Final answer:
The auditor's test of an entity's policy of obtaining credit approval before shipping goods is in support of management's assertion about the 'existence or occurrence' of account balances, which is parallel to the processes financial institutions use to ensure the 'rights and obligations' of credit and loan agreements.
Step-by-step explanation:
The student's question concerns an auditor testing an entity's credit approval policy to support management's assertion regarding account balances. When an auditor examines a policy of obtaining credit approval before shipping goods, they are primarily supporting management's assertion about existence or occurrence.
This assertion pertains to whether the shipped goods have actually been sold or transferred to customers and that such transactions have occurred. This relates closely to the steps a financial institution takes before issuing a loan: assessing income sources, conducting credit checks, potentially requiring a cosigner, and securing collateral to manage the rights and obligations associated with the credit extended to the borrower.