ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is included in typical substantive tests for accuracy?

1. Cut off testing

2. Inspection of items purchased

3. Third-party confirmation

4. Confirming compliance with law

The correct answer is: Third-party confirmation

Substantive tests for accuracy are designed to verify the accuracy of financial statement balances and transactions. Third-party confirmation is a commonly used substantive test, particularly for accounts such as receivables or payables. This procedure involves obtaining direct verification from an independent third party regarding the amounts recorded in the financial statements. For instance, confirming the balance of an account receivable with a customer provides direct evidence that the amount reported by the company is accurate, which enhances the reliability of financial reporting. In contrast, the other options, while potentially useful in the audit process, do not specifically pertain to the verification of accuracy in financial information in the same way. Cut-off testing focuses primarily on whether transactions are recorded in the correct accounting period. Inspection of items purchased, while important for verifying existence or condition, does not directly assess the numerical accuracy of the recorded amounts. Confirming compliance with law relates more to legal adherence rather than to ensuring that financial figures are correct. Therefore, third-party confirmation best aligns with the objectives of substantive tests for accuracy.