An exception in a substantive test of transactions provides an indication of the likelihood of monetary misstatements in the financial statements because substantive tests of transactions do reveal whether monetary misstatements have actually occurred.

Question

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Substantive tests of transactions are designed to test the completeness, accuracy, and validity of individual transactions recorded in the financial statements. Therefore, if an exception is identified during such a test, it provides an indication that a monetary misstatement may exist. This is because substantive tests of transactions are designed to detect monetary misstatements, and if an exception is found, it suggests that there may be further misstatements in the financial statements.

An Exception in a Substantive Test of Transactions Provides an Indication