assertions.

2. Management assertions as defined by ISA 315 falls into the following 3 categories :

a. Transaction & Events :

i) Occurrence : That the transactions and events comprising the financial statements have actually occurred.

ii) Completeness : All the transactions conducted by the entity have been considered in the financial statements.

iii) Accuracy : Transactions have been recorded accurately.

iv) Cut-off : Transactions have been recorded in the appropriate period.

v) Classification : Transactions have been recorded under the correct account classifications.

b. Account Balances at period end :

i) Existence : Assets & Liabilities appearing in the financial statements as at period end do actually exist.

ii) Rights & Obligations : Company has the right to control the assets and is obligated to pay the liabilities.

iii) Completeness : All assets and liabilities have been recorded in the financial statements.

iv) Valuation & Allocation : Assets and liabilities have been valued appropriately.

c. Presentation & Disclosure :

i) Occurrence & Rights and obligations : Disclosed events, transactions, and other matters have occurred and pertain to the entity.

ii) Completeness : All the disclosures have been appropriately covered in the financial statements.

iii) Classification and understandability : Financial information is appropriately presented and described, and disclosures are clearly expressed.

iv) Valuation & Allocation : All the disclosures have been presented appropriately and with fair amounts.

3. Compare the assertions as per ISA with PCAOB :

We have already described how ISA 315 describes the management assertions in Point 2 above. Now let's see how management assertions are described in PCAOB :

Auditing Standard No. 15 - "Audit Evidence" of PCAOB describes the management assertions as follows :

As per AS-15 : Management implicitly or explicitly makes assertions regarding the recognition, measurement, presentation, and disclosure of the various elements of financial statements and related disclosures. Those assertions can be classified into the following categories:

i) Existence & Occurrence : Assets and liabilities actually exist on any given date

ii) Completeness : The financial statements are complete in all respects.

iii) Valuation or allocation : Assets and liabilities have been valued appropriately.

iv) Rights & Obligations : Company has the right to control the assets and is obligated to pay the liabilities.

v) Presentation & Disclosure : Assets and liabilities have been appropriately classified and presented in the financial statements.

Hence, we can conclude that though management assertions described by ISA 315 and AS-15 under PCAOB cover the same assertions, however, ISA 315 has elaborated these assertions further into 3 categories as described in point 2 above. Though ISA 315 provides more clarity over the assertions by dividing the major 5 assertions into further 3 categories, however on an overall level what ISA 315 and what AS-15 want to depict through these assertions is the same.

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