MANAGEMENT'S FS ASSERTIONS

Type of Account Balances Transactions and Presentation &

Misstatements Events Disclosure

1. Overstatement 1. Existence 1. Occurence 1. Existence & Occurence

(some balances or 2. Rights & Obligations
transactions (fake
sales) do not exist)

2. Understatement 3. Completeness 2. Completeness 2. Completeness

(there are some
balances or
transactions existed
and belonged to the
company but not be
recorded)

3. Inappropriate 4. Valuation/allocation 3. Accuracy 3. Accuracy, valuation

amounts and allocation

4. Inappropriate 4. Classification 4. Classification,

accounts understandability (số 5
bên type of
5. Inappropriate period 5. Cut-off misstatements)

6. Unclear disclosure

Assertions: what auditors want to confirm/assure

Misstatemetns: what auditors want to detect

5-30:

Existence or occurrence The assets and liabilities exist, and the

recorded transactions have occurred.

Rights and obligations The assets are the rights of the entity, and
the liabilities are its obligations.

Completeness The accounts and transactions that should

be included are included; thus, the financial
statements are complete.

Valuation or allocation Assets, liabilities, equity, revenues, and

expenses are appropri- ately valued and are
allocated to the proper accounting period.

5-31: Management assertions about classes of transactions are

a. Occurrence.
- The sales transactions did not occur but were recorded as revenue (fake sales transactions
have been recorded)
-> A sales of $10,000 have been recorded but did not exist without a sale invoice -> a fake
sale

b. Completeness.
- Fail to record all sales transactions that occurred during the period
Ex: the company had 10 sales transactions with the value of 100,000 VND but they recorded
only 9 sales transactions (value = 900,000 VND)
-> A sale of $100,000 have occured but not recorded
c. Authorization.
- The revenue of selling old assets of the company is recorded in the sale revenue which
should be recorded in other income

d. Accuracy.
- The company records revenue for a sale of 500 units t $10 each, due to data entry error,
the actual selling price was $8 per unit, lead to an overstatement of $1000 revenue.

e. Cutoff.
- There was a late sale at the end of the year. The sale was not recorded in the financial
statement of the fiscal year
-> A sale of 1 Jan 2023 have been recorded in 31 Dec 2022
f. Classification.
For each management assertion, indicate an example of a misstatement that could occur for
revenue transactions.

Evidence relevant to existence of bank account balance

1. Bank statement that printed out from e-banking system (3rd reliable)
2. Bank statement issue and signed by the bank (2nd reliable)
3. Bank confirmation letter (1st reliable)

Inspection of records and documents = inspection of documentation

Inspection of tangible assets = physical inspection

sales transaction
bank reconciliation -> Dr AR/Cash, Cr Sales

test of balance: bank confirmations

test of transaction: cut-off

5-32:
a. Sending a written request to the entity’s customers requesting that they report the amount
owed to the entity.
-> (external) confirmation (belongs to substantive tests)
b. Examining large sales invoices for a period of two days before and after year-end to
determine if sales are recorded in the proper period.
-> Inspection of records or documents
c. Agreeing the total of the accounts receivable subsidiary ledger to the accounts receivable
general ledger account.
-> inspection of records or documents/recalculation
d. Discussing the adequacy of the allowance for doubtful accounts with the credit manager. -
> inquiry
e. Comparing the current-year gross profit percentage with the gross profit percentage for
the last four years. (lquan đến understatement và overstatement)
-> analytical procedures
f. Examining a new plastic extrusion machine to ensure that this major acquisition was
received.
-> inspection of tangible assets
g. Watching the entity’s warehouse personnel count the raw materials inventory.
-> observation
h. Performing test counts of the warehouse personnel’s count of the raw material.
-> reperformance/inspection of intangible assets
i. Obtaining a letter from the entity’s attorney indicating that there were no lawsuits in
progress against the entity.
-> confirmation
j. Tracing the prices used by the entity’s billing program for pricing sales invoices to the
entity’s approved price list.
-> reperformance/inspection of records or documents
k. Reviewing the general ledger for unusual adjusting entries.
-> scanning

5-33: For each of the audit procedures listed in Problem 5-32, identify the category (asser-
tions about classes of transactions and events or assertions about account balances) and
the primary assertion being tested.

Primary Assertions Category

Sending a written request to the Existence/Rights Account balances

entity’s customers requesting that (AR balances)
they report the amount owed to the
entity. -> AR

Examining large sales invoices for a Cut-off Transactions and

period of two days before and after events (Sales
year-end to determine if sales are transactions)
recorded in the proper period.

