[Spur]

I have no idea what this statement is trying to say, and the Wiley book notes that this concept has been tested in the past. Can someone please explain to me what this means? The complete statement to me does not make sense.

“3. Except for routine transactions, it will generally not be possible to determine whether a particular transaction would have taken place, or what its terms would have been” – (I understand this part but when combined with the next part I’m not sure, as a whole, what it means)

“3.a. If management makes such a representation, and if it is unsubstantiated, it may result in either a qualified or an adverse opinion due to a departure from GAAP – [sic]”.

I guess my question is, what is the representation that they are making? That it is not possible for them to confirm the transaction?

FAR - Bad Fail '11, Fail '12, Fail '13, PASS It's a miracle!
AUD - Fail, PASS!!!!!!!!!!!!!!!!!!!!!!!
BEC - PASS!!!!!!!!
REG - PASS!!!!!!!! And I'm done!

[Anonymous]

Probably asserting that they have “determine[d] whether a particular transaction would have taken place, or what its terms would have been”.

[Spur]

BOOM! I figured it out thanks to an MCQ in the Wiley text.

I learned something here and hopefully it helps those of you studying for this section:

Here is the question:

Q: An auditor most likely would modify an unqualified opinion if the entity's financial statements included a footnote on related-party transactions:

A: Stating that a particular related-party transaction occured on terms equivalent to those that would have prevailed in an arm's-lenght transaction.

So to make sense of the original statement I posted, it means that if management makes a statement about a related-party transaction in the notes of its FS's, that statement would cause the auditor to modify an unqualified opinion because the terms of a related-party transactions are normally not possible to determine by the auditor.

I think that makes sense. Anyone else think so? Anyone want to challenge my reasoning?

FAR - Bad Fail '11, Fail '12, Fail '13, PASS It's a miracle!
AUD - Fail, PASS!!!!!!!!!!!!!!!!!!!!!!!
BEC - PASS!!!!!!!!
REG - PASS!!!!!!!! And I'm done!

[GuitarSalad]

@Spur

I had that same question in WTB on a practice exam a couple days ago. I got it wrong, but I think your logic is right. There's just no way to know if that statement is accurate, so it would cause a modification. Got a 75 on my last practice test, so I'm hoping that some cramming today will get me over the hump. Test tomorrow morning at 8am. 🙁

BEC 7/12/13 - 84
AUD 8/31/13 - 86
REG 4/11/14 - 84
FAR 5/30/14 - 88

Licensed AZ CPA - 10/2014

[Author]

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