Question

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because:

1) entities are more likely to overstate than understate revenues.
2) entities are more likely to understate than overstate revenues.
3) it is difficult to determine when services have been performed.
4) the allowance for doubtful accounts often is understated.

Answer 1

Auditors prioritize the occurrence assertion for revenues because entities are more likely to overstate than understate revenues, which can inflate a company's financial performance. Understatement of revenues is still a concern, but less likely to occur compared to overstatement.

Step-by-step explanation:

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because entities are more likely to overstate than understate revenues. When auditing revenues, auditors want to ensure that all reported revenues have actually occurred and are supported by evidence.

For instance, a company may recognize revenue prematurely or include sales that have not yet been made. This type of overstatement can inflate a company's financial performance. On the other hand, the completeness assertion focuses on ensuring that all revenues have been recorded, including those that may have been missed or intentionally excluded.

However, auditors prioritize the occurrence assertion because it is generally more common for entities to overstate revenues to make their financial statements appear better than they actually are. Understatement of revenues is still a concern, but it is less likely to occur compared to overstatement.