Audit assertions describe the claims in financial information that audit procedures are designed to test. Naming an assertion without explaining the procedure is incomplete. Writing “check the documents” is equally incomplete because it does not identify what you will inspect or what you expect it to show.
Audit assertions: begin with what could be wrong
For inventory, possible problems include goods that do not exist, items omitted from records, incorrect quantities or values that cannot be recovered. These are different risks. A procedure designed for one may not address another.
Use the assertions and terminology required by your current study materials. The practical habit remains the same: risk, assertion, procedure and evidence should connect.
Inventory: direction of testing matters
If you select items from inventory records and trace them to the physical goods, the direction is useful for testing whether recorded items exist. If you select physical items and trace them into the records, the direction helps investigate completeness.
A physical inspection does not by itself establish ownership or the correct accounting value. Goods held for another party can be physically present. Damaged items may exist but need a valuation adjustment. Match additional work to those risks.
Receivables: existence is not recoverability
A customer confirmation can provide evidence about a recorded balance, but it does not automatically prove that the balance will be collected. For recoverability, relevant work might include inspecting subsequent receipts, reviewing aged balances and investigating disputes, depending on the circumstances.
For example, inspecting a receipt after the reporting date and matching it to a year-end customer balance can provide evidence of collection. A receipt from the same customer is not enough unless you establish which invoice or balance it settles.
Write procedures that another person could perform
| Vague instruction | More specific procedure |
|---|---|
| Check receivables | Inspect subsequent bank receipts and remittance details for selected overdue year-end balances, then match them to the outstanding invoices |
| Check inventory value | For selected damaged items, compare recorded cost with evidence of expected selling proceeds and costs needed to complete and sell them |
The detailed procedure names the population, evidence and purpose. Its suitability still depends on the scenario; do not copy it into every answer regardless of the risk.
Evaluate the evidence you obtain
Consider relevance, reliability and whether further work is needed. Conflicting evidence should be investigated. A manager’s explanation and an external document may not carry the same evidential weight in the circumstances.
For practice, take three risks from an AA question. Write one procedure for each, then ask: would its evidence actually help me reach a conclusion about this risk? If the answer is unclear, refine the procedure.
Explore the Audit and Assurance course and read the existing AA study guide for broader preparation advice.
For authoritative study guidance, read ACCA’s article on auditing assertions.
Build a risk-to-procedure chain
Suppose inventory includes products that were damaged before the reporting date. The concern is that the carrying amount may exceed the recoverable amount. The relevant assertion is valuation, rather than merely existence. Inspect condition reports and subsequent sales evidence for the identified products, compare cost with net realisable value, and assess whether an appropriate write-down has been recorded.
The procedure follows the risk through to a conclusion. Counting the damaged units confirms a quantity but does not establish their recoverable value. Asking the warehouse manager whether they will sell can identify useful information, but the answer should be supported where possible. Examine the selling price and the costs needed to complete and sell the goods, not just the gross proceeds.
Completeness of payables requires a suitable starting point
If the risk is unrecorded supplier liabilities, selecting only balances already on the payables listing may miss the omitted items. Consider evidence outside that listing, such as supplier statements, unmatched goods received records and payments after the year end. Investigate whether they relate to obligations that existed at the reporting date and whether those obligations were recorded.
For example, inspect a subsequent supplier payment and its invoice and delivery evidence. If the goods were received before the year end but the payable was not recorded, the evidence may identify an omission. A payment after year end is not automatically a year-end liability; it may settle a purchase made later. The date and underlying event determine the period.
Cut-off focuses on the correct reporting period
Take a sample of dispatch records immediately before and after the reporting date and compare them with the related sales entries and contractual delivery terms. The objective is to assess whether revenue was recorded in the appropriate period under the applicable recognition criteria. Merely checking that an invoice exists does not establish correct cut-off.
For purchases, compare goods received records around the year end with supplier invoices and entries. Explain which records you are comparing and why the dates matter. Tailor the procedure to the business’s terms and systems. Do not assume that invoice date alone determines when every transaction belongs in the accounts.
Rights and obligations need evidence beyond location
A machine standing in a factory may be owned, leased, borrowed or held for another party. Inspect relevant purchase documentation, contracts or other ownership evidence for selected recorded assets. Consider the accounting treatment required by the actual arrangement. Physical presence supports existence but does not automatically establish the entity’s rights.
Likewise, inventory held at a third-party warehouse may belong to the business even though it is not on the business’s premises. Evidence about quantities and ownership needs to address that arrangement. The assertion guides the procedure; the location of the goods does not settle every accounting question.
Distinguish a control test from a substantive procedure
A test of control evaluates whether a control operates effectively. Inspecting evidence that purchase invoices were approved before payment can be a control test. A substantive procedure addresses a possible misstatement in a transaction, balance or disclosure. Agreeing an invoice amount to the recorded expense can provide substantive evidence about that amount.
Some work can serve more than one purpose if designed appropriately, but explain the objective requested in the question. Writing a control recommendation when asked for substantive procedures does not answer the requirement. State what the auditor does to obtain evidence, rather than what management should do to improve the system.
Reliability depends on the circumstances
Evidence received directly from an independent external source can be persuasive, but the process matters. Confirmations should remain under the auditor’s control and responses should be evaluated. Internally generated reports also need consideration of their accuracy and completeness. A neatly formatted aged receivables report is not reliable simply because it comes from accounting software.
If documents conflict, investigate rather than selecting whichever supports the expected conclusion. A customer’s confirmation may disagree with the ledger because of a timing difference, disputed invoice or recording error. Obtain supporting details and follow up the discrepancy. More evidence of the same weak type does not necessarily resolve the problem.
Practise writing precise audit actions
Use verbs such as inspect, recalculate, trace, agree and confirm, then identify the evidence and purpose. Avoid an unexplained instruction to check the account. Read your procedure as if another auditor had to perform it without asking what you meant. Include the population and direction where they affect the assertion, and finish by explaining the misstatement the work is intended to detect.
Frequently asked questions
Does one audit procedure prove every assertion?
No. Evidence is more persuasive for some assertions than others. Identify the risk and the assertion before choosing the procedure.
Is asking management enough evidence on its own?
An explanation can inform the work, but enquiry alone may not provide sufficient appropriate evidence for the conclusion. Consider corroborating documents or other procedures.