An auditor is testing the 'Existence' of equipment. Which of the following procedures is MOST appropriate?

Answer options:

Select physically observed assets and trace them to the fixed asset sub-ledger.

Select items from the fixed asset sub-ledger and physically inspect them.

Review repair and maintenance expense accounts for capitalizable items.

Recalculate depreciation expense.

How to approach this question

Directional Testing: Existence = Ledger -> Reality. Completeness = Reality -> Ledger.

Full Answer

B.Select items from the fixed asset sub-ledger and physically inspect them.✓ Correct

Select items from the fixed asset sub-ledger and physically inspect them.

To test existence, the auditor selects from the accounting records (the sub-ledger) and vouches to the physical asset. The reverse direction tests completeness.

Common mistakes

Confusing the direction of testing (Vouching vs Tracing).

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