ACCA Audit and Assurance (F8) Practice Exam

What is typically one of the first steps taken when auditing accruals?

1. Review sales projections

2. Recalculate accrual totals

3. Trace back to documentation

4. Conduct interviews with staff

The correct answer is: Trace back to documentation

One of the first steps taken when auditing accruals involves tracing back to documentation. This is crucial because accruals represent estimates of liabilities and expenses that have been recognized but not yet settled. By examining the underlying documentation, such as invoices, contracts, and supporting records, the auditor can verify the validity and accuracy of the accruals listed in the financial statements. Tracing back to documentation allows the auditor to assess whether the accruals reflect the actual transactions and events that occurred within the reporting period. This process helps establish the audit trail necessary to confirm that the financial statements present a true and fair view of the company's financial position. Ensuring that there is proper documentation is fundamental to understanding the nature and amount of the accruals, which will inform further audit procedures. While recalculating accrual totals, reviewing sales projections, and conducting interviews with staff may be part of the broader auditing process, they are typically approached after verifying the underlying documentation. Each of these steps has its place, but tracing documentation is essential for building a strong foundation for further analysis and conclusions regarding accruals.