Agreeing the total of the accounts Completeness/Existence/ Account balances

receivable subsidiary ledger to the Rights (AR balances)
accounts receivable general ledger
account.

Discussing the adequacy of the Valuation and Allocation Account balances

allowance for doubtful accounts with (AR balances)
the credit manager.

Comparing the current-year gross Occurence/Completeness Transactions and

profit percentage with the gross profit events (Sales and
 percentage for the last four years. COGS transaction)

Examining a new plastic extrusion Existence Account balances

machine to ensure that this major (PPE/Fixed assets
acquisition was received. balances)

Watching the entity’s warehouse Completeness/Existence Account balances

personnel count the raw materials (Inventory
inventory. balances)

Performing test counts of the Completeness/Existence Account balances

warehouse personnel’s count of the (Inventory
raw material. balances)

Obtaining a letter from the entity’s Existence/ Completeness Account balances

attorney indicating that there were no (Contingent liability
lawsuits in progress against the entity. balances)

Tracing the prices used by the entity’s Accuracy/Completeness Transactions and

billing program for pricing sales events (sales
invoices to the entity’s approved price transaction)
list.

Reviewing the general ledger for Valuation and Allocation Account balances
unusual adjusting entries.

Audit chapter 18:

18-22: For each of the following independent situations, indicate the type of financial
statement audit report that you would issue and briefly explain your reasoning. Assume that
all companies mentioned are private companies and that each item is at least material.

a. Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., is audited by another

CPA firm. As the auditor of Sandy, Inc., you have assured yourself of the other CPA firm’s
independence and professional reputation. However, you are unwilling to take complete
responsibility for its audit work.
-> The auditor would Issue an unqualified audit opinion with modified wording for opinion
based in part on the report of another auditor.
In this case, the auditor is not willing to take responsibility of the othẻ auditor's work.
Therefore, the auditor's opinion is based in part on the report of another auditor.

b. The management of Bonner Corporation has decided to exclude the statement of cash
flows from its financial statements because it believes that its bankers do not find the
statement to be very useful.
-> The auditor would issue a qualified audit report.
In this case, the management has decided to exclude the statement of cash flows, which is
not in accordance with GAAP (Departure from GAAP). Besides, the bankers of Bonner
Corporation do not find this statement to be very useful so the materiality of this situation is
material but not pervasive (lan toả)

c. You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year
ended September 30. On September 1, one of its manufacturing plants caught fire, releasing
nerve gas into the surrounding area. Two thousand people were killed and numerous others
paralyzed. The company’s legal counsel indicates that the company is liable and that the
amount of the liability can be reasonably estimated, but the company refuses to disclose this
information in the financial statements.
-> The audito would issue an adverse opinion
In this case, the company refuses to disclose those contigencies in the financial statement,
which is not in avoidance with GAAP (departure from GAAP). Besides, this situation causes
serious impacts on the environment and human lives so the materiality of this situation is
pervasively material.

d. During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses
to allow you to confirm accounts receivable because she is concerned about com- plaints
from her customers. You are unable to satisfy yourself about accounts receivable by other
audit procedures and you are concerned about Tracy’s true motives.
-> The auditor would issue a disclaimer
In this case, the auditor cannot gather sufficient evidence for the audit procedure because
the confirmation is refused to be sent to the auditor (scope limitation). Besides, the auditor
suspects fraud by the controller of Cuccia Company so the materiality of this situation is
pervasively material

e. On January 31, Asare Toy Manufacturing hired your firm to audit the company’s financial
statements for the prior year. You were unable to observe the client’s inventory on
December 31. However, you were able to satisfy yourself about the inventory balance using
other auditing procedures.
-> The auditor would issue an unqualified audit report
In this case, the auditor cannot observe the client's inventory but the auditor is satisfied
about the inventory balance by using alternative audit procedures.

f. Gelato Bros., Inc., leases its manufacturing facility from a partnership controlled by the
chief executive officer and major shareholder of Gelato. Your review of the lease indicates
that the rental terms are in excess of rental terms for similar build- ings in the area. The
company refuses to disclose this related-party transaction in the footnotes.
-> The auditor would issue a qualified or adverse audit report
In this case, the transaction is related to the CEO and major shareholder of Gelato but the
company refuses to disclose this information in the footnote (Departure from GAAP).
Besides, this situation is not clear about the materiality, Therefore, the auditor can issue a
qualified or adverse audit report depending on the materiality of the matter.

g. Johnstone Manufacturing Company has used the double-declining balance method to

depreciate its machinery. During the current year, management switched to the straight-line
method because it felt that it better represented the utilization of the assets. You concur with
its decision. All information is adequately disclosed in the financial statements.
-> The auditor would isue an unqualified audit report with an explanatory paragraph
In this case, the client has changed in accounting principle (lack of consistency) so it
requires the explanatory paragraph in the unqualified opinion.

