@Shay, By helping you I get to solidify my knowledge or a win win situation.
I used to have difficulties understanding the management assertions and how to read the question and decided what the auditor should do.
An example from Becker's CPA – 02443
To gain assurance that all inventory items in a client's inventory listing schedule are “valid” an auditor most likely would “trace”:
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For me the key words here are “Trace” (from source and up) and “Valid” (existence)
Trace tells me that I have to start from the source document which in this case is the inventory-listing to a document that will validate me the existence of the inventory in this case the “recorded count sheets”.
Example CPA-05488
“The auditor's inventory “observation” test count are “traced” to the client's inventory listing to test for which of the following statement assertion”
Key words: Observation test count and trace
Observation says that the auditor already tested the existence of the inventory count and the next step “up” or “trace” is that the inventory is on the inventory listing.
The correct answer is completeness
In this question they could have added that they traced it to the JE and that would still be completeness.
You read the question carefully and answer two questions:
1. Which way is it going up (Tracing) or down (Vouching)
2. What does the auditor want to verify or accomplish ( assertion ) COVER U
I believe you know pretty well the direction, the next step is to understand the assertions, what are they supposed to accomplish.
Completeness, cut Off, Valuation, Existence, Rights and Oblication and Understandibility
I hope this helps,
.