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L19 Notes_Part_18 - inventory items have a nominal net...

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Chapter 15 P8: Audit Adjustments a. The cutoff items (#'s 2 and 4) probably stand the best chance of gaining management acquiescence since they are probably more easily demonstrated. However, note that they offset each other to some extent so less of an adjustment is necessary. In fact, given the asset size of the company, the net effect may not even be material. The fifth item is evidence of a poorly controlled accounts payable system. Management will be expected to go along with this one since it is not a large item (though probably material) and the evidence of error is probably convincing. b. The remaining items will meet more resistance from management for several reasons. As for the first item, pension expense calculations require a great deal of estimation. It may be management's assertion that their estimate is better than that of the auditor. The third item is immaterial, so management might resist (but not overly hard). c. Note that all the other items are probably borderline material and that the
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Unformatted text preview: inventory items have a nominal net effect on the financial statements. To gain management's favor in this negotiation, it may be wise to allow the cutoff items to pass and concentrate the negotiation on the pension expense, which has a large effect on liabilities. However, as discussed earlier, the SEC is placing more pressure on auditors to require clients to adjust any intentional misstatements. Client Representation Letter SAS 85 AU 333 The auditor must obtain a letter from the client documenting the client’s representations during the engagement. The primary purposes are to: - confirm and document oral statements - reduce auditor-client misunderstanding - remind management of responsibilities The letter should be signed by the client CFO and CEO and dated with the field work completion date. If the client refuses to give the auditor a representation letter, the auditor should qualify or disclaim an opinion...
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L19 Notes_Part_18 - inventory items have a nominal net...

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