One of the Auditing in Practice features in the chapter discusses Ford Motor Company's reducing a large portion of its other postretirement benefits by transferring its liability to the UAW Union through a one-time payment of $11.3 billion. However, Ford still has a sizeable liability for postretirement benefits, in large part because of obligations that the company has under the Medicare Prescription Drug Improvement and Modernization Act of 2003.
Required
a. Identify the process that Ford would use to identify the liability for postretirement drug benefits. Identify the data Ford would need to make the estimate.
b. Identify how the auditor might audit the data. What aspects of the data would a professionally skeptical auditor be most concerned about in terms of management judgment on subjective items?