How to Write a SOC 2 Management Assertion Example + Template

11/ AU sec. 329, Substantive Analytical Procedures, establishes requirements on performing analytical procedures as substantive procedures. 3/ When using the work of a specialist engaged or employed by management, see AU sec. 336, Using the Work of a Specialist. We confirm, to the best of our knowledge and belief, [as of (date of auditor’s report),] the following representations made to you during your audit(s). The goal for companies making such assertions is to minimize (or, ideally, avoid) the risk of material misstatement by failing to provide financial data that is, in fact, complete and accurate. 11AS 2305, Substantive Analytical Procedures, establishes requirements on performing analytical procedures as substantive procedures. Account balance assertions are related to balance sheet items such as inventory, liabilities, stockholder’s equity, and debt capital.

Furthermore, the historical accuracy of management’s assertions plays a role in their current validity. Auditors consider the entity’s track record, looking for patterns of inaccuracies or misstatements in prior periods. This historical perspective can inform the auditor’s judgment about the likelihood of material misstatements in the current period’s financial statements.

Relevance and Reliability

This will determine the mix of tests of control and substantive procedures but both will tend to focus on transactions that have occurred so far in the period. All transactions, balances, events and other matters that should have been disclosed have been disclosed in the financial statements. Audit entity owns or controls the inventory recognized in the financial statements. Any inventory held by the audit entity on account of another entity has not been recognized as part of inventory of the audit entity. [COMPANY NAME] management has prepared this description of [COMPANY NAME] (the “service organization”) [SYSTEM NAME] system for the period of [MONTH, DAY, YEAR] to [MONTH, DAY, YEAR] (“description”).

• Below is a summary of the assertions, a practical application of how the assertions are applied and some example audit procedures relevant to each.
• This concerns whether all the disclosures and appropriate information other than that presented in the company’s financial statements are fairly represented and easy to understand.
• In many cases, an auditor will look at individual customer accounts, including payments.
• To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor’s opinion is based.
• Salaries and wages cost recognized during the period relates to the current accounting period.
• This can range from verifying that a bank deposit has been completed to authenticating accounts receivable balances by determining whether a sale took place on the day specified.

The audit assertions can provide us the clues on the potential misstatements that might occur on financial statements. Likewise, we usually use these assertions to assess external financial reporting risks. As discussed in paragraph .07 of this section, representation letters ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity’s business or industry. The following is a list of additional representations that may be appropriate in certain situations.

Rights and Obligations

This holistic approach ensures that auditors do not view assertions in isolation but understand their collective impact on the financial statements’ integrity. Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the VALUATION of X Co’s inventory. Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded. The nature of related party transactions, balances and events has been clearly disclosed in the notes of financial statements. Users of the financial statements can clearly determine the financial statement captions affected by the related party transactions and balances and can easily ascertain their financial effect. Disclosed events, transactions, balances and other financial matters have been classified appropriately and presented clearly in a manner that promotes the understandability of information contained in the financial statements.

• All disclosures that should have been included in the financial statements have been included.
• Entity has the right to ownership or use of the recognized assets, and the liabilities recognized in the financial statements represent the obligations of the entity.
• Audit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures.
• For instance, the reporting of a company’s accounts receivable account does not provide a guarantee that the customer will pay the accounts receivable amount owed.
• Relevant test – reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy.
• The following is a list of additional representations that may be appropriate in certain situations.
• 1/ Auditing Standard No. 14, Evaluating Audit Results, establishes requirements regarding evaluating whether sufficient appropriate evidence has been obtained.

13 See paragraph .12 of AS 2801, Subsequent Events, paragraph .10 of AS 4101,Responsibilities Regarding Filings Under Federal Securities Statutes,
and paragraph .45, footnote 31 of AS 6101, Letters for Underwriters and Certain Other Requesting Parties. The qualitative discussion management assertions auditing of materiality used in the illustrative letter is adapted from FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information. Similar to existence, occurrence is used to verify that recorded transactions have actually occurred.

Everything You Need To Build Your Accounting Skills

Audit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures. The auditor’s approach to gathering evidence is not static; it is responsive to the findings as the audit progresses. If the evidence gathered suggests that an assertion is not supported, the auditor will perform additional procedures to resolve the matter. This iterative process continues until the auditor obtains reasonable assurance about the assertions under consideration. Explore the critical role of management assertions in shaping financial audits and the auditor’s duty to assess their validity for accurate reporting. During the interim audit, the system of internal control is documented and evaluated.

• Financial statements are of limited utility if they’re not readily understood by stakeholders.
• Materiality needs to be considered when judgements are made about the level of aggregation and disaggregation.
• All inventory units that should have been recorded have been recognized in the financial statements.
• In other words, if your small business is being audited, the auditor may ask for proof that the cash balance of your bank account belongs to the business.
• One reason for not proceeding with an audit is that the inability to obtain a management assertions letter could be an indicator that management has engaged in fraud in producing the financial statements.