Assertions used in the New DTT Audit Approach Manual – Practice Aid – March 2010 – For internal use only

© Deloitte Touche Tohmatsu 2010 Page 1 of 2

The New DTT Audit Approach Manual moves away from the use of potential errors and uses the assertions that are set out in the International Standards on Auditing. In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding the recognition, measurement, presentation and disclosure of the various elements of financial statements and related disclosures. Assertions used by us to consider the different types of potential misstatements that may occur are set out below and have also been linked to the old potential errors.

Assertions Examples of Potential Misstatements Potential Errors

Assertions about classes of transactions and events for the period under audit 1: Occurrence—transactions and events that have been recorded have occurred and pertain to the entity

Potential misstatements for classes of transactions and events for the period under audit, linked to the assertion occurrence, may result from: l Fictitious or unauthorized transactions are entered on

source documents or directly into the application system (input)

l Transactions are duplicated when input l Invalid input is captured in the subsidiary ledgers.

Validity

Completeness—all transactions and events that should have been recorded have been recorded

Potential misstatements for classes of transactions and events for the period under audit, linked to the assertion completeness, may result from: l Transactions or events that are not identified and therefore

are not entered on a source document or directly into the application system (input)

l Input is not captured into the subsidiary ledgers l Input that is rejected is not resubmitted for capture in the

subsidiary ledger.

Completeness

Accuracy—amounts and other data relating to recorded transactions and events have been recorded appropriately

Potential misstatements for classes of transactions and events for the period under audit, linked to the assertion accuracy, may result from: l Input is inaccurately captured into the subsidiary ledgers l Input or subsequent processing reflects amounts in excess

or less than appropriate amounts l Processing of transactions is inaccurate (i.e., summarizing,

calculating, and posting) l Inaccurate adjustments are made to the subsidiary ledgers

or general ledger.

Recording

Cutoff—transactions and events have been recorded in the correct accounting period

Potential misstatements for classes of transactions and events for the period under audit, linked to the assertion cutoff, may result from: l Transactions or events that have occurred or will occur are

recorded too early (i.e., they are recorded in a period prior to when they should have been recorded)

l Transactions or events that have occurred are recorded too late (i.e., they are recorded in a period after the period in which they should have been recorded).

Cutoff

Classification—transactions and events have been recorded in the proper accounts

Potential misstatements for classes of transactions and events for the period under audit, linked to the assertion classification, may result from: l Input is recorded in the incorrect subsidiary ledger or

general ledger account l Subsequent processing of a transaction results in it being

reflected in the incorrect subsidiary ledger or general ledger account.

Recording

Assertions about account balances at the period end: Existence—assets, liabilities, and equity interests exist

Potential misstatements for account balances at the period end, linked to the assertion existence, may result from: l An account balance that was previously correctly recorded

no longer exists and the sale/adjustment has not been recorded

l Sale of an asset with no recording of the sale l Theft of an asset with no recording of the loss.

Validity

Rights and obligations—the entity holds or controls the rights to assets, and liabilities are the obligations

Potential misstatements for account balances at the period end, linked to the assertion rights and obligations, may result from: l The entity no longer having the right to an assets that was

Validity

Assertions used in the New DTT Audit Approach Manual – Practice Aid – March 2010 – For internal use only

© Deloitte Touche Tohmatsu 2010 Page 2 of 2

Assertions Examples of Potential Misstatements Potential Errors

of the entity previously correctly recorded l The entity no longer having an obligation to settle a

liability that was previously correctly recorded. Completeness—all assets, liabilities and equity interests that should have been recorded have been recorded

Potential misstatements for account balances at the period end, linked to the assertion completeness, may result from: l A liability that should have been recorded has not been

recorded, e.g., no accrual at period end for certain liabilities.

Completeness

Valuation and allocation—assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded

Potential misstatements for account balances at the period end, linked to the assertion valuation and allocation, may result from: l Impairments of assets that are not identified and properly

recorded l Inaccurate adjustments that are made to a account

balance at the period end that inappropriately adjust the value of that account balance

l Assets which are amortized over the incorrect period resulting in the remaining asset balance being incorrectly valued

l Fair value adjustments that are not identified and properly recorded.

Valuation / Recording

Assertions about presentation and disclosure: Occurrence and rights and obligations—disclosed events, transactions, and other matters have occurred and pertain to the entity

Potential misstatements for disclosures, linked to the presentation and disclosure assertions may result from: l Fictitious or unauthorized disclosures are included in the

financial statements l Disclosures of contingent liabilities for which the entity no

longer has an obligation for l Disclosures that are not identified and therefore are not

included in the financial statements l Disclosures that are intentionally omitted from the financial

statements l The captions in the financial statements result in amounts

being presented in a misleading way l Input is inaccurately captured into the financial statements l Input into the financial statements reflects amounts in

excess or less than appropriate amounts.

Presentation

Completeness—all disclosures that should have been included in the financial statements have been included Classification and understandability—financial information is appropriately presented and described, and disclosures are clearly expressed Accuracy and valuation—financial and other information are disclosed fairly and at appropriate amounts.

1 Assertions about classes of transactions and events for the period under audit shall be read as being assertions about items included in the Income Statement.

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