What is a Relevant Assertion?

A relevant assertion is any assertion that has a reasonable possibility of containing a misstatement that would cause a client’s financial statements to be materially misstated. As such, these assertions have a meaningful bearing on whether an account is fairly stated. Thus, not all assertions pertaining to a particular account balance will always be relevant from the perspective of the auditor. For example, the valuation assertion is not relevant when dealing with a cash account, except in cases where foreign currencies are involved. Along the same lines, valuation is always relevant to the allowance for doubtful accounts, but not to the gross trade receivables account.

Classifications of Relevant Assertions

Relevant assertions can be sub-divided into five categories, which are as follows:

Accuracy. The assertion is that transaction amounts have been recorded accurately, and in the correct amounts. Thus, you would verify that the amounts of accounts payable accurately reflect the amounts that a client owes to its suppliers.
Completeness. The assertion is that all business transactions that occurred have been passed through to the financial statements. Thus, you would verify that all credit memos issued are actually used to reduce the reported revenue level.
Existence. The assertion is that all assets, liabilities, and equity interests are real, and that all related transactions were actually recorded. Thus, you would verify that all consignment inventory held by distributors is actually recorded in a client’s accounting records.
Presentation. The assertion is that all parts of the financial statements have been correctly classified and disclosed. Thus, you would verify that all required disclosures have been included in the footnotes to the financial statements.
Rights and obligations. The assertion is that the client holds the rights to all reported assets, and that all liabilities actually represent its obligations. Thus, you would verify that the client actually owns a broadcast license.

The audit approach taken by the auditors should incorporate all of these assertion types, noting for each one the related risk, and the types of evidence that should be collected in order to confirm the assertion.

Examples of Relevant Assertions

Here are several examples of relevant assertions:

Accuracy. The assertion is that all recorded sales transactions reflect the correct amounts as per the agreed sales terms. Therefore, during a revenue audit, an auditor verifies that each recorded sales transaction amount matches the invoiced amount in the sales contracts, ensuring that no discrepancies exist between recorded and actual sales terms.
Completeness. The assertion is that all sales transactions that occurred during the fiscal year are recorded in the financial statements. Therefore, an auditor investigates whether any sales transactions occurring during a fiscal year were not recorded in the sales journal, and posted from there to the general ledger.

The Need for Substantive Procedures

The auditor should develop substantive procedures for every relevant assertion pertaining to each material class of transactions, account balances, and disclosures. This requirement is based on the fact that the auditor’s assessment of risk is inherently judgmental, and so it may not identify all risks of material misstatement.