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    Auditing issues - Kent, CPA and Davidson Corp.

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    Kent, CPA, is engaged in the audit of Davidson Corp.'s financial statements for the year ended December 31, 20XX. Kent is about to commence auditing Davidson's employee pension expense, but Kent's preliminary inquiries concerning Davidson's defined benefit pension plan led Kent to believe that some of the actuarial computations and assumptions are so complex that they are beyond the competence ordinarily required of an auditor. Kent is considering engaging Park, an actuary, to assist with this portion of the audit.

    What factors should Kent consider in the process of selecting Park?
    What matters should be understood among Kent, Park, and Davison's management as to the nature of the work to be performed by Park?

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    Solution Preview

    a. Kent, as the CPA, needs to consider several factors before deciding to use Park's actuarial services. The first thing that Kent must establish is if Park has any possible relationship, including ties with anyone on the board, at Davidson Corp. Due to the ambiguity of the item to be analyzed (the pension plan), this step is crucial. Park not having any other connection to Davidson Corp, other than as what is intended in the current circumstance, must be made clear.

    Other things to consider include how competent Park is. What does his resume look like? What are his credentials? Is he ...

    Solution Summary

    This solution explains the factors that Kent should consider in the process of selecting Park. This solution also explains which matters should be understood between the parties involved and management.