Accounting Information Systems: The Processes and Controls, 2nd Edition

MANAGEMENT ASSERTIONS AND AUDIT OBJECTIVES (STUDY OBJECTIVE 5)

Responsibility for operations, compliance, and financial reporting lies with management of the company. A company's various reports are assumed to represent a set of management assertions. Management assertions are claims regarding the condition of the business organization in terms of its operations, financial results, and compliance with laws and regulations. The role of the auditors is to analyze the underlying facts to decide whether information provided by management is fairly presented. Auditors design audit tests to analyze information in order to determine whether management's assertions are valid. To accomplish this, audit tests are created to address general audit objectives. Each audit objective relates to one of management's assertions. Exhibit 7-2 summarizes the relationship between management assertions and general audit objectives for a financial statement audit.

The general audit objectives described in Exhibit 7-2 may be applied to any category of transaction and the related account balances. Auditors design specific tests to address these objectives in each audit area. For example, an auditor will develop tests to determine whether a company has properly accounted for its borrowing transactions during the period. These tests are specific to the accounts and information systems in place at the company being audited. Audit tests developed for an audit client are documented in an audit program. Exhibit ...