Assertions Audit Quiz: Account Balances Explained

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Questions and Answers

Which audit procedure is typically used for examining records or documents and is considered one of the most reliable sources of audit evidence?

Inspection (correct)

Confirmation

Observation

Inquiry

Why are tests of controls necessary in an audit?

To assess the risk of material misstatement due to fraud.

To evaluate the operating effectiveness of internal controls. (correct)

To identify all misstatements in the financial statements.

To provide direct evidence about the accuracy of financial statement assertions.

In auditing, which assertion focuses on the accuracy and valuation of account balances at the end of a reporting period?

Completeness

Rights and obligations

Valuation and allocation (correct)

Existence

Which audit procedure is commonly used throughout the audit process and complements other procedures?

Inquiry Signup and view all the answers

When are tests of controls necessary during an audit?

When the auditor expects controls to be effectively preventing misstatements. Signup and view all the answers

Which audit procedure involves the physical examination of assets to provide reliable evidence about their existence and the entity's rights and obligations?

Inspection Signup and view all the answers

What does the assertion about classes of transactions and events relate to?

Transactions and events recorded have occurred and pertain to the entity. Signup and view all the answers

Which assertion relates to the appropriate inclusion of all assets, liabilities, and equity interests in the financial statements?

Completeness Signup and view all the answers

Which of the following is NOT part of the accuracy and valuation assertions about presentation and disclosure?

Disclosed events, transactions, and other matters have occurred and pertain to the entity. Signup and view all the answers

Which step is involved in the auditor obtaining audit evidence to draw reasonable conclusions on which to base the audit opinion?

Obtaining an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement. Signup and view all the answers

What is the purpose of the valuation and allocation assertion about account balances at period end?

To ensure that assets, liabilities, and equity interests are included in the financial statements at appropriate amounts. Signup and view all the answers

What does the rights and obligations assertion about account balances at period end relate to?

Ensuring that the entity has rights and obligations related to the recorded assets and liabilities. Signup and view all the answers

Which type of audit evidence is considered the most reliable?

Audit evidence obtained directly by the auditor Signup and view all the answers

Which statement regarding audit evidence is incorrect?

The matter of difficulty or expense involved is a valid basis for omitting an audit procedure for which there is no alternative. Signup and view all the answers

Which of the following assertions about classes of transactions and events is least likely to be used by the auditor?

Presentation Signup and view all the answers

Which category of assertions does the auditor use to assess risks of material misstatement?

All of the above Signup and view all the answers

Which assertion about account balances at the period end is most important for the auditor to consider?

Existence Signup and view all the answers

Which assertion about classes of transactions and events is the auditor least likely to focus on?

Presentation Signup and view all the answers

Study Notes

Audit Procedures and Evidence

Examination of records or documents is known as documentary evidence, a reliable source of audit evidence.
Tests of controls assess the effectiveness of internal controls, ensuring that financial statements are free from material misstatement.
The accuracy and valuation assertion pertains to the correct reporting and valuation of account balances at the end of a reporting period.
Substantive procedures are commonly used throughout the audit to gather evidence and complement other audit strategies.
Tests of controls are necessary when assessing the reliability of internal controls during the audit process.
Physical examination of assets provides reliable evidence concerning the existence and entity's rights and obligations over those assets.

Assertions in Auditing

Classes of transactions and events assertion involves the accuracy, occurrence, and completeness of transactions recorded during the reporting period.
The assertion regarding the appropriate inclusion of all assets, liabilities, and equity interests is known as the completeness assertion.
Assertions about presentation and disclosure do not typically include the accuracy and valuation assertions but focus on the proper presentation and clarity of financial information.

Audit Evidence and Conclusions

The auditor must obtain sufficient appropriate audit evidence to draw reasonable conclusions supporting the audit opinion.
The valuation and allocation assertion ensures that account balances at the reporting period are properly valued and allocated.
The rights and obligations assertion assesses whether the entity has rights to the reported assets and obligations for reported liabilities at the period end.

Reliability and Importance of Assertions

External confirmations are considered the most reliable type of audit evidence due to their independent nature.
An incorrect statement regarding audit evidence could imply that all evidence holds the same level of reliability, which is not true.
The occurrence assertion about classes of transactions is least likely to be used by auditors due to its lower relevance compared to other assertions.

Focus and Assessment of Assertions

The presentation and disclosure assertions are a key category used by auditors to assess risks of material misstatement.
Among account balance assertions at the period end, the existence assertion is the most crucial for the auditor to consider.
The assertion about income statement items that is least likely to be a focus point for auditors is often related to cut-off errors.

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Description

Test your knowledge on audit assertions related to account balances at period end. Evaluate the inclusion of assets, liabilities, and equity in financial statements. Check your understanding of ensuring completeness, accuracy, and relevance of recorded transactions.

Audit Assertions Quiz: Account Balances at Period End

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