What is the occurrence assertion?
ISA 315.A190(a)(i) defines occurrence as the assertion that transactions and events that have been recorded actually occurred and pertain to the entity. It is the auditor's primary tool for detecting overstatement: if a transaction did not happen, it should not appear in the financial statements.
The testing direction for occurrence always runs from the records back to the source. The auditor selects items from the accounting system — the general ledger, the sales journal, the payroll register — and traces each one to independent supporting documentation such as delivery notes, signed contracts, or bank statements. If the sample comes from the books, you are testing occurrence.
ISA 240.32(a)(i) creates a rebuttable presumption that revenue recognition carries a fraud risk, and in most engagements that risk attaches specifically to occurrence. Management intent to overstate revenue typically manifests as fictitious sales — transactions recorded with no underlying delivery of goods or services. This makes occurrence the assertion most directly linked to fraud risk in the revenue cycle.
Key Points
- Tests whether transactions actually happened. The core question is: did this recorded event take place, and does it belong to this entity?
- Primary assertion for overstatement and fictitious entries. If management fabricates transactions, occurrence testing is designed to catch them.
- Direction: from records to source documents. Select from the ledger and trace backward to contracts, delivery notes, bank evidence.
- Presumed fraud risk per ISA 240. Revenue occurrence carries a rebuttable presumption of fraud risk that the auditor must address or explicitly rebut.
Why it matters in practice
The PCAOB has found that audit teams frequently test occurrence by tracing sales transactions only to internally generated invoices, without obtaining evidence that the goods were actually delivered or the services performed. An invoice proves the entity billed someone; it does not prove the transaction occurred. Delivery documentation, shipping records, customer confirmations, or evidence of subsequent cash receipt provide stronger evidence of occurrence.
Teams also commonly skip occurrence testing for expense line items, reasoning that management has no incentive to overstate costs. But ISA 240.A1 confirms that fraud can involve overstatement of expenses — for example, fictitious vendor payments to related parties, or inflated costs to justify higher contract prices in cost-plus arrangements. Occurrence testing on purchases and payroll catches ghost vendors and ghost employees that completeness testing would never detect.
Key standard references
- ISA 315.A190(a)(i): Occurrence assertion for classes of transactions — transactions and events that have been recorded have occurred and pertain to the entity.
- ISA 240.32(a)(i): Rebuttable presumption that there is a risk of material misstatement due to fraud relating to revenue recognition.
- ISA 240.A50: Documentation requirements when the auditor rebuts the presumed fraud risk in revenue recognition.
- ISA 500.A31: Consideration of the consistency of audit evidence obtained from different sources.
Related terms
Related reading
Frequently asked questions
Why is occurrence the default assertion at risk for revenue?
ISA 240.32(a)(i) creates a rebuttable presumption that revenue recognition contains a fraud risk. In most engagements, that fraud risk attaches to occurrence: management overstating revenue by recording sales that did not happen. The auditor can rebut this presumption but must document the reasons per ISA 240.A50.
How does occurrence testing differ from completeness testing?
Occurrence starts from the recorded population (the ledger) and traces backward to source documents. Completeness starts from source documents and traces forward to the ledger. If your sample comes from the accounting system, you are testing occurrence. If it comes from a non-accounting source, you are testing completeness.
Does occurrence apply only to revenue?
No. ISA 315 A190(a)(i) applies occurrence to all transaction classes. Occurrence testing on payroll catches ghost employees. Occurrence testing on purchases catches fictitious vendor transactions. Teams often skip occurrence testing for expenses, but ISA 240.A1 confirms fraud can involve overstatement of costs too.