Which of the following best describes the concept of 'Directional Testing' in auditing?

Correct answer: B) Testing assets and revenues primarily for overstatement, and testing liabilities and expenses primarily for understatement.

Explanation

Directional testing focuses on management's typical biases. Management has an incentive to inflate profits and net assets, so auditors test assets/income for overstatement (existence/occurrence) and liabilities/expenses for understatement (completeness).