Performance Principle. Identify how each of the following statements relates to the perfor- mance principle by considering which element(s) of the principle are related to that statement. (A statement may be related to more than one element.) Use the following elements in providing your response: . Reasonable assurance . Planning and supervision Materiality . . Risk assessment Audit evidence An entity has contacted you about performing its audit engagement. You have not a. previously served a client in the entity's industry, which has many industry-specific accounting issues that are both technical and complex. Responsibilities An entity has entered into a number of lease agreements. Based on the requirements of b. GAAP, you believe that these obligations meet the criteria for being classified as capital leases; however, the entity has elected to treat these leases as operating leases, providing full and complete disclosure of this treatment in the footnotes to the financial statements. Reporting Because of a disagreement with its current auditors, an entity has contacted you about conducting its current-year audit. However, because the previous auditors have just c. recently resigned from the engagement, you have some questions as to whether an audit Responsibilities can be completed in time to meet the entity's deadlines for providing audited financial statements to a lender. Based on the effectiveness of the entity's internal control, you have assessed control risk d. at low levels and decided that a smaller number of customer accounts need to be Performance confirmed e. Preparing a written audit plan. Performance Designing audit procedures to identify misstatements that would have a significant effect Reporting on financial statement users' decisions. An entity has contacted you about performing its audit engagement. This entity became g. aware of your firm because the husband of one of your partners is currently serving as the Responsibilities entity's chief financial officer, One of your clients is currently a potential defendant in several cases because of the damage caused by one of its products. Because this entity does not believe that it is likely Reporting h. to receive an unfavorable outcome from this litigation, it did not disclose the potential litigation in the footnotes accompanying their financial statements. You are performing tests of the client's controls over the processing of revenue Performance i transactions to determine whether these controls are operating effectively and can be relied upon to prevent or detect misstatements. One of your supervisors has requested a number of clarifications based on her review of Performance your work on an audit engagement. A subsequent meeting with her has resolved these clarifications, and you both have concluded that your work supports the opinion on the client's financial statements
