ACCA Advanced Audit and Assurance (AAA) Practice Exam

When assessing accuracy, valuation, and allocation in substantive tests, which action is performed?

1. End-of-year financial forecasting

2. Recalculation of various balances

3. Annual staff performance reviews

4. Development of marketing strategies

The correct answer is: Recalculation of various balances

The assessment of accuracy, valuation, and allocation in substantive tests primarily involves the recalculation of various balances. This step is essential because it directly verifies the correctness of financial data presented in the statements. When auditors perform recalculations, they aim to ensure that the figures reported by the management are mathematically accurate and correctly reflected based on the underlying records. Recalculation can involve verifying account balances, interest calculations, and the mathematical accuracy of computations within financial documents. This process establishes a level of confidence that the amounts reported in the financial statements are free from material misstatement, thus enhancing the reliability of the financial reporting. While other options like end-of-year financial forecasting relate to planning and assessing future performance, they do not address the direct verification of current financial accuracy. Similarly, annual staff performance reviews and the development of marketing strategies are operational aspects that do not pertain to the auditing process focused on financial statement accuracy and valuation assessments.