ACCA Advanced Audit and Assurance (AAA) Practice Exam

What does the substantive testing for rights and obligations ensure?

1. That expenses are minimized

2. That company assets are adequately protected

3. That assets belong to the company as claimed

4. That all liabilities are disclosed

The correct answer is: That assets belong to the company as claimed

Substantive testing for rights and obligations is primarily concerned with verifying that assets reported in the financial statements are indeed owned by the company and that the ownership rights are valid. This process involves reviewing documentation and evidence to confirm that the organization has legitimate rights to these assets, ensuring that there are no misrepresentations in the financial statements related to ownership. When auditors perform this type of testing, they may examine contracts, title deeds, or other legal documents that demonstrate ownership. This check is crucial as it helps to provide reasonable assurance that the company’s reported assets truly belong to them, which directly impacts the reliability of the financial statements. In contrast, the other options relate to different aspects of financial integrity or asset management. While minimizing expenses and ensuring liabilities are disclosed are important, they do not specifically address the verification of ownership rights associated with assets. Additionally, protecting company assets is a broader concept that encompasses security and risk management rather than directly verifying rights and obligations. Therefore, focusing on rights and obligations specifically confirms ownership, making this option the most accurate in the context of substantive testing.