What are the purposes of the two parts of the report of management?
The purpose of the first part of the report of management is for management to state its responsibilities for internal control over financial reporting. The Second part of the report states management’s responsibility for the fair presentation of the financial statements.
What is the auditor’s responsibility related to the report of management?
The auditor’s responsibility is to express an opinion on the fairness of the presentation of the financials, and an opinion on the effectiveness of internal control of financial reporting, including an opinion on whether management’s assessment of internal control is fairly stated.
Explain the differences among
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| 4. Annual cash dividend. | Calculate total dividends and determine that dividends were correctly recorded. | 5. Officers’ bonuses. | Determine whether bonuses were accrued at 12-31-04 and were paid in 2005. Consider the tax implications of unpaid bonuses to officers. | September 16:1. 2005 officers elected. | Inform staff of possibility of related party transactions. | 2. Officers’ salary information. | Note information in audit files for 2006 audit. | 3. Pension/profit sharing plan. | Determine if the pension/profit sharing plan was approved. If so, make sure all assets and liabilities have been correctly recorded. | 4. Acquisition of new computer system. | Determine that there is appropriate accounting treatment of the disposal of the 1-year-old equipment. Also trace the cash receipts to the journals and evaluate correctness of the recording. | 5. Loan. | Examine supporting documentation of loan and make sure all provisions noted in the minutes are appropriately disclosed. Confirm loan information with bank. | 6. Auditor selection. | Thank management for selecting your firm for the 2005 audit. If your firm has experience with pension and profit sharing plans, ask management if there is anything they need help with regarding their new proposed plan. |
The auditor should have obtained and read the February minutes, before completing the 12-31-04 audit. Three items were especially relevant and require follow-up