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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

During the audit of Sundaram Textiles Ltd, the auditor selects a sample of purchase invoices recorded in the books and traces each one to the goods received note and then to the physical stock records. The auditor's primary objective in this test is to obtain evidence about which assertion?

The test mainly addresses occurrence of recorded purchases. Starting from entries in the books and tracing them to supporting documents and stock records checks that recorded transactions really happened. Completeness is tested in the reverse direction, from source documents to the ledger.

  1. ACompleteness of purchases
  2. BOccurrence of purchases recordedCorrect
  3. CCut-off of sales
  4. DClassification of expenses as capital or revenue

Explanation

Selecting items already recorded in the books and tracing them to supporting documents tests whether recorded transactions actually took place, that is, occurrence (or overstatement). Completeness requires the opposite direction, starting from documents such as goods received notes and checking that they are recorded in the books.

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