What Are the Assertions Related to Equity?

Statement on Accounting Standards 106:15 governs assertions related to a firm's equity during an audit. At the end of an accounting period, a firm's management and shareholders are subject to equity assertions that include disclosures of its existence, the rights and obligations of each entity involved, as well as the maintenance of accurate, complete balance sheet records, according to Yellow Book CPE. The American Institute of Certified Public Accountants allows auditors to gather this information as evidence during an audit.


A firm records the equity interest of each of its investors on its balance sheet. For publicly traded companies, these records are filed with the Securities and Exchange Commission. As a means of gathering evidence, an auditor can gauge the records a public or private firms keeps of its assets and liabilities -- in addition to the firm's equity interests -- to ensure complete records of a firm's financial position exist. A firm must disclose all of its shareholder equity to an auditor.

Rights and Obligations

Managers and shareholders in a firm have certain rights and obligations pertaining to the firm's equity. An entity, be it an individual or a group investor, is entitled to the equity it purchased from the firm and is obliged to cover all liabilities it undertook, according to the AICPA. The company's management is responsible for asserting this information to the auditor in compliance with generally accepted accounting principles. Management must also disclose each transaction pertinent to an entity's equity, including evidence to support that each entity involved met its obligations, according to Yellow Book CPE.


In addition to recording and disclosing all of a firm's equity interests, each disclosure made to an auditor must be factually complete and accurate. All assets, liabilities and equity interests that management should have recorded must be recorded on the firm's balance sheet, according to AICPA. An auditor should pay attention to the completeness of all records pertaining to cash transactions; according to Yellow Book CPE, employees can often overlook or fail to report cash receipts.

Valuation and Allocation

The AICPA requires a firm's equity interests to be accurately recorded in its financial statements. Company managers must also record any equity valuations and allocations. If a firm issues additional shares of common stock, for example, the volume of shares issued must be recorded. The price at which the company issued the shares must also be recorded. If a firm issues additional stock -- or recalls additional stock -- the percentage of shareholder equity changes; such a change must also be reflected in the firm's financial statements.