Test of Controls and Substantive Procedures are two key components of the audit process,
each serving a distinct purpose in evaluating the financial statements and ensuring their
accuracy. Here are the main differences between the two:

1. Purpose:

Test of Controls: These procedures are performed to assess the effectiveness of an

entity's internal controls over financial reporting. The main goal is to determine whether the
controls are designed and operating effectively to prevent or detect material misstatements.
Substantive Procedures: These procedures are designed to detect material misstatements
in the financial statements. They are performed to obtain evidence about the accuracy,
completeness, and validity of the amounts and disclosures presented in the financial
statements.

2. Focus:

Test of Controls: The focus is on evaluating the internal controls' design and operating
effectiveness. These controls are meant to prevent errors and fraud from occurring in the
first place.
Substantive Procedures: The focus is on the specific account balances, transactions, and
disclosures. These procedures aim to identify any material misstatements that may have
occurred despite the presence of controls.

3. Timing:

Test of Controls: These procedures are typically performed early in the audit process to
assess the reliability of internal controls. If controls are found to be effective, auditors may
rely on them to reduce the extent of substantive procedures.
Substantive Procedures: These procedures are performed after the test of controls. They
aim to provide evidence about the financial statement balances and transactions.

4. Nature:

Test of Controls: The nature of these procedures includes inquiries, observations,

inspections of documents, and reperforming control activities to validate their effectiveness.
Substantive Procedures: The nature of these procedures includes tests of details (testing
individual transactions and balances) and analytical procedures (evaluating relationships
between financial data).

5. Relationship:

Test of Controls: The results of these tests can impact the extent and nature of substantive
procedures. If controls are effective, auditors may reduce substantive testing.
Substantive Procedures: These procedures are performed regardless of the outcome of
test of controls. They directly assess the financial statement assertions.
6. Key Focus:

Test of Controls: Focus on evaluating the reliability of the controls to ensure accurate
financial reporting.
Substantive Procedures: Focus on identifying actual misstatements that may exist in the
financial statements

Bài tập ôn:

These information are used for question 1 to question 5:

There are nine types of audit procedures used to obtain audit evidence, including:
Inspection of documentation, Inspection of tangible assets, Inquiry, External confirmation,
Observation, Recalculation, Re-performance, Analytical procedures. (*)

The following statements are audit procedures performed by auditors. For each procedure,
please identify the nature of the audit procedure by answering these following questions:

- These following procedure is a test of controls or substantive procedure?

- What type of audit procedure is this? (Please classify the evidence gathered according to
the above nine types of audit procedures*.)

- Identify the primary assertion(s) being tested and account balance or transaction related?

Organize your answer as by answering the follows:

· Test of controls or Substantive procedures:

· Type of procedure:

· Financial statement assertion(s) tested:

· Account balance or transaction related:

a) “The auditor examines a sample of purchase orders for evidence of purchasing

approval by the Head of Purchase Department.”
-> Test of controls, Inspection of documentation, ,account transaction

b) “The auditor examines shipping documents before and after the balance sheet date to
determine whether sales transactions are recorded in the proper period, taking into
consideration the shipping terms and shipping dates.”
-> Sustantive procedures - inspection of document - cut-off - account transactions (sales)

c) “The auditor chooses a sample of shipping documents selected from shipping records,
then traces each shipping document to a transaction recorded in the sales journal.”
-> Substantive procedures - inspection of document - Completeness - account transaction
(expense)
Explanation:
This procedure involves inspecting shipping documents and tracing them to transactions
recorded in the sales journal. It aims to verify the accuracy and completeness of sales
transactions recorded in the sales journal.
It is a substantive procedure because it directly tests the accuracy and completeness of
transactions and the related financial statement amounts.
The primary assertion being tested is completeness, to ensure that all sales transactions are
properly recorded. Additionally, accuracy is also being tested to ensure that the recorded
transactions are accurately reflected in the financial statements.
The account balance or transaction related is sales transactions and the related revenue account
in the financial statements.
d) “The auditor chooses a sample of cash disbursement documents, then inspects
whether cash disbursement transactions are recorded on the correct dates.”
-> Substantial procedures, inspection of documents, accuracy/occurence, account transactions
(cash disbursement)
Explanation:
This procedure involves inspecting cash disbursement documents and checking whether the
recorded dates on these documents match the actual dates of cash disbursement transactions.
It is a test of controls because it is checking the effectiveness of the control over the accurate
recording of cash disbursement transactions on the correct dates.
The primary assertions being tested are accuracy (to ensure that the dates are recorded
correctly) and occurrence (to ensure that the cash disbursement transactions actually occurred
and were properly recorded).
The account balance or transaction related is cash disbursement transactions in the financial
statements.

