The erroneous inclusion of transactions that should properly be recorded as assets into accounts such as repairs expense, lease expense, or supplies is a common client error. The auditor is most lkely to evaluate the likelihood of these types of misclassifications in conjunction with:
A) obtaining an understanding of internal control.
B) the tests of controls.
C) the tests of transactions.
D) the tests of details of balances.

Question

Quizplus · Accepted Answer

In order to evaluate the likelihood of misclassifications of transactions, the auditor needs to understand how the client's internal control operates. This includes assessing the client's policies and procedures for recording transactions and ensuring they are properly classified. Therefore, obtaining an understanding of internal control is the most likely way for the auditor to evaluate the likelihood of misclassifications. The tests of controls, tests of transactions, and tests of details of balances are each designed to test specific aspects of the client's financial statements and are not directly related to evaluating the likelihood of misclassifications.

The Erroneous Inclusion of Transactions That Should Properly Be Recorded