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12 Cards in this Set
- Front
- Back
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3 main Audit objectives for Related Party relationships |
1. Recognize fraud risk factors 2. Conclude whether the FS achieve fair presentation 3. Obtain sufficient appropriate audit evidence about whether related party transactions have been appropriately disclosed |
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procedures to Determine the Existence of Related Parties |
-evaluate controls -obtain conflict-of-interest statement -ask management for info -review SEC filings to find in-common managers -review material transactions -review prior years' audit documentation |
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identifying Related Party Transactions - remain alert for... |
-compensating balance arrangements -loan guarantees -unusual, non-recurring transactions near year end -transactions based on weird terms -non-monetary exchanges |
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when auditor identifies significant related party transactions outside normal course of business, auditor should... |
inspect underlying contracts -business rationale that could suggest fraud -terms of transactions are consistent with management's assertions -transactions have been appropriately accounted for and disclosed |
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when auditor identifies related parties that management didn't disclose... |
-communicate the info to team members -request mgmt to identify all transactions -inquire why entity's controls failed -perform appropriate substantive procedures -consider risk that other related party transactions haven't been identified -evaluate audit implications |
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auditor's responsibilities regarding Evaluation of Estimates |
-evaluate degree of uncertainty associated with estimates -assess written policies & procedures -verify that all material estimates have been developed -determine that accounting estimates are reasonable -ensure that accounting estimates are properly presented and disclosed |
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evaluating Reasonableness of an estimate |
-review and test procedures used to develop estimate -develop an independent estimate -review subsequent events & transactions |
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testing of entity's fair value measurements |
-determine if assumptions have a reasonable basis -consider mgmt intent and ability to affect fair values -evaluate appropriateness of valuation model -test underlying data -develop independent fair value estimates -review subsequent events and transactions |
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what auditors consider when Evaluating Contingencies |
-pending and threatened litigation -actual or possible claims and assessments -guarantees of indebtedness of others -product warranties -income tax disputes |
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procedures used to identify contingencies |
-review minutes of meetings -review correspondence and invoices from lawyers -review contracts and agreements -review bank confirmations for hidden items -discuss LT purchase commitments -review status of LT leases -discuss sales contracts -review interim FS -obtain a client representation letter -send an inquiry letter to client's attorneys |
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if attorney refuses to respond, |
precludes unmodified opinion |
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if client refuses to let auditor contract attorneys, |
issue a disclaimer |
