UNDERSTANDING FINANCIAL STATEMENT ASSERTIONS

Management assertions are basically confirmations made by a company regarding information included in their finance statements. This can be considered as an entity's official verifications that their reported figures such as income and balance sheet are all accurate, and in line with the necessary standards of measurement.

This is an important factor for investors as well, since every metric they need to assess stability is included here. If proven inaccurate, this could lead to misinformation of numeric gauges such as P/E ratio and EPS, which are used in evaluating stocks.

As statements are audited, the main component for review is the credibility of these assertions. In the US there is a standard form for financial statements which are based from the Generally Accepted Accounting Principles.

Here are the different kinds of assertions:

Existence

This declares that all holdings, liabilities, and balances claimed by a firm actually exist and are cited at the end of the accounting period. It applies to everything covered by the statement.

Completeness

It affirms that every item that should be included in your statement is there. For instance, all transactions you stated should be disclosed. The same goes with inventory, regardless of whether it is currently owned by a third party.

Rights and duties

It emphasizes the company's ownership over all its holdings as issued in their report, as well as their right to use these assets. At the same time, it also indicates that liabilities listed are also under the firm's responsibility.

Accuracy and value

As earlier mentioned, this serves as a confirmation that all cited figures are true and based on proper valuation of assets and liabilities. For example, inventory states would be valued in accordance with the International Accounting Standards Board's IAS 2 guidelines,.

Presentation and disclosure

This asserts that all details regarding the company's statement of finance have been covered in a fair and comprehensive manner.