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:

Assets

Resources owned or controlled by a business, entity, or individual, expected to produce economic value or future benefits.

Economic Order Quantity

A formula used to determine the optimal order size that minimizes the total inventory holding costs and ordering costs.

Carrying Cost

The total cost of holding inventory, including storage, insurance, taxes, opportunity costs, and depreciation.

Fixed Costs

Costs that do not change when the quantity of output changes during a particular time period.