Page 324 - Auditing Standards

As of December 15, 2017
inspect the documentation and obtain evidential matter about its timeliness. Unlike the formal

documentation required for hedging activities, evidential matter supporting the classification of debt
and equity securities may be more informal.

f. Determine whether management's activities, contractual agreements, or the entity's financial

condition provide evidence of its ability. Examples follow.

(1) The entity's financial position, working capital needs, operating results, debt agreements,
guarantees, alternate sources of liquidity, and other relevant contractual obligations, as well

as laws and regulations, may provide evidence about an entity's ability to hold debt securities
to their maturity.

(2) Management's cash flow projections may suggest that it does not have the ability to hold debt

securities to their maturity.

(3) Management's inability to obtain information from an investee may suggest that it does not
have the ability to significantly influence the investee.

(4) If the entity asserts that it maintains effective control over securities transferred under a
repurchase agreement, the contractual agreement may be such that the entity actually

surrendered control over the securities and therefore should account for the transfer as a
sale instead of a secured borrowing.

Management Representations

.58 AS 2805, Management Representations, provides guidance to auditors in obtaining written
representations from management. The auditor ordinarily should obtain written representations from
management confirming aspects of management's intent and ability that affect assertions about derivatives

and securities, such as its intent and ability to hold a debt security until its maturity or to enter into a
forecasted transaction for which hedge accounting is applied. In addition, the auditor should consider
obtaining written representations from management confirming other aspects of derivatives and securities

transactions that affect assertions about them. 20

Effective Date

.59 This section is effective for audits of financial statements for fiscal years ending on or after June 30,

2001. Early application is permitted.

Footnotes (AS 2503 - Auditing Derivative Instruments, Hedging Activities, and Investments in Securities):

[1] [Footnote deleted.]

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