Estimates, Related Parties, Going Concern, and Subsequent Events
Section 3 is 30-40% of the AUD exam — the heaviest section — and estimates, going concern, and subsequent events are consistently tested because they involve high auditor judgment. The #1 AICPA trap is confusing the going concern evaluation period: under AU-C 570, the auditor evaluates whether substantial doubt exists for a reasonable period of time, not to exceed one year beyond the date the financial statements are issued (or available to be issued) — not one year from the balance sheet date. Candidates also frequently misclassify subsequent events by focusing on when the event happened rather than when the underlying condition arose, which is the key distinction under AU-C 560. Under AU-C 540, management bias in estimates is a fraud risk factor the auditor must specifically evaluate.
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What AICPA Wants You to Know
- 1Evaluate management's accounting estimates for reasonableness
- 2Identify related party transactions and the auditor's responsibilities
- 3Apply the going concern assessment framework
- 4Distinguish between Type I and Type II subsequent events
- 5Understand the reporting implications of going concern doubts