Other Audit Procedures

Question 1

What does related parties may include?

Answer 1

Affiliates, principal owners, management, and members of the immediate family

Question 2

Is a related party transaction considered to be an arm’s length transaction?

Answer 2

No

Question 3

The auditor should obtain an understanding of related party relationships and transactions sufficient to?

Answer 3

Recognize fraud risk factors, conclude whether the financial statements achieve fair presentation, and evidence about whether related party transactions and relationships have been appropriately identified, accounted for, and disclosed

Question 4

Application of specific procedures regarding material transactions with related parties may include?

Answer 4

Evaluating the company’s controls related to the authorization and approval of significant related party transactions and the procedures for identifying, accounting for, and disclosing related party transactions, asking management for the names of all related parties, reviewing the reporting entity’s filings with the SEC, reviewing material transactions, reviewing prior years’ audit documentation or inquiring of the predecessor auditor

Question 5

The auditor should remain alert for the following items, which may be indicative of a related party transaction?

Answer 5

Compensating balance arrangements, loan guarantees, unusual, nonrecurring transactions near year-end, transactions based on terms that differ significantly from market terms, and nonmonetary exchanges

Question 6

When the auditor identifies significant related party transactions outside of the normal course of the entity’s business, the auditor should?

Answer 6

Inspect the underlying contracts or agreements of the business rationale of the transactions, terms of the transactions, and transactions have been appropriately accounted for and disclosed

Question 7

If the auditor identifies related parties or significant related party transactions that management has not previously identified or disclosed to the auditor, the auditor should?

Answer 7

Communicate the information to the other members of the engagement team, request management to identify all transactions with the newly identified related parties, inquire why the entity’s controls failed to enable the identification and disclosure of the related party relationships or transactions, perform appropriate substantive procedures, reconsider the risk that other related parties or related party transactions may not have been identified or disclosed, and evaluate the audit implications if management’s nondisclosure appears intentional

Question 8

What are examples of estimates?

Answer 8

FMV, impairment, and revenue recognition

Question 9

The auditor has the following responsibilities when evaluating estimates?

Answer 9

Evaluate the degree of estimation uncertainty, assess management’s written policies and practices regarding the development and use of estimates, verify that all material estimates have been developed, determine that the accounting estimates are reasonable, and ensure that the accounting estimates are properly presented and disclosed in conformity with GAAP

Question 10

What is the susceptibility of an accounting estimate to an inherent lack of precision in its measurement?

Answer 10

Estimation uncertainty

Question 11

In evaluating the reasonableness of an estimate, the auditor must first?

Answer 11

Obtain an understanding of how management developed its estimate

Question 12

What are 4 factors when auditing fair values?

Answer 12

Consistent method with prior period, past track record of estimates is accurate, justify any changes in approach, and appropriate in relation to industry

Question 13

The auditor’s responsibility should obtain sufficient appropriate audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with GAAP which includes?

Answer 13

Understand the entity’s process, understand relevant controls, assess the risk of material misstatement of fair value measurements, and evaluate the sufficiency, competency, and consistency of evidence obtained with respect to fair value measurements and disclosures

Question 14

In testing an entity’s fair value measurements and disclosures, the auditor may?

Answer 14

Determine whether management’s significant assumptions provide a reasonable basis for fair value measurements

Question 15

In conjunction with these inquiries regarding identifying contingencies, the auditor should perform the following procedures?

Answer 15

Review the minutes, invoices from lawyers, correspondence from taxing authorities, bank confirmations for hidden bank loans, purchase commitments, long-term leases, client representation letter, and send an inquiry letter to the client’s attorneys

Question 16

Who’s responsibility is it to identify and account for contingent liabilities, including litigation, claims, and assessments?

Answer 16

Management’s

Question 17

Who is the letter of inquiry to client’s attorneys prepared by? Sent by?

Answer 17

Management and Auditors

Question 18

Is a refusal to respond to a letter of inquiry a scope limitation?

Answer 18

Yes

Question 19

A client’s refusal to permit inquiry of the attorney’s generally will result in a ?

Answer 19

Disclaimer of opinion or withdrawal