Throughout an engagement, the independent auditor makes observations, documents evidence, confirms transactions, tests accounting data, compares recorded amounts, and makes many inquiries, all vkfith an eye toward the engagement's two major end products: audited financial statements and the auditor's report, both of which are printed within a corporation's annual report to shareholders. In short, the engagement proceeds forward to a discernible end. But much like a crime scene lends leads to a crime, so too does the annual report lend insight into the audit process. Much can be learned about audit practice from little more than management's annual report.

Required: 

Select an annual report for a publicly traded corporation and, from disclosures contained within the auditor's report, management's statement of responsibility for the financial statements, and the audited financial statements, draft a report that responds to each of the following:

1. For those expense captions identified explicitly on the income statement, which would likely have been audited by tests of details and which would likely have been subjected to analytical procedures only? Why?

2. Explain the accounting and disclosure issues likely underlying each reported accounting estimate and loss contingency.

3. Explain the disclosures, if any, made for related party transactions. What likely motivated the transactions?

4. Explain the disclosures, if any, made for subsequent events, distinguishing between those that were Type I events and those that were Type II events.

5. Identify the transactions or events, if any, that likely were included in a legal letter.

Explain information the auditor would have required from a lawyer to disclose the transactions or events adequately.

6. What disclosures included within the financial statements were likely included in management's representation letter?