A4

Question 1

Things to consider in auditing hedge treatment

Answer 1

Auditor needs to consider:

1) disclosures related to risk exposures (# transactions and demonstrate the risk)
2) evaluate the contract to examine the character of the hedge in which losses should be recognize in the determination of income.
3) Character of any disclosures
4) Test valuation of securities using pricing services

Question 2

Why do confirmation of AP is the least likely to be done before YE?

Answer 2

Auditor needs to consider whether Assets or liabilities balance is relatively predictable with respect to amount, relative significance, and composition. AP is relatively difficult to predict as it may fluctuate at management’s discretion.

Question 3

What assertion is confirmation providing?

Answer 3

Rights and obligation

Question 4

Testing existence of fix assets addition and unrecorded assets:

Answer 4

To test existence of fix assets addition:

1) vouch assets requisition form
2) examining external evidence (invoice)
3) Inspecting the actual assets

To test unrecorded assets (test completeness):
Pull samples from the older fix assets from subsidiary ledgers and then locate those assets in the warehouse.