ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which substantive test involves confirming compliance with accounting standards?

1. Existence

2. Accuracy

3. Cut-off

4. Classification

The correct answer is: Classification

The selection of the classification test as the correct answer is due to its focus on ensuring that transactions and balances are recorded in the proper accounts, consistent with the applicable accounting standards. By confirming that items are classified correctly, auditors ensure that financial statements adhere to the principles of fair presentation as mandated by those standards. This aspect of compliance is crucial since misclassifying financial elements can significantly affect the interpretation of financial results and the overall integrity of the financial report. In the context of substantive testing, classification tests are employed to verify that transactions are recorded in the relevant categories, thus aligning with the stipulations of accounting frameworks like IFRS or GAAP. When classification is inaccurate, it can lead to misleading financial information, which may misguide stakeholders. Though other tests such as existence, accuracy, and cut-off assess different aspects of the financial statements, they do not specifically focus on compliance with accounting standards like the classification test does. Existence tests verify whether assets or liabilities actually exist, accuracy tests confirm the numbers are mathematically correct, and cut-off tests ensure transactions are recorded in the correct accounting periods. None of these directly address the alignment of financial statement elements with accounting standards in the same manner as classification does.