You Are Auditing a Company Whose Management Has Intentionally Made

question 5

Essay

You are auditing a company whose management has intentionally made adjustments to various financial statement items that are not in accordance with generally accepted accounting principles.This behavior has occurred over a number of accounting periods.None of the individual adjustments by itself is material and the aggregate effect on the financial statements taken as a whole is immaterial.Top management of the client are aware of these misstatements and consider them part of their strategic management of earnings.
Explain how you as the independent auditor should respond to this situation.

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Definitions:

FIFO

"First In, First Out," an inventory valuation method where goods first bought are the first to be sold.

Increasing Costs

Increasing Costs refer to a scenario where a company experiences a rise in the price of inputs or operational expenses over time, which can affect profitability.

Lower of Cost or Market

An accounting principle that values inventory at the lesser of its historical cost or current market value, used to ensure assets are not overstated.

Inventory Value

The monetary value of all the goods that a company has in stock, not yet sold.