Brandon is working on the audit of Michum Inc.In accordance with CAS 550 (related parties),Brandon had obtained a management confirmation of all related-party transactions.When auditing the purchasing cycle of Michum,Brandon found that the company had purchased over $500 000 of merchandise from Elite Crust Inc. ,a company that is owned by the CEO's brother.The $500 000 purchase is a material amount and it was not included in the confirmation provided by Michum.Brandon should
A)inform the audit committee.
B)qualify the audit report.
C)discuss this issue with the management of Michum.
D)reduce materiality to increase the likelihood of discovering other undisclosed related party transactions.

Question

Quizplus · Accepted Answer

Brandon should inform the audit committee about the material related-party transaction that was not disclosed in the confirmation provided by Michum. This is because related-party transactions may create a conflict of interest and jeopardize the objectivity and independence of the auditor. By informing the audit committee, Brandon can make sure that the issue is addressed appropriately and that the audit is carried out in accordance with professional standards. Qualifying the audit report or reducing materiality are not appropriate courses of action in this situation. Discussing the issue with the management is also not sufficient since the transaction was not disclosed in the confirmation provided.

Brandon Is Working on the Audit of Michum Inc