Question

The auditor should guard against unwarranted inferences in gathering audit evidence. The following are examples of inappropriate inferences that auditors may make because they use evidence that is not entirely relevant to the assertion being tested. The auditor tests the existence of the client’s equipment by inspecting the asset and concludes that the asset exists and is owned by the client.

Select the statement that accurately evaluates the auditor’s test described above.

a. The only purpose of inspecting the equipment is for the auditor to determine whether the equipment is impaired.

b. If the equipment is held outside the business premises of the entity it is not necessary to inspect the equipment to test for existence.

c. The existence assertion for equipment implies that the entity also owns the equipment.

d. If auditor inspected the documents that provide evidence of acquisition and ownership of the equipment, it would not have been necessary to inspect the asset itself.

e. Evidence about the existence of the equipment that is gained through inspecting the asset does not provide relevant evidence about who owns the asset.

Answer 1

c. The existence assertion for equipment implies that the entity also owns the equipment.