In Testing Acquisitions, the Auditor Must Understand the Relevant Accounting

question 2

Essay

In testing acquisitions, the auditor must understand the relevant accounting standards to insure the client adheres to accepted accounting practices for property, plant, and equipment. Describe three of the auditor's concerns in this area.

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Definitions:

Retained Earnings

The portion of a company’s profits that is retained within the business rather than distributed to shareholders as dividends.

Revenue Accounts

Accounts that record the income a company earns from its normal business activities.

Expense Accounts

Accounts that track the costs of operating a business, such as rent, utilities, and salaries.

Identification Codes

Unique codes used to identify and track items or information in various systems.