Thinking Challenge 2

Accountancy 4400: Financial Statement Auditing Instructor: Dr. David L. Senteney Ph.D. CPA CGMA

Spring 2021 Department of Accountancy

Auditing Logistical Logistics Inc.

Handout 1: Auditing Logistical Logistics — Risks of Material Misstatement (RoMMs) — Leases

RoMM RoMM Description

1 Right-of-use (ROU) assets and lease liabilities are not valued correctly, on the basis of the underlying assumptions (e.g., lease terms, discount rate, lease payments) and classification of the lease (i.e., operating or financing).

2 Lease expense recorded does not represent valid expense. 3 Contracts or arrangements containing a lease are not identified as a lease. 4 The lease is not appropriately classified on the basis of the criteria under ASC 842. 5 The entity identifies ROU assets and lease liabilities for which it does not have the

rights or obligations to.

6 Contracts or arrangements are determined to be a lease when the criteria under ASC 842 have not been met.

7 Impairment indicators may exist for ROU assets, but are not known to management. 8 Lease expense is not recorded (1) at correct amounts, (2) in the proper accounts, or (3)

in the proper period.