Completing the Audit
Project description
What are the general GAAS requirements (both PCAOB and ASB requirements) for obtaining managements’ representations on the financial statements and evaluating subsequent events that might affect the financial statements? Be specific in your reply citing the appropriate PCAOB or SAS (AU section) standard.
What questions do you propose to ask the CFO specifically related to the inventory and bonus accruals?
Completing the Audit
You have completed your field work for the audit of Cain & Co. and are wrapping up the details. During the audit you noted that the client had a major product launch in the year audited. You were satisfied with inventory observation, computation of values of inventories and the related reserves based on forecasts provide by management. Inventories are material to the client’s financial statements.
Debt covenants of client loans require a minimum amount of working capital and current ratio. The client passed these tests, though by a small margin. Bonuses were accrued based on the financial results for the year using the formula from the bonus plan.
You have an audit interview meeting scheduled tomorrow afternoon (Friday April 12) with the CFO to obtain information about subsequent events, any major changes the company has undergone, getting an update on internal controls, confirming significant estimates that were made, and clarifying differences between the financial statements prepared by management and proposed audit differences. You are especially interested in inventories and the bonus accrual made by management as changes in either of these will have a significant effect on profitability, working capital and the current ratio.
Requirements
What are the general GAAS requirements (both PCAOB and ASB requirements) for obtaining managements’ representationson the financial statements and evaluating subsequent events that might affect the financial statements? Be specific in your reply citing the appropriate PCAOB or SAS (AU section) standard.
What questions do you propose to ask the CFO specifically related to the inventory and bonus accruals?