An auditor must identify the relevant assertions about each significant financial statement account and disclosure and then gather evidence to conclude whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.a. In general, which accounts are most susceptible to overstatement? To understatement?b. Why do you think a company could permit asset accounts to be understated?c. Why do you think a company could permit liability accounts to be overstated?d. Which direction of misstatement is most likely: income overstatement or income understatement?
An auditor must identify the relevant assertions about each significant financial statement account and disclosure and then gather evidence to conclude whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.
a. In general, which accounts are most susceptible to overstatement? To understatement?
b. Why do you think a company could permit asset accounts to be understated?
c. Why do you think a company could permit liability accounts to be overstated?
d. Which direction of misstatement is most likely: income overstatement or income understatement?
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