CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceEasy
Which of the following audit procedures would most likely be used to test the existence assertion for accounts receivable?
- ASending positive confirmations to a sample of customers.
- BReviewing the aging schedule for unusual items.
- CTracing shipping documents to the sales journal.
- DVouching recorded sales to shipping documents.
Show answer & explanationAnswer & explanation
Correct answer: A. Sending positive confirmations to a sample of customers.
Sending positive confirmations directly to customers provides external evidence that the accounts receivable balance exists and is owed by the customer. This directly addresses the existence assertion.
Why the other options are wrong
- B. Reviewing the aging schedule helps assess valuation and collectibility, not primarily existence.
- C. Tracing shipping documents to the sales journal primarily tests completeness of sales transactions and revenue recognition.
- D. Vouching sales to shipping documents primarily tests the validity or occurrence of sales transactions, not directly the existence of the receivable balance.
Existence Assertion
The existence assertion states that assets, liabilities, and equity interests exist at a given date, and recorded transactions have occurred.
- For assets, it means they are real and on hand.
- Common procedures include confirmation, physical observation, and vouching.
- Directly addresses whether recorded amounts are valid.
Memory trick: CRADLE: Completeness, Rights, Accuracy, Disclosure, Existence, Valuation.