ExpertMedium1 markMultiple Choice
CPA · Question 71 · Area 3: Performing Procedures
When auditing a client's accounting estimates (e.g., warranty reserve), which of the following is NOT a required procedure?
When auditing a client's accounting estimates (e.g., warranty reserve), which of the following is NOT a required procedure?
Answer options:
A.
Reviewing and testing the process used by management to develop the estimate.
B.
Developing an independent expectation to compare to management's estimate.
C.
Reviewing subsequent events to corroborate the estimate.
D.
Confirming the estimate with the client's lawyer.
How to approach this question
Identify the 3 approaches to estimates: 1) Test Management's Process, 2) Independent Estimate, 3) Subsequent Events. Lawyer confirmation is for Litigation only.
Full Answer
D.Confirming the estimate with the client's lawyer.✓ Correct
Confirming the estimate with the client's lawyer.
The three common approaches for auditing estimates are: 1) Review and test management's process, 2) Develop an independent expectation, or 3) Review subsequent events. Confirming with a lawyer is specific to litigation, claims, and assessments, not general estimates.
Common mistakes
Thinking lawyer confirmation applies to all estimates.
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