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ACCA Applied Skills · Audit and Assurance

Assertions and Audit Evidence for ACCA Audit and Assurance

Assertions are the claims management makes in the financial statements, such as existence or completeness. Audit evidence is the information you gather to test those claims. To solve questions, identify the assertion at risk, choose a procedure that tests it, and explain why the evidence is sufficient and appropriate.

What this chapter covers

This chapter is the working core of the Audit and Assurance paper. It starts with assertions: what management is claiming about transactions, balances and disclosures. It then covers audit evidence: how much you need (sufficient), how good it must be (appropriate, meaning relevant and reliable), and the procedures you use to get it.

The later topics apply this. You look at the procedures auditors use (inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and enquiry), how sampling lets you test part of a population, and how evidence differs for inventory, receivables and accounting estimates.

The chapter links to almost everything else in the paper. Risk assessment identifies which assertions are at risk. Internal controls tell you whether to rely on controls or test substantively. Completion and reporting depend on whether you have enough evidence to support an opinion. If you master this chapter, those other chapters become easier.

Questions on assertions and evidence appear in the objective test sections and in the written constructed response questions. Objective questions are marked all or nothing, so you need to match an assertion or procedure precisely. Written questions often ask you to describe audit procedures for a given balance, and you score by linking each procedure to a clear purpose. Because this skill is reused in almost every scenario, time spent here pays back across the whole paper.

Assertions and audit evidence: topics in the order to study them

  1. 1Financial Statement AssertionsEverything else depends on knowing what you are testing, so learn the assertions and what each one means first.
  2. 2Sufficient Appropriate Audit EvidenceOnce you know what to test, you learn how much evidence is needed and what makes it reliable.
  3. 3Audit Procedures to Obtain EvidenceProcedures are the tools for gathering evidence, and you can now judge which ones give the best evidence for each assertion.
  4. 4Audit Sampling and Selecting Items for TestingSampling is how you apply procedures in practice when you cannot test every item, so it follows the procedures.
  5. 5Specific Evidence: Inventory, Receivables and EstimatesThese areas bring assertions, procedures and sampling together, so they work best as the final application topic.

How to prepare Assertions and audit evidence

Aim to move from definitions to application. Exam questions rarely ask for a list; they ask you to pick or design a procedure for a scenario.

  1. Learn each assertion in your own words and write one example of a misstatement for each. Do this for transactions, balances and disclosures.
  2. Build a table on paper matching each assertion to the procedures that best test it, and note the direction of testing (for example, existence tests from ledger to item, completeness from item to ledger).
  3. Learn the factors that make evidence more reliable, such as external over internal, auditor-obtained over management-provided, and written over oral.
  4. Study sampling terms: statistical versus non-statistical, sampling risk, tolerable misstatement and the common selection methods. Be ready to say when each method suits.
  5. For inventory, receivables and estimates, write a short procedure list for each, using the assertions as headings so every point has a purpose.
  6. Practise objective test questions under timed conditions, then write full answers to two or three constructed response questions, using a clear layout of procedure and purpose.
  7. Review wrong answers and note which assertion or procedure you confused.

Common mistakes in Assertions and audit evidence

  • Listing procedures without saying which assertion they test.

    Fix: After each procedure, add the purpose, such as to confirm existence or valuation.

  • Confusing existence with completeness and testing in the wrong direction.

    Fix: Remember that existence starts from the recorded item and completeness starts from the real item or source document.

  • Treating sufficient and appropriate as the same thing.

    Fix: Use sufficient for quantity and appropriate for quality, and discuss both when asked to evaluate evidence.

  • Relying on enquiry of management as the main evidence.

    Fix: Pair enquiry with inspection, confirmation or recalculation to corroborate it.

  • Giving vague procedures like check the invoices.

    Fix: State what you select, what you compare it with and what you expect to find.

  • Mixing up sampling terms or claiming sampling removes all risk.

    Fix: Learn each term with a one-line definition and remember that sampling always carries some risk.

Last-day revision: Assertions and audit evidence

  • Assertions are management's claims; audit evidence tests them.
  • Transaction assertions include occurrence, completeness, accuracy, cut-off and classification.
  • Balance assertions include existence, rights and obligations, completeness and valuation and allocation.
  • Disclosure assertions cover occurrence, rights and obligations, completeness, classification and understandability, accuracy and valuation.
  • Sufficient is about quantity; appropriate is about quality, meaning relevance and reliability.
  • External evidence is generally more reliable than internal; original documents more than copies.
  • Procedures: inspection, observation, external confirmation, recalculation, reperformance, analytical procedures, enquiry.
  • Enquiry alone is not enough evidence; corroborate it.
  • Existence: test from the ledger to the physical item. Completeness: test from the item to the ledger.
  • Sampling risk is the risk that the sample conclusion differs from testing the whole population.
  • For estimates, review the method, assumptions and data, and compare with later events.
  • Write each procedure with its purpose, linked to an assertion.

Assertions and audit evidence in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Assertions and audit evidence: frequently asked questions

What are the assertions in ACCA Audit and Assurance?

They are the claims management makes about transactions, account balances and disclosures. Examples include existence, completeness, accuracy and valuation. You use them to decide what each audit procedure is meant to prove.

What does sufficient appropriate audit evidence mean?

Sufficient means enough evidence in quantity to support the opinion. Appropriate means the evidence is relevant and reliable. Higher risk areas need more evidence, and weak quality cannot be fixed just by collecting more.

How do I answer a question asking for audit procedures?

Pick procedures that fit the specific balance in the scenario. State what you will do and why, linking it to an assertion. Use specific actions rather than general phrases.

Do I need to know statistical sampling in detail?

You need to understand the ideas, not complex calculations. Know the difference between statistical and non-statistical sampling, what sampling risk is, and the main selection methods and when they suit.