ExpertHard1 markMultiple Choice
CPA · Question 50 · Area III: Procedures
An auditor is testing the existence of equipment. Which of the following procedures is MOST appropriate?
An auditor is testing the existence of equipment. Which of the following procedures is MOST appropriate?
Answer options:
A.
Select items from the plant floor and trace them to the fixed asset sub-ledger.
B.
Select items from the fixed asset sub-ledger and physically inspect them.
C.
Review repair and maintenance expense accounts.
D.
Recalculate depreciation expense.
How to approach this question
Directional Testing again. Existence = Sheet to Floor.
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 (overstatement), the auditor starts with the accounting record (Fixed Asset Sub-ledger) and verifies that the assets actually exist by physically inspecting them. Going from the floor to the ledger (Option A) tests Completeness (understatement).
Common mistakes
Confusing Sheet-to-Floor (Existence) with Floor-to-Sheet (Completeness).
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