High Risk Transactions

Financial reporting is not a precise science. Accounting principles present some options, require estimations, and must be interpreted for application to non-routine transactions. This lack of precision may risk the quality of the financial reporting process. Accordingly, external auditors are required to communicate the following information to the Audit Committee:

• Management Judgments and Accounting Estimates
• Audit Adjustments
• Auditor Judgment about the Quality of Financial Reporting

Some transactions present greater challenges and, thus, risks to the quality of financial reporting. The Audit Committee may wish to inquire about the financial reporting practices for the following high risk transactions:

• Prior Period Adjustments
• Recognition of joint ventures, alliances, and partnerships
• Compensated Absence Liabilities to Employees
• Pensions and Other Post Employment Benefits Owed to Employees
• Contingent Liabilities Resulting from Litigation
• Exposures due to Participation in Federal Grant and Loan Programs.