Auditing & Assurance Services 6th Edition by Timothy Louwers

Exercise 43

Risk of Misstatement in Various Accounts. An auditor must identify the relevant assertions about each significant financial statement account and disclosure and the gather evidence to conclude about whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.
a. In general, which accounts are most susceptible to overstatement? To understatement?
b. Why do you think a company could permit asset accounts to be understated?
c. Why do you think a company could permit liability accounts to be overstated?
d. Which direction of misstatement is most likely: income overstatement or income understatement?