Question

To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate all of the following except?

1) The individual transactions that make up the account
2) The nature and amount of the account balance or disclosure
3) The risk of material misstatement in the account balance or disclosure
4) The appropriateness of the accounting policies used for the account balance or disclosure

Answer 1

Auditors need to assess several factors to determine if an assertion is relevant to an account balance or disclosure; however, individual transactions that make up the account are not typically evaluated in this context. Option 1 is the correct answer.

Step-by-step explanation:

To determine whether a particular assertion is relevant to a significant account balance or disclosure, an auditor should evaluate several aspects of the account or disclosure.

However, when considering which item listed is not necessary to evaluate, the correct option is the individual transactions that make up the account. This is because, in the context of assessing relevance to significant account balances or disclosures, auditors are more concerned with higher-level considerations rather than individual transaction details.

The items to evaluate include:

• The nature and amount of the account balance or disclosure to determine the quantitative and qualitative significance in the context of the financial statements.
• The risk of material misstatement in the account balance or disclosure to assess the likelihood and impact of a misstatement.
• The appropriateness of the accounting policies used for the account balance or disclosure to ensure they conform to relevant accounting standards and principles.

Conversely, auditors perform a risk assessment procedure at a higher level and don't necessarily need to scrutinize every single transaction except during detailed testing phases of an audit.