One of my colleagues from the tax practice asked me as to what financial reporting assertions meant. This consultant was in the process of reviewing some documentation on internal control and came to me for help. For the benefit of you all, I am discussing the same here.

When a company is in the process of evaluating the internal control over financial reporting, such evaluation is normally based on an Internal Control Framework such as COSO. The risks underlying preperation of financial statements are identified with the help of the framework. The objectives / assertions in the framework help in identifying such risks. I am taking the financial statement assertions defined in the COSO framwork as my base. Normally, I use the same while evaluating internal controls. The assertions are:

1. Existence - Assets, liabilities and ownership interests exist at a particular point in time.

2. Rights and Obligations - Assets and liabilites shown on the balance sheet are rights and obligations of the enterprise at a certain point in time

3. Valuation - Assets, liabilities, revenue and expenses are recorded in the financial statements at appropriate amounts in accordance with accounting principles

4. Presentation and Disclosure - Items in financial statements are properly described and fairly represented.

5. Occurence - Recorded transactions represent economic events that actually occured during the period.

6. Completeness - All transactions and economic events that occured during the financial year have been recorded in the financial statements. There are no unrecorded assets, liabilities, unrecorded revenue and expenses and no omitted disclosures.

The financial statement assertion above are also reinforced in the PCAOB auditing standard No.2.