Audit and Assurance Practice Exam

Which assertion relates to the fact that inventory balances include all inventory transactions that have taken place during the period?

1. Completeness

2. Existence

3. Valuation

4. Presentation

The correct answer is: Completeness

The assertion that relates to the fact that inventory balances include all inventory transactions that have taken place during the period is completeness. This principle emphasizes that a company must include all relevant items in its financial reporting to ensure that it accurately reflects the financial position and performance. In the context of inventory, completeness ensures that all purchases, sales, and adjustments related to inventory are fully recognized and recorded in the accounting records for the period in question. This assertion seeks to confirm that there are no unrecorded inventory transactions that could potentially understate the inventory balance and, subsequently, the company's financial position. Therefore, completeness is crucial for providing a reliable representation of inventory, ensuring that stakeholders have a true understanding of the company’s assets. In contrast, the other assertions address different aspects: existence confirms that the inventory recorded actually exists, valuation focuses on ensuring that inventory is recorded at appropriate amounts, and presentation pertains to how the inventory is disclosed in the financial statements, including classification and compliance with relevant reporting standards. Each of these plays an important role, but the completeness assertion specifically targets the inclusion of all relevant transactions.