From the course: Audit and Due Diligence Foundations

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Testing

Testing

From the course: Audit and Due Diligence Foundations

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Testing

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- When you go to the beach, you might want to test the water before jumping in. And when an auditor looks at a company, it's important to engage in testing. That's making sure that what's in the financial statements is as it seems and is recorded. The auditor tests assertions for balance sheet items, like assets and liabilities, as well as some transactions that are usually on the income statement. Testing for the balance sheet usually includes testing for existence, rights and obligations, and valuation, or validity. The first of these, existence, requires looking at the assets and liabilities to make sure they actually exist. Enron, the famed energy company that imploded largely because of financial fraud, claimed to have certain assets that it did not, in fact, own and did not even exist. One team of consultants was dispatched to optimize a power plant, but at the last minute, they were told to just stay at the…

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