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What does related parties may include?

Affiliates, principal owners, management, and members of the immediate family


Is a related party transaction considered to be an arm's length transaction?



The auditor should obtain an understanding of related party relationships and transactions sufficient to?

Recognize fraud risk factors, conclude whether the financial statements achieve fair presentation, and evidence about whether related party transactions and relationships have been appropriately identified, accounted for, and disclosed


Application of specific procedures regarding material transactions with related parties may include?

Evaluating the company's controls related to the authorization and approval of significant related party transactions and the procedures for identifying, accounting for, and disclosing related party transactions, asking management for the names of all related parties, reviewing the reporting entity's filings with the SEC, reviewing material transactions, reviewing prior years' audit documentation or inquiring of the predecessor auditor


The auditor should remain alert for the following items, which may be indicative of a related party transaction?

Compensating balance arrangements, loan guarantees, unusual, nonrecurring transactions near year-end, transactions based on terms that differ significantly from market terms, and nonmonetary exchanges


When the auditor identifies significant related party transactions outside of the normal course of the entity's business, the auditor should?

Inspect the underlying contracts or agreements of the business rationale of the transactions, terms of the transactions, and transactions have been appropriately accounted for and disclosed


If the auditor identifies related parties or significant related party transactions that management has not previously identified or disclosed to the auditor, the auditor should?

Communicate the information to the other members of the engagement team, request management to identify all transactions with the newly identified related parties, inquire why the entity's controls failed to enable the identification and disclosure of the related party relationships or transactions, perform appropriate substantive procedures, reconsider the risk that other related parties or related party transactions may not have been identified or disclosed, and evaluate the audit implications if management's nondisclosure appears intentional


What are examples of estimates?

FMV, impairment, and revenue recognition


The auditor has the following responsibilities when evaluating estimates?

Evaluate the degree of estimation uncertainty, assess management's written policies and practices regarding the development and use of estimates, verify that all material estimates have been developed, determine that the accounting estimates are reasonable, and ensure that the accounting estimates are properly presented and disclosed in conformity with GAAP


What is the susceptibility of an accounting estimate to an inherent lack of precision in its measurement?

Estimation uncertainty


In evaluating the reasonableness of an estimate, the auditor must first?

Obtain an understanding of how management developed its estimate


What are 4 factors when auditing fair values?

Consistent method with prior period, past track record of estimates is accurate, justify any changes in approach, and appropriate in relation to industry


The auditor's responsibility should obtain sufficient appropriate audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with GAAP which includes?

Understand the entity's process, understand relevant controls, assess the risk of material misstatement of fair value measurements, and evaluate the sufficiency, competency, and consistency of evidence obtained with respect to fair value measurements and disclosures


In testing an entity's fair value measurements and disclosures, the auditor may?

Determine whether management's significant assumptions provide a reasonable basis for fair value measurements


In conjunction with these inquiries regarding identifying contingencies, the auditor should perform the following procedures?

Review the minutes, invoices from lawyers, correspondence from taxing authorities, bank confirmations for hidden bank loans, purchase commitments, long-term leases, client representation letter, and send an inquiry letter to the client's attorneys


Who's responsibility is it to identify and account for contingent liabilities, including litigation, claims, and assessments?



Who is the letter of inquiry to client's attorneys prepared by? Sent by?

Management and Auditors


Is a refusal to respond to a letter of inquiry a scope limitation?



A client's refusal to permit inquiry of the attorney's generally will result in a ?

Disclaimer of opinion or withdrawal