[Anonymous]

The Cosby CPA firm is auditing the financial statements of Hamster, Inc. for the latest year. Hamster manufactures widgets in its factory located in Gaffney, South Carolina. The auditors are currently analyzing each of the entries made to the repair expense account. What is one of the purposes for doing this testing?

A The auditors hope to gain evidence that the company’s liabilities are not overstated.

B The auditors hope to gain evidence that the company’s net income is not understated.

C The auditors hope to gain evidence that the company’s current assets are not overstated.

D The auditors hope to gain evidence that the company’s current assets are not understated.

The Ans is B, my question why cant it be D? Because if B is true, D is true as well.

[barelystayingsane]

Repair expense typically deals with PP&E, which is not a current asset. If D had said, “The auditors hope to gain evidence that the company’s equipment is not understated,” then D would also be correct. Gotta RTMFQ!!!!

[barelystayingsane]

Repair expense typically deals with PP&E, which is not a current asset. If D had said, “The auditors hope to gain evidence that the company’s equipment is not understated,” then D would also be correct. Gotta RTMFQ!!!!

[mla1169]

While there may be two technically correct answers you're looking for the “best” answer. An auditor wants to make sure first and foremost that neither expenses or assets are overstated.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

While there may be two technically correct answers you're looking for the “best” answer. An auditor wants to make sure first and foremost that neither expenses or assets are overstated.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Anonymous]

Can someone please explain why an auditor wants to make sure expenses are not OVERSTATED? Isn't it worse for the client if expenses are overstated because net income would be lower?

[Anonymous]

Can someone please explain why an auditor wants to make sure expenses are not OVERSTATED? Isn't it worse for the client if expenses are overstated because net income would be lower?

[Anonymous]

Hey CPAjAson, Hmm.. In my opinion, I think the auditor should make sure expenses are not “overstated” or “understated”. But should be stated as it should be

[Anonymous]

Hey CPAjAson, Hmm.. In my opinion, I think the auditor should make sure expenses are not “overstated” or “understated”. But should be stated as it should be

[mla1169]

My mistake, the auditor wants to make sure the expenses are not understated in this case. (but as a side, some companies do want lower net income for lower taxes. I see that at work and fight it tooth and nail)

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

My mistake, the auditor wants to make sure the expenses are not understated in this case. (but as a side, some companies do want lower net income for lower taxes. I see that at work and fight it tooth and nail)

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Anonymous]

@mla – thanks for the clarification. the answer to the problem is still a little confusing because i would assume the auditors would make sure that net income is not overstated, but I guess answer B is the only logical answer

[Anonymous]

@mla – thanks for the clarification. the answer to the problem is still a little confusing because i would assume the auditors would make sure that net income is not overstated, but I guess answer B is the only logical answer

[barelystayingsane]

@mla1169 is my explanation wrong then? My line of reasoning always seems to be different than the AUD exam writers. Is this another example of that? I'll take any advice I can get on how to interpret these questions the correct way!!

[barelystayingsane]

@mla1169 is my explanation wrong then? My line of reasoning always seems to be different than the AUD exam writers. Is this another example of that? I'll take any advice I can get on how to interpret these questions the correct way!!

[Anonymous]

@ I think barelystayingsane is correct. The trick is, repair & expense deals with Fixed asset not current asset. Hence, B is the most correct answer. Audit is full of word tricks 🙁

[Author]

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