Question

In each of the following, identify which of the elements of the fundamental principles (responsibilities, performance, or reporting) is most applicable. An entity has contacted you about performing its audit engagement. You have not previously served a a. client in the entity's industry, which has many industry-specific accounting issues that are both technical and complex. An entity has entered into a number of lease agreements. Based on the requirements of GAAP. you believe that these obligations meet the criteria for being classified as capital leases; however, the b. entity has elected to treat these leases as operating leases, providing full and complete disclosure of this treatment in the footnotes to the financial statements. Because of a disagreement with its current auditors, an entity has contacted you about conducting its current-year audit. However, because the previous auditors have just recently resigned from the C. engagement, you have some questions as to whether an audit can be completed in time to meet the entity's deadlines for providing audited financial statements to a lender. Based on the effectiveness of the entity's internal control, you have assessed control risk at low levels d. and decided that a smaller number of customer accounts need to be confirmed. An entity has contacted you about performing its audit engagement. This entity became aware of your e. firm because the husband of one of your partners is currently serving as the entity's chief financial officer. One of your clients is currently a potential defendant in several cases because of the damange caused by one of its products. Because this entity does not believe that it is likely to receive an unfavorable outcome from this litigation, it did not disclose the potential litigation in the footnotes accompanying their financial statements. You are performing tests of the client's controls over the processing of revenue transactions to 9. determine whether these controls are operating effectively and can be relied upon to prevent or detect misstatements. One of your supervisors has requested a number of clarifications based on her review of your work on h. an audit engagement. A subsequent meeting with her has resolved these clarifications, and you both have concluded that your work supports the opinion on the client's financial statements.

Answer 1

a.performance

performance element is most applicable as this is the first client

of this specific industry so the auditor needs to be very careful

while performing audit engagement.He has no experience in this industry.

b.reporting

As there is difference between what should be done according to requirements of GAAP

and what the entity has selected to do.

c.responsibilities

As the current auditor is concerned with providing the timely audited financial

statements to the lender which is an auditor's responsibility.

d.performance

As confirming smaller number of customer accounts is a part of performing

audit engagement according to the assessed control risk.

e.responsibilities

As there should be an independent audit opinion and should not be a baised one as husbnad

of one of the partners is CFO in it.

f.reporting

as contingent liability need to be reported.

g.performance

as controls are tested here.

h.reporting

as in the meeting it is concluded that the work supports the opinion.