"Management's assertions" should be replaced with "management's representations." 5. "Auditing principles" should be replaced with "accounting principles." Third Paragraph (Auditor's Responsibility) 4. "Management is responsible" should be replaced with "The auditor is responsible." 3. Second Paragraph (Management's Responsibility for the Financial Statements) 2. The report should state that the financial statements were reviewed, not audited. A choice may be used once, more than once, or not at all. For each of the comments below, indicate whether Allen's draft is correct, Barnes's comment is correct, or neither Allen's draft nor Barnes's comment is correct. However, neither the auditor nor management can reasonably predict the amount of the settlement.Īllen, a staff member, has drafted a disclaimer for ABC Company, a nonissuer, that Barnes, a partner, is evaluating. Both management and the auditor agree that the entity will win a large settlement as a result of the litigation the entity is currently pursuing. Management's privacy policy prevented the auditors from accessing payroll records during their audit. ![]() The difference that arises compared with accounting under the fair value method is material. The entity does not elect the fair value option and accounts for this investment using the equity method. ![]() An entity has a 10% interest in another local business. The estimate used by management for the allowance for credit losses was inadequate and caused a material misstatement of the entity's financial position. The information is disclosed in the financial statements. After examining the relevant evidence, management and the auditor determine that a loss is probable, and the entity does not have enough funds to cover the estimated loss. ![]() An entity is facing litigation in an area that has very little precedent.
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