CAF-8 · Chapter 11 · Question 2 of 10
Management claims that all transactions with its parent company were conducted on 'Arm’s Length' terms. What is the auditor's responsibility regarding this specific claim?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Obtain sufficient appropriate audit evidence to support management's assertion that the terms were equivalent to those in an arm's length transaction.
Explanation
If management makes an explicit claim of arm’s length terms in the financial statements, the auditor must specifically test that claim by comparing the prices to those of independent third parties.
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