”
Assertion level and financial statement level are two different levels of assurance provided by an auditor. Assertion level assurance is provided on individual account balances or classes of transactions, while financial statement level assurance is provided on the financial statements as a whole. Assertion level assurance is less comprehensive than financial statement level assurance, as it does not consider the interactions between different accounts and transactions. However, it can be more useful for users who are interested in specific aspects of the financial statements. Financial statement level assurance is more comprehensive than assertion level assurance, as it considers the interactions between different accounts and transactions. It is the highest level of assurance that an auditor can provide, and it is typically required by users who need to rely on the financial statements for decision-making.
Level of Assurance
In financial statement audits, the level of assurance is defined by the procedures performed by the auditor and the level of evidence obtained. There are two main levels of assurance:
- Reasonable assurance – This is the highest level of assurance that can be provided by an auditor. It means that the auditor has obtained sufficient appropriate evidence to conclude that the financial statements are free from material misstatement, whether due to fraud or error.
- Limited assurance – This is a lower level of assurance than reasonable assurance. It means that the auditor has obtained less evidence than is required for reasonable assurance, and therefore the auditor cannot express an opinion on whether the financial statements are free from material misstatement.
Assertions in Financial Statement Audits
Assertions are statements made by management about the accuracy and completeness of the financial statements. The auditor’s responsibility is to assess the validity of these assertions. There are five main categories of assertions:
- Existence or occurrence – This assertion states that the assets, liabilities, and equity interests listed in the financial statements actually exist and that the transactions recorded have actually occurred.
- Completeness – This assertion states that all of the assets, liabilities, and equity interests that should be included in the financial statements have been included.
- Rights and obligations – This assertion states that the entity has legal title to the assets and that it is liable for the liabilities.
- Valuation and allocation – This assertion states that the assets, liabilities, and equity interests have been valued and allocated in accordance with generally accepted accounting principles.
- Presentation and disclosure – This assertion states that the financial statements are presented in accordance with generally accepted accounting principles and that all of the required disclosures have been made.
Financial Statement Level
The financial statement level is the level at which the auditor expresses an opinion on the overall fairness of the financial statements. The auditor’s opinion can be either unqualified, qualified, adverse, or a disclaimer of opinion.
An unqualified opinion is the most favorable type of opinion that an auditor can issue. It means that the auditor has obtained sufficient appropriate evidence to conclude that the financial statements are free from material misstatement, whether due to fraud or error.
A qualified opinion is issued when the auditor has obtained sufficient appropriate evidence to conclude that the financial statements are free from material misstatement, except for a specific matter. The specific matter must be disclosed in the auditor’s report.
An adverse opinion is issued when the auditor has concluded that the financial statements are materially misstated. The auditor must state the reasons for the misstatement in the auditor’s report.
A disclaimer of opinion is issued when the auditor has not obtained sufficient appropriate evidence to form an opinion on the fairness of the financial statements. The auditor must state the reasons for the disclaimer of opinion in the auditor’s report.
| Level of Assurance | Assertions | Financial Statement Level |
|---|---|---|
| Reasonable assurance | Existence or occurrence, completeness, rights and obligations, valuation and allocation, presentation and disclosure | Unqualified opinion |
| Limited assurance | Existence or occurrence, completeness | Qualified opinion |
| N/A | N/A | Adverse opinion |
| N/A | N/A | Disclaimer of opinion |
Audit Evidence
Audit evidence is any information used by the auditor to support their opinion on the financial statements. This evidence must be sufficient, relevant, and reliable to be useful. Some common types of audit evidence include:
- Documents, such as invoices, contracts, and bank statements
- Physical evidence, such as inventory and equipment
- Oral evidence, such as interviews with management and employees
Sampling
Sampling is a technique used by auditors to test a portion of a population to make inferences about the entire population. This is done when it is not practical to test the entire population due to time or cost constraints. The auditor must carefully design the sample to ensure that it is representative of the population as a whole.
Assertion Level
Assertion level is the level of assurance that the auditor obtains about a specific assertion or set of assertions made by management in the financial statements. The auditor’s objective is to obtain reasonable assurance that the assertions are fairly presented in accordance with the applicable financial reporting framework. The level of assurance obtained may vary depending on the risk of material misstatement associated with the assertion.
Financial Statement Level
Financial statement level is the level of assurance that the auditor obtains about the financial statements as a whole. The auditor’s objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by error or fraud. The level of assurance obtained may vary depending on the risk of material misstatement at the financial statement level.
| **Assertion Level** | **Financial Statement Level** |
|—|—|
| Limited assurance | Negative assurance |
| Moderate assurance | Moderate assurance |
| Reasonable assurance | Reasonable assurance |
Assertion Level vs. Financial Statement Level
When auditors evaluate financial statements, they focus on two levels of assertion: assertion level and financial statement level.
Assertion Level
- Involves examining individual line items or account balances within the financial statements.
- Auditors test the accuracy, completeness, existence, and valuation of each assertion.
- Detailed audit procedures are used to obtain evidence and support the auditors’ conclusions.
Financial Statement Level
- Involves evaluating the overall presentation and disclosure of the financial statements.
- Auditors assess whether the financial statements are free from material misstatement, both individually and as a whole.
- They consider the reasonableness of the assumptions and estimates used in the preparation of the financial statements.
Representation Letters and Management Responsibilities
Auditors rely on management to provide written representations, which are statements made by management about the accuracy and completeness of the financial information.
Management responsibilities include:
- Preparing and presenting the financial statements.
- Maintaining an internal control system to prevent and detect material misstatements.
- Providing auditors with all relevant information.
- Co-operating with the audit process and responding to auditor requests.
| Assertion Level | Financial Statement Level |
|---|---|
| Focuses on individual line items or account balances. | Evaluates the overall presentation and disclosure of the financial statements. |
| Auditors test the accuracy, completeness, existence, and valuation of each assertion. | Auditors assess whether the financial statements are free from material misstatement, both individually and as a whole. |
| Detailed audit procedures are used to obtain evidence and support the auditors’ conclusions. | Auditors consider the reasonableness of the assumptions and estimates used in the preparation of the financial statements. |
Whew! That was quite the ride through the world of assertion and financial statement levels, wasn’t it? I hope you came out of this feeling a bit wiser and maybe even a little bit more confident when it comes to navigating financial statements. Remember, it’s all part of the bigger financial puzzle, and every piece plays an important role. Thanks for hanging in there with me! If you have any more finance-related questions, make sure to drop back in later. I’ll be here, ready to dive into another financial adventure with you.