e) “The auditor sends letter of confirmation to audit’s client customers in order to

examine the balance of account receivables at the year end.”
-> substantive procedures - (external) confirmation - existence and right - account balance (AR)
Explanation:
This procedure involves sending letters of confirmation to the client's customers to independently
verify the balance of accounts receivable at the year-end.
It is a substantive procedure because it directly gathers audit evidence about the existence,
completeness, and valuation of accounts receivable balances.
The primary assertions being tested are existence (whether the accounts receivable balances
are real), completeness (whether all accounts receivable are included), and valuation (whether
the recorded balances are accurately valued).
The account balance or transaction related is accounts receivable in the financial statements.

Câu 2: Recognize control activities

These following descriptions are internal controls related to various cycles. For each internal
control, identify the type(s) of specific control activity (or activities) to which it applies (such as
adequate documents and records; performance reviews/independent checks; physical
controls; segregation of duties; information processing controls).

6) Payments by check are received in the mail by the receptionist, who lists the checks
and restrictively endorses them.
-> Separation of duties

7) “Periodic counting of inventory and make comparison with the inventory amounts
shown on accounting book.”
-> Physical control
Explanation:
Conducting periodic physical counts of inventory to verify its existence and accuracy.
Comparing the results of the physical count with the recorded inventory amounts in the
accounting records.
8) Receiving reports are pre-numbered and accounted for on a daily basis.
-> Adequate documents and records
Explanation:
Pre-numbering the receiving reports ensures that each report is uniquely identified and
accounted for.
Accounting for the reports on a daily basis ensures that all reports are tracked and none are
missing.

9) “Checks are signed by the company president, who compares the checks with the
underlying supporting documents.”
-> Independent check on performance / Separtation of Duties
Explanation:
Independent Checks on Performance:
The company president's comparison of checks with supporting documents acts as an
independent verification that the payments are accurate and valid.
Separation of Duties:
The fact that the company president is involved in both signing the checks and comparing them
with supporting documents suggests a level of separation of duties, as the person responsible for
authorization (signing) is separate from the person responsible for verification (comparison).

10) “The senior management review actual performance versus budgets, forecasts, and
data of prior period in order to check the performance of the entity.”
-> Performance reviews / Independent check on performance
Explanation:
Independent Checks on Performance:
The review of actual performance against budgets, forecasts, and prior period data serves as an
independent check to ensure the accuracy and appropriateness of the entity's performance.
Performance Reviews/Authorization of Transactions:
The senior management's review of actual performance and its comparison with budgets and
forecasts can also involve an authorization process to ensure that any necessary actions are
taken based on the performance analysis.

Câu 3:
The following information are used for question 11 to 12:

For each of the following independent situations, you are to recommend the type of audit
opinion that will most likely be issued by the firm auditing the client's financial statements and
briefly explain the rationale for your choices.

11) The client, with reasonable justification, has changed its method of accounting for
depreciation for all factory and office equipment. The effect of this change is material. The
client's management disclosed the change in the Notes to Financial Statement.
-> Qualified or Adverse
Explantion:
A change in accounting policy for depreciation, especially if material, can have a significant
impact on the financial statements. Even though the change is disclosed in the Notes to the
Financial Statements, if the auditor determines that the change is not in accordance with
Generally Accepted Accounting Principles (GAAP) or is not adequately justified, they may issue
a qualified opinion. This indicates that there is a limitation in the scope of the audit or a departure
from GAAP that affects the financial statements, but is not pervasive enough to warrant an
adverse opinion.
12) The client restricted the auditor from inspecting the physical inventory. Inventory is a
material item and has pervasive effects on the financial statements.
-> A disclaimer of opinion

Explanation:
When the auditor is unable to obtain sufficient and appropriate audit evidence due to a limitation
imposed by the client, it creates a significant scope limitation. In this case, the restriction on
inspecting the physical inventory, a material and pervasive item, prevents the auditor from
forming an opinion on the financial statements. This situation leads to a lack of assurance about
the fairness of the financial statements as a whole, resulting in a disclaimer of opinion.

