SU 04: Strategic Planning Issues Flashcards
For which judgement may an independent auditor share responsibility
All judgements should be made by the auditor
In using the work of a specialist an understanding should exist among the auditor specialist and client as to the nature of the specialist work
The specialist understanding of the auditor corroborative use of specialist findings. The understanding should be documented and should cover 1 objective and scope of work 2 specialist representations on relationships to client 3 methods and assumptions used 4 comparison with those used in preceding period. It should also cover 1 specialist understanding the corroborative use of findings in to the assertions in f/s 2 form and content of specialist work for evaluation
Which procedures most likely would assist identifying related party transactions
Review confirmation of compensating balance arrangements. The auditor performs procedures to identify undetermined relationships
Accountant with significant retail experience is assigned to audit year 1 financial that was formed year 1 and markets fishing lures. Which is the least consideration for accountants audit of reasonableness of accounting estimates
A inexperienced employee prepared f/s and was entirely responsible for estimates
B accountant had never audit fishing lure company
C accounting estimates in financial are based on numerous assumptions
B, the auditor evaluates the reasonableness of estimates, among other factors considered 1 the entity’s experience in making past estimates 2 the auditor experience in the industry 3 any changes that may cause factors different 4 the possible need to obtain written representation from management regarding key factors and assumptions.
During audit of fair value measurements and disclosure the auditor most likely should
A understand component of internal control but need not specifically obtain understanding of entity process for determining fvmd
B use understanding of audited entity process for fvmd to assess RMM
B, to meet responsibility to make fvmd included in f/s management may need to adopt an accounting and financial reporting process that consists 1 choosing valuation method 2 identifying significant assumptions 3 preparing measurements and disclosure 4 ensuring conformity w GAAP. The auditor should obtain an understanding of this process relevant control that are sufficient for and effective audit of fvmd. The understanding is used to assess RMM and determine nature, timing, and substantive procedures
Issued an unqualified opinion but found out after engagement personnel failed to observe physical inventory. Omission impairs ability to support opinion what should be done if report gas already been submitted
A advise management to disclose to shareholders that opinion should not be relied upon
B undertake to apply alternative procedures that would provide satisfactory basis for unqualified opinion
C reissue report and add explanatory paragraph to describe departure from GAAS
B, the auditor determines whether 1 the omission impairs their current ability to support opinion 2 persons who are currently relying on report. If these conditions exist the auditor should promptly undertake to apply alternate procedures to gain satisfactory basis for opinion
1.) Overly optimistic earnings forecast
a. B – motivation for entering into related party transaction – Management may be motivated to enter into related party transactions in order to meet overly optimistic forecasts
2.) Transaction was consummated on terms equivalent to those that prevail at arm’s length
a. F – inappropriate f/s disclosure by management about related party transaction – It is inappropriate for management to assert that a transaction was consummated on terms equivalent to those that prevail at arm’s length
3.) Confirm significant information with intermediaries
a. D – Procedures to gain an understanding of related party transactions – procedures to gain an understanding of a related party transaction would include confirm transactions with intermediaries.
4.) Review conflict-of-interest statements obtained by the company for its management
a. C – Specific audit procedures that may uncover related parties – Review conflict-of interest statements may uncover the existence of related parties.
5.) Making nonmonetary exchanges of similar property
a. Transactions indicative of the existence of related parties – Nonmonetary exchange of similar property is indicative of transactions made with related parties
6.) Interest-free borrowing
a. Transactions indicative of the existence of related parties – interest-free borrowing is indicative of related parties
7.) Reviewing shareholder listings of closely held companies
a. C – Specific audit procedures that may uncover related parties – Reviewing shareholder listings of closely held companies may uncover existence of related parties
8.) Excess capacity
a. B – motivation for entering into related party transaction – Attempting to fill excess capacity may motivate management to enter into related party transaction
9.) The transaction would have occurred even if the parties were not related
a. F – inappropriate f/s disclosure by management about related party transaction – It is inappropriate for management to assert that a transaction would have occurred even if the parties were not related
