1. 2. You are engaged to examine the financial statements of Spitalfields Company for the year ended December 31. Assume that on October 1, Spitalfields borrowed $600.000 from Third National Bank to finance its plant expansion. The long-term note agreement provided for the annual payment of principal and interest over 5 years. The existing plant was pledged as security for the loan. Due to unexpected difficulties in acquiring the building site, the plant expansion did not begin on time. To use the borrowed funds, management decided to invest in stocks and bonds and on October 16, invested the $600,000 in publicly traded securities Required: Develop specific assertions (audit objectives) related to securities (assets) based on management's five (PCAOB) general assertions. GAAS require auditors to be independent. Included within this standard are the concepts of independence in fact and independence in appearance. Required Define independence in fact and independence in appearance. b. What two general types of relationships would normally compromise auditors' independence? The preparation of audit documentation is an integral part of an auditor's examination of financial statements. On a recurring engagement, auditors review the audit plans and audit documentation from the prior year to determine their usefulness for the current-year work. Required a (1) What are the purposes or functions of audit documentation? (2) What records may be included in audit documentation? b. What factors affect the auditors' judgement of the type and content of the audit documentation for particular engagement? What should be included in audit documentation to support auditors' compliance with GAAS? d How can auditors make the mot effective use of the prior-year audit plans in a recurring audit? a 3 C