Audit and Assurance Practice Exam

Which assertion relates to the fact that the company actually owes a liability for the accounts payable as of the balance sheet date?

1. Rights and obligations

2. Completeness

3. Valuation

4. Accuracy

The correct answer is: Rights and obligations

The rights and obligations assertion pertains to the fundamental concept that a company truly has an obligation to settle a liability, such as accounts payable, as of the date reflected on the balance sheet. This assertion verifies not only that the liability exists but also that it is the entity's primary responsibility to settle it. When auditors assess this assertion related to accounts payable, they examine confirmations, vendor statements, and other documentation to ensure that the recorded liabilities are indeed obligations of the company. In contrast, the completeness assertion focuses on whether all accounts payable that should be recognized have been recorded. Valuation addresses whether liabilities are recorded at appropriate amounts, taking into account factors like discounts or write-downs, while the accuracy assertion relates to the precision of the amounts and disclosures in the financial statements. Each of these assertions plays a different role in financial reporting, but only the rights and obligations assertion directly confirms an entity's responsibility for a liability as of the balance sheet date.