ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is a typical audit test for verifying existence?

1. Inspecting supporting documentation

2. Physical verification

3. Calculating correct amounts

4. Reviewing notes for understandability

The correct answer is: Physical verification

A typical audit test for verifying existence focuses on confirming that the assets, liabilities, and transactions recorded in the financial statements actually exist at a specific date. Physical verification is the most direct method to accomplish this, as it involves physically inspecting the assets, such as inventory or property, to ensure they are present and that their condition is as stated. This type of audit test is essential to provide evidence that the entity’s records reflect reality, helping to ensure accuracy and integrity in financial reporting. By engaging in physical verification, auditors can confirm that the items on the balance sheet truly exist and are not overstated or fabricated. In contrast, options that involve inspecting supporting documentation or calculating correct amounts serve different purposes. Supporting documentation does not directly confirm existence; rather, it offers evidence of transactions or balances recorded. Similarly, calculating amounts pertains to ensuring accuracy, not verifying that items actually exist. Reviewing notes for understandability contributes to comprehension but does not attest to the existence of assets. Therefore, physical verification stands out as the most appropriate test for verifying existence.