• 1 Marks

AAA – L3 – SA – Q3.7 – Directional Testing

Focus of directional testing in auditing.

Directional testing is an approach to auditing which tests:

A   asset and liability balances for overstatement

B   asset and liability balances for understatement

C   asset balances for understatement and liability balances for overstatement

D   asset balances for overstatement and liability balances for understatement

D

Explanation:
Directional testing tests asset balances for overstatement and liability balances for understatement, as these are the directions most likely to result in material misstatements (e.g., overstating assets or understating liabilities inflates financial position). Thus, D is the correct answer.

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