Practice Test 3

You are conducting a nonissuer financial statement audit of a company with significant leases under ASC 842. Real estate negotiates lease terms, legal stores executed leases in shared drives, and accounting manually inputs terms into a lease accounting tool and records monthly entries. You observe missing executed lease documents and inconsistent review of key inputs (term, discount rate). Which process should the auditor document to assess risk?

You are the auditor of a nonissuer in a financial statement audit of a community bank with significant allowance for credit losses (ACL). Loan officers input risk ratings, a credit committee approves exceptions, and the ACL model is run by finance with manual overlays. You observe undocumented overrides to risk ratings and limited review of model assumptions. What is the primary business process impacting financial reporting risk?