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Directional testing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Directional testing

  • This topic has 3 replies, 3 voices, and was last updated 7 years ago by Ken Garrett.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 27, 2015 at 9:13 pm #285811
    manikdash
    Member
    • Topics: 3
    • Replies: 1
    • ☆

    Link the type of account with the purpose of the primary test in directional testing.

    Formula 1:
    Assets, expense( Debit)= overstatement
    Liabilities, income( Credit)= understatement

    Formula 2:
    Asset = overstatement
    income= overstatement

    Liabilities= understatement
    Expense= understatement

    Which formula is correct? let me answer if possible, thanks.

    November 28, 2015 at 8:46 am #285862
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10193
    • ☆☆☆☆☆

    I don’t understand your formulas. Directional testing does not seem to be talked about as much now as once. Just try to think about it logically, concentrating on the double entry.

    If you test expenses for overstatement (too many Drs) you are going some way to also testing liabilities for overstatement (too many Crs).

    Of course it could be Dr Expenses, Cr Cash, so if you test that expenses have not been overstated (too many Drs) you are also getting some assurance that cash has not been understated (to many Crs).

    To perform this test you would have to trace from the expense account to the original documents (invoices, say).

    If you test expenses for understatement (too few Drs) you are going some way to also testing liabilities for understatement (too few Crs).

    To perform this test you have to trace from orders/grns/invoices to the expense account.

    November 30, 2015 at 5:24 pm #286489
    thato2
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Question 2 page 57 of the revision kit :
    “An audit procedure which tests for the understatement of a class of transactions will simultaneously test for the overstatement of the related liability ”

    The answer is:A True

    Shouldn’t it be false because shouldn’t the statement rather read :

    “An audit procedure which tests for the understatement of a class of transactions will simultaneously test for the understatement of the related liability ”

    November 30, 2015 at 6:13 pm #286507
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10193
    • ☆☆☆☆☆

    Yes. I think it should be false.

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