An auditor is testing the rights and obligations assertion for a client's machinery. Which of the following procedures would provide the BEST evidence?

Answer options:

Physically inspecting the machinery.

Recalculating depreciation expense.

Examining the entity's bank confirmations for indications of liens or collateral.

Vouching the purchase to the vendor invoice.

How to approach this question

Rights & Obligations = Ownership & Liens. Look for legal documents or bank confirmations showing collateral.

Full Answer

C.Examining the entity's bank confirmations for indications of liens or collateral.✓ Correct

Standard bank confirmations include a section for the bank to list any security interests (liens) or collateral held. This provides evidence regarding the 'Rights' assertion (specifically, whether the assets are pledged).

Common mistakes

Thinking physical inspection proves ownership.

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