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Unformatted text preview: AC 410 Unit 8 Homework Your Name: Shatana Bentley (Use this template to answer your Unit 8 homework assignment. This template is provided to help guide you through the answer process and is organized in the way that I will grade your assignment. Your text box will expand as you type in your answers. You will notice that in some cases I have designated a word minimum. This is to encourage you to thoroughly explore and provide a complete answer. There are other responses where you need to provide a certain minimum facts for a complete answer <such as: at least 5 relevant items> you need to provide at least 5 relevant items for full credit. Also, failure to achieve the minimum word requirement may affect your development score. ) 14-39 a1. What is a related- entity transaction (20 word minimum) ? A related-entity transaction can occur between parents and subsidiaries; between an entity and its owners; between an entity and other organization in which it has part ownership, such as ventures and between an entity and an assortment of special purpose entities, such as those designed to keep debt off the balance sheet. a2. Provide three examples of the parties involved in these types of transactions 1. A business transaction between a major shareholder and the corporation, such as a contract for the shareholder's company to perform renovations to the corporation's offices. 2. A construction company might lease all its equipment from another entity that is owned by the owner of the construction company.The owner may have developed the other company for tax purposes. 3. A traveling circus may rent all of its rides from another entity that is owned by the owner of the traveling circus. b. There are two basic procedures used in auditing related- entity transactions. Describe these procedures and evaluate the strengths and weaknesses of each approach . (40 word minimum) 1. Obtain a list of all related entities and develop a list of all transactions with those entities during the year. Once all entities are identified the auditor can utilize audit software to read client files, investigating the transactions to determine proper recording and disclosure. This seems to be the more thorough approach because all entities are investigated however there is still a possibility that transactions could be missed because of management trying to conceal related entities....
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- Fall '09