ExpertMedium1 markMultiple Choice
CPA · Question 40 · Area III: Performing Procedures
An auditor is testing the rights and obligations assertion for a client's machinery. Which of the following procedures would provide the BEST evidence?
An auditor is testing the rights and obligations assertion for a client's machinery. Which of the following procedures would provide the BEST evidence?
Answer options:
A.
Physically inspecting the machinery.
B.
Recalculating depreciation expense.
C.
Examining the entity's bank confirmations for indications of liens or collateral.
D.
Vouching the purchase to the vendor invoice.
How to approach this question
Rights & Obligations = Ownership & Liens. Look for legal documents or bank confirmations showing collateral.
Full Answer
C.Examining the entity's bank confirmations for indications of liens or collateral.✓ Correct
Examining the entity's bank confirmations for indications of liens or collateral.
Standard bank confirmations include a section for the bank to list any security interests (liens) or collateral held. This provides evidence regarding the 'Rights' assertion (specifically, whether the assets are pledged).
Common mistakes
Thinking physical inspection proves ownership.
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