A4 (3) -OTHER AUDIT PROCEDURES Flashcards
RELATED PARTY TRANSACTIONS - Auditor’s Responsibility
1- identifying any related party transactions
2- whether transactions given proper disclosure in FSs
RELATED PARTY TRANSACTIONS - Audit procedures
1- Evaluating the company’s procedures for identifying and accounting for related party transactions,
2- Obtaining a conflict of interest statement from the client
3-Asking management for the names of all related parties
inquiring whether any transactions occurred during the period.
4-Reviewing the reporting entity’s filings with the SEC and other regulatory agencies concerning the names of officers and directors who occupy management or directorship positions in other businesses.
5-Reviewing material transactions for related party evidence.
6-Reviewing prior years’ audit documentation or inquiring of the predecessor auditor
7- Evaluating Financial Statement Disclosure
RELATED PARTY TRANSACTIONS - Identifying and Examining Related Party Transactions
1- Compensating balance arrangements by RP
2- Loan guarantees
3-Unusual, nonrecurring transactions near year-end
4-Nonmonetary exchanges
5-Transactions based on terms differ from market terms
ARM’s-LENTH TERMS - auditor believes this statement is unsubstantiated( not evidenced)
QUALIFIED or ADVERSE opinion due to a GAAP departure
ACCOUNTING ESTIMATES - examples
1- Net realizable values of inventory and receivables
2- Compensation in stock option plans
3- Future pension and warranty expenses
4-Probability of loss and related amounts due to litigation
ACCOUNTING ESTIMATES - Auditor’s Responsibilities
1- Assess management’s written policies and practices
2- Verify that all material estimates have been developed
3- Determine accounting estimates are reasonable
4-Ensure accounting estimates properly disclosed.
ACCOUNTING ESTIMATES - Procedures
1-Review and test the procedures used by management to develop the estimate
2-Develop an independent estimate of the item for comparative purposes
3-Review subsequent events and transactions
AUDITING FAIR VALUES - Management’s Responsibility
fair value measurements and disclosures in
accordance with GAAP.
AUDITING FAIR VALUES - Auditor’s Responsibility
1-Understand entity’s process for determining fair value
2-Understand relevant controls
3-Assess risk of material misstatement of fair value
4-Evaluate conformity with GAAP
5-Consider the need for a specialist
7-Test fair value measurements and disclosures
8-Evaluate the sufficiency of evidence obtained
9- Obtain relevant management representations
10 -Communicated those charged with governance
EVALUATING CONTINGENCIES - examples
1-Pending and threatened litigation
2-Actual or possible claims and assessments
3-Guarantees of the indebtedness of others
4-Guarantees of the indebtedness of others
5-Income tax disputes
EVALUATING CONTINGENCIES - Audit procedures
1-Review the minutes of meetings of stockholders, board
2-Review correspondence and invoices from lawyers
3-Review contracts, loan agreements
4-Review bank confirmations for hidden bank loans
5-Discuss purchase commitments with purchasing agent
6-Review the status of long-term leases
7-Discuss sales contracts with the sales manager
8-Review the interim financial statements after year-end
9- Obtain a client representation letter
10- Send an inquiry letter to the client’s attorneys
A lawyer’s refusal to respond to a letter of inquiry
limitation in the scope
A client’s refusal to permit Inquiry of the attorneys
Disclaimer of opinion.
Inherent Uncertainties - difficult for a lawyer to form
conclusions regarding pending litigation
If the auditor is satisfied that financial statement
disclosure is adequate, no modification to the opinion would be required