13) The client fails to record an immaterial amount of prepaid insurance as an asset.
-> Unmodified Opinion
Explanation:
If the failure to record an immaterial amount of prepaid insurance as an asset does not have a
material impact on the financial statements as a whole, it is unlikely to affect the overall fairness
of the financial statements. An unmodified opinion is appropriate when the financial statements
are presented fairly in accordance with the applicable financial reporting framework. The
omission of an immaterial amount is unlikely to change the overall picture of the financial
position, results of operations, and cash flows presented in the statements. Therefore, the auditor
can issue an unmodified opinion, indicating that the financial statements are free from material
misstatement.

14) There is substantial doubt about the client's ability to continue as a going concern.
-> Unmodified opinion with emphasis matter
Explanation:
If the client has failed to record an immaterial amount of prepaid insurance as an asset, this
might not significantly impact the overall fairness of the financial statements. An unmodified
opinion is generally appropriate when the financial statements are fairly presented, and any
issues are considered not pervasive.

However, if the auditor believes that this matter needs to be highlighted to ensure proper
understanding by the users of the financial statements, an emphasis of matter paragraph can be
added to the audit report. This paragraph draws attention to the matter without modifying the
opinion itself.

NOTE:
Unmodified Opinion (Clean Opinion):
This is the most favorable opinion an auditor can issue.
It states that the financial statements are fairly presented, in all material respects, in accordance
with the applicable financial reporting framework.
No material misstatements have been found, or any found were corrected appropriately.
This type of report indicates that the auditors are satisfied with the company’s financial reporting.
The auditor believes that the company’s operations are in compliance with governance principles
and applicable laws.

Unmodified Opinion with Emphasis of Matter:

Similar to an unmodified opinion, but the auditor adds a paragraph to emphasize certain matters.
These matters could relate to uncertainties, significant events, or accounting changes that the
auditor wants to draw attention to.
The financial statements are fairly presented, but the additional paragraph highlights specific
concerns.

Qualified Opinion:
When an auditor isn’t confident about any specific process or transaction that prevents them from
issuing an unqualified, or clean, report, the auditor may choose to issue a qualified opinion.
Investors don’t find qualified opinions acceptable, as they project a negative opinion about a
company’s financial status.
Auditors write up a qualified opinion in much the same way as an unqualified opinion, with the
exception that they state the reasons they’re not able to present an unqualified opinion.
A common reason for auditors issuing a qualified opinion is that the company didn’t present its
records with GAAP.

Disclaimer of Opinion:
Issued when the auditor is unable to obtain sufficient appropriate audit evidence and cannot
express an opinion on the financial statements as a whole.
This could result from significant scope limitations, lack of independence, or other issues that
prevent the auditor from forming an opinion.
When an auditor issues a disclaimer of opinion report, it means that they are distancing
themselves from providing any opinion at all related to the financial statements.

Some of the reasons that auditors may issue a disclaimer of opinion are because they felt like
the company limited their ability to conduct a thorough audit or they couldn’t get satisfactory
explanations for their questions. They may not have been able to decipher the correct nature of
some transactions or to secure enough evidence to support good financial reporting.

Auditors that aren’t allowed an opportunity to observe operational procedures or to review

particular procedures may feel like they’re not able to express a definite opinion, so they feel a
disclaimer is necessary and in order.

The general consensus is that a disclaimer of opinion constitutes a very harsh stance. As a
result, it creates an adverse image of the company.

Adverse Opinion:
Issued when the financial statements are not fairly presented, in all material respects, in
accordance with the applicable financial reporting framework.
Material and pervasive misstatements have been identified that have a widespread impact on the
financial statements.
Auditors who aren’t at all satisfied with the financial statements or who discover a high level of
material misstatements or irregularities know that this creates a situation in which investors and
the government will mistrust the company’s financial reports.

An auditor’s adverse opinion is a big red flag. An adverse audit report usually indicates that
financial reports contain gross misstatements and have the potential for fraud.

Adverse opinions send out a high alert that the company’s records haven’t been prepared
according to GAAP. Financial institutions and investors take this opinion seriously and will reject
doing any kind of business with the company.

