The correct answer is d) All of the above. A balance sheet audit, also known as a financial statement audit, encompasses the verification of assets, liabilities, and income and expense accounts where appropriate. Here’s a detailed explanation of why this answer is correct and why the other options are not:

d) All of the above:

A balance sheet audit is a comprehensive examination of a company’s financial statements, primarily focusing on the balance sheet. It involves verifying:

1. Assets:

Auditors examine and verify a company’s assets, which include both current assets (e.g., cash, accounts receivable, inventory) and non-current assets (e.g., property, plant, equipment, investments). The goal is to ensure that these assets are accurately recorded and valued in the balance sheet. This verification process helps establish the reliability of the reported asset values.

2. Liabilities:

Auditors assess and confirm a company’s liabilities, which comprise both current liabilities (e.g., accounts payable, short-term debt) and long-term liabilities (e.g., long-term debt, deferred tax liabilities). The verification of liabilities ensures that they are accurately recorded and correctly classified on the balance sheet. It also verifies the completeness of the liabilities disclosed.

3. Income and Expense Accounts:

While the primary focus of a balance sheet audit is on assets and liabilities, auditors also consider income and expense accounts that have an impact on the balance sheet.

For example, income accounts may affect retained earnings, and certain expenses may lead to accrued liabilities. The audit of income and expense accounts is necessary to verify that these accounts are accurately recorded, properly classified, and that their effects on the balance sheet are correctly reflected.

Balancing the assets and liabilities on the balance sheet is essential to provide a true and fair view of a company’s financial position. Therefore, a thorough balance sheet audit includes the verification of all these components to ensure the overall accuracy and reliability of the financial statements.

Now, let’s discuss why the other options are not correct:

a) Assets:

While option (a) is partially correct because it acknowledges the verification of assets, it does not encompass the full scope of a balance sheet audit.

A balance sheet audit goes beyond assets alone and includes the verification of liabilities and, where relevant, income and expense accounts. This broader approach is essential for providing a comprehensive and accurate assessment of a company’s financial position.

b) Liabilities:

Option (b) is also partially correct, as it correctly identifies the verification of liabilities as an integral part of a balance sheet audit. However, like option (a), it does not provide a comprehensive view.

A balance sheet audit covers assets, liabilities, and, where necessary, income and expense accounts. This more extensive scope is crucial for evaluating the financial position’s overall accuracy and reliability.

c) Income and Expense Accounts:

Option (c) is accurate in acknowledging the relevance of income and expense accounts in a balance sheet audit, particularly when they impact the balance sheet. However, this option doesn’t cover the entire scope of a balance sheet audit.

A comprehensive balance sheet audit involves the verification of assets, liabilities, and income and expense accounts, where appropriate. The audit of income and expense accounts ensures that they have been accurately recorded and that their impact on the balance sheet is correctly reflected.

In conclusion, the correct answer is d) All of the above. A balance sheet audit is a comprehensive examination that encompasses the verification of assets, liabilities, and income and expense accounts, where appropriate.

This approach ensures that the balance sheet presents a true and fair view of a company’s financial position, making it a crucial aspect of financial reporting and transparency.

Auditors perform balance sheet audits to provide assurance to stakeholders, including investors, creditors, and regulators, about a company’s financial health, compliance with accounting standards, and the reliability of its financial statements.

The verification of assets, liabilities, and relevant income and expense accounts is essential for maintaining trust in financial reporting and decision-making by various stakeholders.