Balance Sheet and Relatively Reliable Documentation Essay

1221 Words Dec 13th, 2013 5 Pages
Chapter 7 # 30

a. Give three examples of relatively reliable documentation and three examples of less reliable documentation. What characteristics distinguish the two?
Examples of relatively reliable documentation are: vendor statements, bank statements. And signed lease agreements.
Examples of relatively unreliable documentation are: copies of customer invoices, internal memoranda and other communications, and a listing of fixed asset additions.
The difference between the two is whether they were originated from outside or inside the client’s organization. External information is considered more reliable than internal documentation.

b. Explain why confirmations are normally more reliable evidence than inquiries of the client.
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b. Which of the preceding transactions would most likely be considered to be a related party transaction?

(1) Related party transaction. Canyon Outdoor has entered into an operating lease with a company owned by one of the directors on Canyon’s board. Because the board has control and significant influence over management of Canyon, the lease transaction may not be at arm’s-length.
(2) Not a related party transaction. The fact that Canyon Outdoor has purchased inventory items for many years from Hessel Boating Company is a normal business transaction between two independent parties. Neither party has an ownership interest in the other party, nor neither has an ability to exercise control or significance influence over the other.
(3) Related party transaction. The financing provided by Cameron Bank and Trust through the assistance of Suzanne may not be at arm’s length given Suzanne’s husband has control and significant influence over Canyon Outdoors and may have be able to influence the transaction through his wife’s employment at the bank or through his influence over Canyon’s management.
(4) Not a related party transaction. Just because the two owners are neighbors does not mean that either has significant influence or control over the other. Mere acquaintance does not suggest the transactions would not be at arm’s length.
(5) Not a related party

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