An auditor is testing the existence of equipment. Which of the following procedures is MOST appropriate?

Answer options:

Select items from the plant floor and trace them to the fixed asset sub-ledger.

Select items from the fixed asset sub-ledger and physically inspect them.

Review repair and maintenance expense accounts.

Recalculate depreciation expense.

How to approach this question

Directional Testing again. Existence = Sheet to Floor.

Full Answer

B.Select items from the fixed asset sub-ledger and physically inspect them.✓ Correct

To test Existence (overstatement), the auditor starts with the accounting record (Fixed Asset Sub-ledger) and verifies that the assets actually exist by physically inspecting them. Going from the floor to the ledger (Option A) tests Completeness (understatement).

Common mistakes

Confusing Sheet-to-Floor (Existence) with Floor-to-Sheet (Completeness).

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