The auditor most likely performs extensive tests for possible understatement of

• A. Revenues
• B. Assets
• C. Capital
• D. Liabilities

Answer: (D)

Completeness of liabilities is the main concept here. In audits, a key risk is that obligations owed by the company have not been recorded, especially at year-end. Unrecorded liabilities can distort the balance sheet and related expenses, making the company appear more financially healthy than it really is. To address this, auditors perform extensive tests to uncover obligations that should have been recognized but were not, such as unpaid invoices, accruals, and other obligations that arise near or after the reporting date.

These tests often involve looking for expenses and liabilities that should have been recorded in the period but weren’t, by checking supplier statements, examining cash disbursements after the period end for items incurred near the period end, and reviewing minutes, contracts, and other documentation for potential liabilities. This focus on unrecorded obligations directly targets the completeness assertion for liabilities, which is why it’s the area examined with extensive procedures.

While revenues, assets, and capital can also be misstated, the scenario described—extensive testing for possible understatement—fits the common and high-risk concern that liabilities may be understated, affecting the accuracy and completeness of the financial statements.