An auditor must identify the relevant assertions about each significant financial statement account and disclosure and then gather evidence to conclude whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.

Please discuss below questions (following the requirements on the syllabus):

a. In general, which accounts are most susceptible to overstatement? To understatement?

b. Why do you think a company could permit asset accounts to be understated?

c. Why do you think a company could permit liability accounts to be overstated?

d. Which direction of misstatement is most likely: income overstatement or income understatement?