Question

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because

A) understatements of assets and income are a greater concern than overstatements.
B) overstatements of assets and income are a greater concern than understatements.
C) it doesn't matter if income is understated because the savings on income tax offsets the reduced revenue and net income is correct.
D) the unrecorded sales cause a reduction of accounts receivable; therefore, the ratios of the two financial statements will not be misleading.

Answer 1

Overstatements of assets and income are a greater concern than understatements in audits of sales transactions.

Step-by-step explanation:

In many audits of sales transactions, substantive tests of transactions can be reduced in determining the completeness objective because overstatements of assets and income are a greater concern than understatements. When auditing sales transactions, auditors are primarily focused on ensuring that there are no overstatements that would inflate the company's financial position and profitability. Understatements, on the other hand, might result in understated assets and income which would have a lesser impact on the financial statements.