A3 - Specific Areas of Engagement Risk Flashcards
what explanation why the auditor’s examination cannot reasonably bring all acts of noncompliance with laws and regulation by client?
acts of noncompliance with laws and regulations by clients often relate to operating aspects rather than accounting aspects
what is the next step the auditor should take when there are possible acts of noncompliance with laws and regulations?
apply audit procedures specifically directed to ascertaining whether an act of noncompliance with laws and regulations has occurred
what is the auditor’s responsibility regarding client’s compliance with laws and regulations?
obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework
what are the reasons the auditor should withdraw from the engagement regarding noncompliance with laws and regulations?
- when the auditor cannot rely on management’s representations (ex: management fail to take appropriate remedial action when employees committed bribes (even immaterial) to officials)
- when client refused to accept the auditor’s modified report
what would assist the auditor in determining whether management has identified all accounting estimates that could be material to the FS?
- Review the lawyer’s letter for information about litigation
what are the indications of a related party transaction?
- compensating balance arrangements (which may be maintained by or for related parties)
- loan guarantees
- Unusual, nonrecurring transactions near year-end
- transactions based on terms that differ significantly from market terms
- nonmonetary exchanges
what is the primary emphasis the auditor has on related party transactions?
the adequacy of the disclosure of the related party transactions
what is the primary purpose of reviewing conflict-of-interest statements signed by members of management?
to identify transactions with related parties
