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Hello Mike,
I got a question to ask:
The BPP refers an misstatement assertion matrix: Primary test also gives comfort on
Types of Account Purpose of Primary Test Assets Liability Income Expenses
Assets Overstatement O U O O ULiabilities Under- U U O O U
Income U U O O U
Expense U U O O U
The textbook further states that “A test for the overstatement of an asset gives the comfort on understatement of other assets (why? Other assets may have been overstated as well.), overstatement of liabilities (In order to level up the total assets based on the accounting equation?), Overstatement of income (I can understand this), and understatement of expenses (I can understand this).
I have put all my concerns in the brackets.
PS I do not believe this could be the only one case as there are many combinations for the misstatements. Am I correct?
Thank you in advance for your help!
Regards,
“(why? Other assets may have been overstated as well.)” – yes, but don’t forget your double entry! If an asset (or more than one asset) has been overstated, that overstatement needs to be balanced by a corresponding understatement of other asset, overstatement of liability or overstatement of income or understatement of expense
It all comes down to double entry – for every debit (overstating an asset) there has to be a credit
Better?
What makes you think that this is an exam question? There’s certainly nothing in this thread to even begin to lead you to think that
the matrix is given in the text book bpp, with all above explanations ,and for one minute i had thought the same .got cleared .
thanks for sharing a question like this .
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