Audit and Assurance Practice Exam

What does 'completeness' refer to in auditing?

1. All financial statements are accurate.

2. All transactions that should have been recorded have been recorded.

3. All financial controls are effective.

4. All accounting entries match physical inventory counts.

The correct answer is: All transactions that should have been recorded have been recorded.

In auditing, 'completeness' is a fundamental principle that ensures all transactions that should have been recorded in the financial records are indeed recorded. This concept is critical because it addresses the risk of omissions, where not all relevant data is captured, leading to an incomplete view of the financial position of an entity. The auditor’s goal is to verify that the financial statements reflect all necessary transactions, which helps ensure that users of the financial statements have a clear and accurate picture of the company’s financial performance and position. Achieving completeness enhances the reliability of financial reporting and is vital for accurate decision-making by stakeholders. While other options relate to various components of the audit process, they do not focus on the completeness aspect. Accuracy and effectiveness of controls are vital, but they do not specifically address the capture of all pertinent transactions. Likewise, matching accounting entries with physical counts pertains to existence and accuracy rather than completeness. Therefore, the focus on recording all necessary transactions clearly defines why completeness is best represented by the correct option.