Question
You are auditing a large private company. As part of the audit, you become aware of a new complex contract with an existing customer of
You are auditing a large private company. As part of the audit, you become aware of a new complex contract with an existing customer of the client. This contract is quite different from other sales contracts in the past with regards to sales returns. You inquire with management about why the contract is different. You receive an answer that you believe is less than satisfactory. The client has some debt covenants that are close to being violated and larger sales this period would greatly reduce the likelihood of a violation. While you have always had a good relationship with management of this client, you suddenly have some nagging doubts about the trustworthiness of the manager. You know that you have some responsibility to detect potential fraud during the audit. Provide guidance from the auditing standards regarding the role of professional skepticism when fraud may be a concern. What should be your next steps as the auditor in light of this guidance? Specifically address whether the guidance provides any suggested audit procedures to address your concerns about the contract with the customer.
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