Question

Which of the following is not a primary objective of the auditor in undertaking substantive testing of current assets?
Please explain why option B is the correct answer.
a. Establish the existence of the current assets.
b. Determine the adequacy of internal control over current assets.

Answer 1

Substantive tests are performed to check whether transactions are supported by various supportive documents in order to measure adequacy and authenticity of transaction

Adequacy of Internal control over current assets is regarded as the primary objective of the auditor in undertaking substantive testing of current assets because internal control helps to check whether internal operations of the company are carried on effectively and efficiently. Adequate internal controil helps to minimise the fraud and errors in the internal operations of the company. Current assets include cash, accounts receivables inventory and other miscellaneous assets Adequate internal control will help to measure misappropriation of cash and thus it will be helpful for an auditor to rely on the cash mangement system.

Similary inventory can be managed and handled properly.Valuation of inventory can be done in an accurate manner and obsolete or dead stock can be minimised. Auditor can verfiy phsical inventory count as well as method used to value inventory.