Chapter 4 Section 3: Other Audit Procedures Flashcards
Is a related-party transaction arms-length?
No
What are the auditor’s objectives regarding related parties?
Recognize fraud risk factors
Conclude whether the financials are fairly presented
Obtain sufficient appropriate audit evidence about whether they have been identified, accounted for, and disclosed
What procedures may be included in examining related parties?
Evaluating controls
Asking management for their names
Reviewing SEC filings
Reviewing material transactions
What items should auditors specifically look at for related parties?
Compensating balance agreements Loan guarantees Unusual, nonrecurring transactions near year-end Transactions based on unusual terms Nonmonetary exchanges
What do contracts and agreements need to be inspected for when we have unusual and significant related party transactions?
Business rationale of transactions
Terms of transactions
That they have been appropriately accounted for and disclosed
When we find unidentified related party transactions, who do we first communicate that with?
Other members of the engagement team
When we find unidentified related party transactions, what do ask management to do?
Identify all transactions with that party
When we find unidentified related party transactions, what do we ask management?
Why they didn’t identify and disclose this party
When we find unidentified related party transactions, what procedures do we do?
Additional substantive procedures
When we find unidentified related party transactions, what risk do we reconsider?
The risk that other related parties or transactions may not have been identified or disclosed
When we find unidentified related party transactions, what do we evaluate?
The audit implications if the nondisclosure seems intentional
What are three examples of management estimates?
FMV
Impairment
Revenue Recognition
What are the auditor’s responsibilities regarding accounting estimates?
Evaluate the degree of estimation uncertainty
Assess management’s written policies and practices regarding development and use of estimates
Verify that material estimates have been developed
Determine that estimates are reasonable
Ensure that they are properly presented and disclosed according to GAAP
Define estiamtion uncertainty
The susceptibility of an estimate to an inherent lack of precision in its measurement
What is management’s first step related to accounting estimates?
Obtain an understanding of how management developed its estimate
