Question

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

A) entities are more likely to overstate than understate revenues.
B) entities are more likely to understate than overstate revenues.
C) it is difficult to determine when services have been performed.
D) the allowance for doubtful accounts often is understated.

Answer 1

Auditors prioritize the occurrence assertion for revenues due to the higher risk of overstatement and the potential for fraudulent activities.

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 auditors test the occurrence assertion, they are looking to ensure that the reported revenues actually occurred and are supported by appropriate evidence. This is important because entities may be tempted to manipulate their financial statements by inflating revenues to make their financial performance appear better than it actually is.

For example, a company may record fictitious sales or prematurely recognize revenue before the sale has actually taken place to boost its revenue figures. By focusing on the occurrence assertion, auditors can detect and prevent these fraudulent activities.

On the other hand, the completeness assertion pertains to whether all valid revenues have been recorded and included in the financial statements. While understatements of revenues can occur, they are generally considered less problematic than overstatements.

In summary, auditors prioritize the occurrence assertion for revenues because of the higher risk of overstatement and the potential for fraudulent activities.