ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which type of substantive test is focused on verifying account balances and related disclosures?

1. Occurrence

2. Existence

3. Classification

4. Accuracy

The correct answer is: Existence

The focus on verifying account balances and related disclosures pertains to the concept of existence. Substantive tests of existence are designed to confirm that the assets and liabilities recorded in the financial statements actually exist at the reporting date. This involves checking that the amounts reported are not only real and valid, but also accurately reflected in the financial records. In the context of an audit, confirming existence is fundamental because it helps assure that the figures provided by the management are true and that no phantom or fictitious entries have been made. This aspect is especially crucial for account balances, as it directly impacts the integrity of the financial statements and the overall trust in the company's reporting. While other substantive tests, such as occurrence, classification, and accuracy, contribute to different aspects of the financial statement verification process—like validating that transactions happened, that they are appropriately categorized, and that the amounts are correct—existence specifically targets the reality of account balances and their proper disclosure. Hence, the emphasis on existence as the correct answer aligns with its critical role in confirming the authenticity of financial information presented in the financial statements.