When Auditing Debt and Equity Transactions,the Auditor Should Be Skeptical,and

question 72

True/False

When auditing debt and equity transactions,the auditor should be skeptical,and therefore alert to the possibility that management is managing earnings by not appropriately recording expenses,such as charging expenses directly to retained earnings or under-recording interest expense.

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Definitions:

Emancipated Minor

A legal status granted to individuals under the age of 18, allowing them to enjoy adult rights and responsibilities due to certain circumstances.

Ratification

The principal’s approval of an unauthorized act performed by an agent or by one who has no authority to act as an agent. Also, an approval of a contract made by a minor after reaching maturity.

Contractual Obligation

A legal duty that arises out of a contract, requiring a party to either perform or refrain from performing certain acts.

Exculpatory Agreement

A clause that says one of the parties to a contract, generally the one who wrote the contract, is not liable for any economic loss or physical injury, even if that party caused the loss or injury.