Multiple Choice
Revenues and expenses are subcategories of which of the following financial statement elements?
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1. Introduction to Accounting
The Financial Statements
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In testing the existence assertion for an asset, an auditor ordinarily works from the:
A
accounting records to the supporting evidence (such as physical assets)
B
bank statements to the general ledger
C
supporting evidence (such as physical assets) to the accounting records
D
trial balance to the journal entries
Verified step by step guidance1
Understand the existence assertion: In financial accounting, the existence assertion ensures that the assets recorded in the financial statements actually exist at the reporting date.
Identify the auditor's approach: To test the existence assertion, auditors typically start with the accounting records (e.g., general ledger or trial balance) and trace them to supporting evidence, such as physical assets or documentation.
Clarify the reasoning: This approach helps verify that the recorded assets are not fictitious and are supported by tangible evidence or documentation.
Eliminate incorrect options: For example, tracing from supporting evidence to accounting records tests completeness, not existence. Similarly, bank statements to the general ledger or trial balance to journal entries are not standard procedures for testing existence.
Conclude the correct approach: The auditor works from accounting records to supporting evidence to test the existence assertion for an asset.
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