Your firm has just acquired a new audit client. The new client is a company that is highly leveraged and has debt with several institutions. The new client is also planning on expanding its business and wants to obtain additional debt financing in the near future. Based on these facts, which one of the following should be most carefully examined?
A) Large transactions that result in revenues and/or income
B) Loans and other financing transactions between related entities
C) Large amounts of goodwill on the balance sheet
D) Recent change in credit policies

Question

Quizplus · Accepted Answer

Although A is a reasonable answer for almost any situation, the facts do not suggest that revenue transactions are particularly at risk. However, if the company is already highly leveraged and wants more debt, any type of related party transactions regarding debt should be carefully examined. Thus, B is the most correct answer.

Your Firm Has Just Acquired a New Audit Client