Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 23, Problem 26DQP
The amount of subjectivity involved in establishing fair value estimates can be complex for management responsible for making the fair value measurements and disclosures contained in financial statements. This is particularly true for fair value measurements for which observable market prices are not available. Auditing standards require auditors to obtain sufficient appropriate audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with accounting standards, and auditing standards provide guidance for auditing those measurements and disclosures contained in financial statements.
Required
- a. Visit the PCAOB’s website (www.pcaobus.org) to identify wherein the PCAOB Auditing Standards guidance is provided for auditing fair value measurements and disclosures.
- b. PCAOB auditing standards require the auditor to obtain an understanding of the entity’s process for determining fair value measurements and disclosures. Identify five things the auditor should consider when obtaining that understanding.
- c. What should the auditor consider when engaging a specialist to perform substantive tests related to fair value assertions?
- d. Briefly describe the three types of substantive tests of fair value measurements that the auditor may perform.
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Chapter 23 Solutions
Auditing And Assurance Services
Ch. 23 - Explain the relationships among the initial...Ch. 23 - Prob. 2RQCh. 23 - Prob. 3RQCh. 23 - Prob. 4RQCh. 23 - Prob. 5RQCh. 23 - Prob. 6RQCh. 23 - Prob. 7RQCh. 23 - Prob. 8RQCh. 23 - Prob. 9RQCh. 23 - Prob. 10RQ
Ch. 23 - Prob. 11RQCh. 23 - Prob. 12RQCh. 23 - Prob. 13RQCh. 23 - Prob. 14RQCh. 23 - Prob. 15.1MCQCh. 23 - Prob. 15.2MCQCh. 23 - Prob. 15.3MCQCh. 23 - Prob. 16.1MCQCh. 23 - Prob. 16.2MCQCh. 23 - Prob. 16.3MCQCh. 23 - Prob. 17.1MCQCh. 23 - Prob. 17.2MCQCh. 23 - Prob. 17.3MCQCh. 23 - Prob. 18DQPCh. 23 - Prob. 19DQPCh. 23 - Prob. 20DQPCh. 23 - Prob. 21DQPCh. 23 - Prob. 22DQPCh. 23 - You are doing the first-year audit of Sherman...Ch. 23 - Prob. 24DQPCh. 23 - Prob. 25DQPCh. 23 - The amount of subjectivity involved in...
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- The amount of subjectivity involved in establishing fair value estimates can be complex for management responsible for making the fair value measurements and disclosures contained in financial statements. This is particularly true for fair value measurements for which observable market prices are not available. Auditing standards require auditors to obtain sufficient appropriate audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with accounting standards, and auditing standards provide guidance for auditing those measurements and disclosures contained in financial statements. a. Visit the PCAOB's web site (pcaobus.org) to identify where in the PCAOB Auditing Standards guidance is provided for auditing fair value measurements and disclosures. b. PCAOB auditing standards require the auditor to obtain an understanding of the entity's process for determining fair value measurements and disclosures. Identify 5 things the auditor…arrow_forwardGiven the economic and time constraints in which auditors can collect evidence about management assertions about the financial statements, the auditor normally gathers evidence that is: O Irrefutable Completely convincing O Conclusive O Reliablearrow_forwardDefine the danger of substantial misrepresentation. RMM is measured by auditors at what level of the financial statements? Explain how auditors evaluate the RMM. What part of substantive testing does RMM play?arrow_forward
- An auditor must identify the relevant assertions about each significant financial statement account and disclosure and then gather evidence to conclude whether a material misstatement exists for each assertion. The nature of each financial statement account and disclosure contributes to the likelihood that a material misstatement exists.a. In general, which accounts are most susceptible to overstatement? To understatement?b. Why do you think a company could permit asset accounts to be understated?c. Why do you think a company could permit liability accounts to be overstated?d. Which direction of misstatement is most likely: income overstatement or income understatement?arrow_forwardWhich of the following questions best describes why an independent auditor is asked to give an opinion on the fairness of financial statement presentation?a. It is difficult to prepare financial statements that fairly present the company's financial position, operations and cash flows without the expertise of an independent auditorb. It is the responsibility of management to seek independent expert assistance in assessing the financial information presented in its financial statementsc. Opinions from independent parties are needed because companies may not have objectivity towards their own financial statementsd. It is customary that all company shareholders receive independent reports of management's accountability for business events that occurarrow_forwardDefine and give examples of off-balance-sheet information. Why should auditors be concerned with such items?arrow_forward
- Why is there a need on the part of the client entity to monitor internal controls over time? a. Because the auditor needs to obtain understanding of internal control b. Because unmonitored controls tend to deteriorate over time c. Because it will affect the timing of substantive audit procedures d. Because it is a requirement of the applicable financial reporting frameworkarrow_forwardManagement of an entity sometimes makes estimates where the actual amounts are not available. The role of auditor with respect to such management's estimates is to: a. accept the management's estimation O b. reject the management's estimation O c. evaluate the management's judgment d. withdraw from the auditarrow_forwardWhich of the following statements about materiality is incorrect? the preliminary assessment of materiality guides audit planning and testing materiality is used to guide the validity of information contained in the financial report materiality is a key auditing concept that is assessed during the planning stage of every audit information is considered material if it has no impact on the decision-making process of financial report usersarrow_forward
- In accounting, which term describes deficiencies or flaws in the design or operation of internal controls that could increase the risk of errors, fraud, or misstatements in financial reporting? a) External audit b) Compliance review c) Internal control weaknesses d) Financial statement analysisarrow_forwardWhat steps should auditors take if during a compilation engagement they become aware that the financial statements are misleading?arrow_forwarda) Explain why auditors’ reports are important to users of financial statements and why it is desirable to have standard wording. b) b) Define the meaning of the term materiality as it is used in accounting and auditing. What is the relationship between materiality and the phrase obtain reasonable assurance used in the auditor’s report? c) c) Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between those two types of fraud on the fair presentation of financial statements. NB: Please provide answers to question A, B and Carrow_forward
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