4.1

The existence of a related party transaction may be indicated when another entity

Absorbs expenses of the corporation.

In which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor's report?

An adverse opinion is expressed based on a difference of opinion between the client and the auditor's external specialist about the value of certain assets.

Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

Compare recorded financial information with anticipated results from budgets and forecasts.

After identifying a significant related party transaction outside the entity's normal course of business, an auditor should

Evaluate the business purpose of the transaction.

An internal auditor would least likely provide direct assistance to the auditor in

Evaluating accounting estimates.

Which of the following steps should an auditor perform first to determine the existence of related parties?

Inquire about the existence of related parties from management.

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

Materiality of Evaluation of Significant No Misstatements Accounting Estimates No

In comparison with the detailed audit plan of the independent auditor who is engaged to audit the financial statements of a large publicly held company, the audit client's comprehensive internal audit plan is

More detailed and covers areas that normally are not considered by the independent auditor.

Miller Retailing, Inc., maintains a staff of three full-time internal auditors. The independent auditor has found that they are competent and objective. Moreover, the work of the internal auditors is relevant to the audit, and it is efficient to consider how that work may affect the audit. The independent auditor most likely will

Nevertheless need to make direct tests of assertions about material financial statement amounts for which the risks of material misstatement are high.

During an audit, an internal auditor may provide direct assistance to an independent CPA in

Obtaining an Understanding of Internal Control Yes Performing Understanding of Tests of Controls Yes Perform Substantive Tests Yes

In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the

Quality of the internal auditor's documentation.

Which of the following procedures most likely could assist an auditor in identifying related party transactions?

Reviewing confirmations of compensating balance arrangements.

Which of the following events most likely would indicate the existence of related parties?

Selling real estate at a price significantly different from appraised value.

When a management's specialist has assumed full responsibility for taking the client's physical inventory, reliance on the specialist's work is acceptable if

The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory.

Which of the following statements is true about the use of the work of an auditor's specialist?

The auditor should obtain an understanding of the methods and assumptions used by the specialist.

For a reporting entity that has participated in related party transactions that are material, disclosure in the GAAP-based financial statements should include

The nature of the relationship and the terms and manner of settlement.

In assessing the competence and objectivity of an entity's internal auditor, an independent auditor would least likely consider information obtained from

The results of analytical procedures.

Which of the following audit procedures is an auditor most likely not to perform related to newly identified related party transactions outside the normal course of business?

Understand the controls over authorization and approval of such transactions.