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Definitions
Reliability
Reliability requires that the accounts be free from [link title="material" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FMateriality.aspx" /]
misstatement and bias, and that they can be depended upon by users to represent faithfully that which they claim to represent or could reasonably be expected to represent.
Faithful representation requires that transactions and other events are:
- presented in accordance with their substance and not merely their legal form;
- neutral or free from bias;
- prudent, so that assets or revenue are not overstated and liabilities or expenses are not understated;
- complete in all material respects; and
- comparable over time and between entities.
The financial statements for a given year must completely and accurately report the cash flows and financial results for that particular year; the assets and liabilities at year-end must be properly recorded in order faithfully to reflect the financial position; and the notes to the accounts must disclose all relevant information.
Assertions
Assertions are representations made by auditee management that are embodied in financial statements and transactions. They may be explicit (e.g. where auditee management states that the accounts are prepared based on [link new-window title="International%20Public%20Sector%20Accounting%20Standards%20(IPSASs)" link="https%3A%2F%2Fwww.ipsasb.org%2F" icon="external-link" /]
or implicit (e.g. where auditee management implies that transactions for which payments have been made are eligible according to the relevant rules). The auditor uses assertions to consider the different types of potential misstatements that may occur. These assertions are the specific audit objectives about which the auditor wishes to reach a conclusion.
Instructions
Objectives of reliability audits
The overall audit objective for reliability is to establish whether the consolidated annual accounts present fairly, in all material respects, the financial position and the results of operations and cash flows in accordance with the [link title="applicable%20financial%20reporting%20framework" link="%2Faware%2FFA%2FPages%2FConcepts%2FFinancial-reporting-framework.aspx" /]
.
Audit assertions for reliability
Assertions about classes of transactions and events for the period under audit
- Occurrence—transactions and events that have been recorded have occurred and pertain to the entity.
- Completeness—all transactions and events that should have been recorded have been recorded.
- Accuracy—amounts and other data relating to recorded transactions and events have been recorded appropriately.
- Cut-off—transactions and events have been recorded in the correct accounting period.
- Classification—transactions and events have been recorded in the proper accounts.
- Legality and regularity—budgetary appropriations are available. An illegal and irregular transaction is not declared as affecting the reliability of the accounts if it has been correctly entered in the accounts. However, the financial impact or risks of irregularities must be disclosed adequately.
Assertions about account balances at period end
- Existence—assets, liabilities, and equity interests exist.
- Rights and obligations—the entity holds or controls the rights to assets, and liabilities constitute obligations for the entity.
- Completeness—all assets, liabilities and equity interests that should have been recorded have been recorded.
- Valuation and allocation—assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.
Assertions about presentation and disclosure
- Occurrence and rights and obligations—disclosed events, transactions, and other matters have occurred and pertain to the entity.
- Completeness—all disclosures that should have been included in the financial statements have been included.
- Classification and understandability—financial information is appropriately presented and described, and disclosures are clearly expressed.
- Accuracy and valuation—financial and other information is disclosed fairly and at appropriate amounts.
Audit of consolidated annual accounts
The following specific elements of the consolidated annual accounts should be audited:
Balance sheet
The audit procedures for the Balance Sheet should allow for the verification of the following financial statement items and assertions (examples):
- contributions from the member states (completeness and valuation);
- debtors (existence, rights and obligations, completeness, valuation);
- pre-financing (existence, rights and obligations, completeness, and valuation);
- cash and cash equivalents (existence, rights and obligations, completeness, and valuation);
- funds and reserves (completeness and valuation);
- outstanding invoices (completeness and valuation);
- accrued charges - provision for invoices to be received (rights and obligations, completeness and valuation);
- fixed assets (existence, rights and obligations, completeness, and valuation).
Statement of financial performance
The audit procedures for the Statement of financial performance are designed to check that the income and expenses occurred, are accurate, complete and correctly recorded in the proper year, and are properly presented and disclosed.
Cashflow statement
The audit procedures for the Statement of Cash Flows are designed to determine whether the Statement correctly discloses the cash movements (contributions, income, expenses disbursed and cash position) for the year.
Notes to the accounts
Audit procedures for the Notes to the financial statements are designed to verify the presentation and disclosure assertions, i.e. that each significant section of the financial statements is duly commented on in the Notes, including off-balance sheet items such as guarantees.
Statement of changes in net assets
The audit procedures regarding the Statement of Changes in Net Assets aim to ensure that changes in net assets are correctly recorded and reported.
Reports on budgetary implementation
Audit procedures for the reports on budgetary implementation should address the following:
- changes in the consolidated resources are coherent with changes in the reserves, funds and capital as disclosed in the Balance Sheet;
- the amounts of financial commitments, the individual legal commitments, and the payments (per instrument, policy area, etc.) are supported by appropriate documentation;
- the financial information is reliable;
- the Notes ensure proper presentation and disclosure.
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