Note của cô:

A. Standard unqualified/unmodified/clean audit report/opinion (FS give a TRUE and
FAIR view, in all material respects, …) : 4 para.
1. Introductory
 2. Management’s Responsibility
3. Auditor’s Responsibility
4. Auditor’s Opinion
5. Emphasis-of-matter (Explanatory): Significant Doubts on Going Concern, Lack of
`consitency in accounting methods/policies, additional emphasis (Significant
related-party transactions, Events after the balace date, …)
● Not a material misstatement
● Have properly disclosed and recorded in FS
6. Other matter (Explanatory): Reference of audit of ICFR, Audior’s of previous year
B. Modification of audit report/opinion à The auditor cannot issue an
unqualified/unmodified opinion, and should choose 1 among 3 following opinions:
● Qualified opinion: Except for …., FS give a TRUE and FAIR view, in all material
respects, …
● Adverse opinion: FS DO NOT give a TRUE and FAIR view, in all material
respects, …
● Disclaimer of opinion: We cannot express an opinion
There are 3 reasons/conditions to modify the audit opinion:
1. Audit scope limiation à cannot/ unable to obtain sufficient appropriate audit
evidence from any procedures. è Qualified or Disclaimer of opinion
2. Departure from GAAP/IFRS/VAS à FS are not conform with applicable financial
reporting framework à a material misstement from error and fraud. è Qualified
or Adverse opinion
3. Lack of audit independence è Disclaimer of opinion
Structure of modified audit report:
1. Introductory
2. Management’s Responsibility
3. Auditor’s Responsibility
4. Basis for qualified/adverse/disclaimer of opinion: to explain the reasons of
modification of audit opinion
5. Auditor’s Opinion

NOTE:
Assertions about classes of transactions and events for the period under audit
- Occurrence: This assertion ensures that recorded transactions and events actually occurred
during the audit period. Auditors examine whether the transactions are genuine and have been
properly authorized.

- Completeness: This assertion ensures that all valid transactions and events have been
recorded. Auditors verify whether there are any omissions in the financial statements that could
distort the overall picture.

- Accuracy: This assertion ensures that transactions and events are accurately recorded.
Auditors review whether the amounts and details presented in the financial statements are
precise and free from errors.

- Cutoff: This assertion involves ensuring that transactions are recorded in the correct
accounting period. Auditors assess whether transactions are properly classified based on their
timing.
- Classification and Presentation: This assertion focuses on the appropriate classification of
transactions in the financial statements. Auditors ensure that transactions are correctly
categorized and presented according to accounting standards.

Assertions about account balances at the period end

- Existence: This assertion confirms the actual existence of assets, liabilities, and equity
interests as of the balance sheet date. It addresses whether the reported balances are real and
tangible.

- Rights and Obligations: This assertion verifies that the entity has the legal rights to assets
and the obligations for liabilities that are reflected in the financial statements.

- Completeness: This assertion ensures that all account balances that should have been
included in the financial statements have been recorded. It addresses the potential omission of
balances.

- Valuation or Allocation: This assertion focuses on whether the reported balances are
accurately valued, considering factors such as depreciation, impairment, and estimates. It
ensures that balances are recorded at their appropriate values.

1. In analysing the plant assets account, which assertion is the examination of repairs and
maintenance records most directly related to?
a. Existence
b. Rights
c. Valuation
d. Presentation

2. In auditing the balance sheet, most revenue and expense accounts are also audited. Which
accounts are most likely to be audited when auditing accounts receivable?
a. Interest and Bad Debt Expense.
b. Sales and Cost of Goods Sold.
c. Sales and Bad Debt Expense.
d. Interest and Cost of Goods Sold.

3. What is ordinarily the primary concern when auditing the income statement?
a. Overstatement of Revenues and Net Income, and understatement of Expenses
b. Overstatement of Revenues, Expenses and Net Income
c. Overstatement of Revenues and Expenses, and understatement of Net Income
d. Overstatement of Net Income and understatement of Revenues and Expenses

4. Which of the following audit assertions is relevant to the audit procedure: "Comparing original
amount of inventory costs with the current market prices of actual sales"
a. Accuracy
b. Valuation and allocation
c. Existence
d. Completeness
5. Which of the following factors is most important in determining the appropriateness of audit
evidence?
a. The objectivity of the auditor gathering the evidence.
b. The quantity of the evidence obtained.
c. The risk of material misstatements.
d. The reliability of the evidence in meeting the objective of audit tests.

6. Which of the following procedures is most likely to be included in the final review stage
of an audit?
a. Confirmation of receivables.
b. Observation of inventory.
c. Perform analytical procedures.
d. Obtain an understanding of internal control.