How are the accounts of investor and investee companies affected when the investor acquires stock from stockholders of the investee (eg

1 Solution:

* Finding the effect on investor and investee company accounts:

# When an investor acquires stock from existing shareholders of the investee, then only the investor’s accounts are affected.

# The investor records this investment in its books at the cost value.

# Since the Investee is not a party to the transaction, therefore, its accounts are not affected.

# Both investee and investor accounts would be affected if unissued stock were acquired from the investee company directly.

# The investor records its investment at the cost value and the investee company adjust its owner’s equity and assets to reveal the issuance of formerly unissued stock.
2 

Defining professional skepticism involves an attitude that involves a questioning mind, and includes caution against situations that could lead to misunderstandings due to error or fraud and include a critical evaluation of the audit evidence. It’s a skill which is developed over a time and cannot be cultivated overnight which should constantly build and refine.
   The auditor shall plan and perform audit with Professional scepticism recognising the circumstances may exist that occur material misstatements in finalisation of financial statements. Thus the auditors have to remain alert regardless of the fact that the clients internal audit as well as control system pertaining in the client organisation.
   Audios shall always be alert on the material misstatement as they could also be due to frauds in the organisation.
Professional scepticism includes alerts on,
•   Information’s that brings question on reliability of a fact/ document which acts as an audit evidence.
•   Audit evidence that contradicts other evidence.
•   Situations that may indicate possible fraud.
•   Other conditions that the auditor found to be necessary to do so.

Auditor shall apply Professional scepticism in various stages such as auditor’s opinion and evaluation of overall fairness of underlying transactions and events.
Benefits of Professional scepticism to Auditors
•   Accuracy
•   Completeness of audit
•   Authenticity of work done
•   Less risk of bias
•   Avoiding inappropriate assumptions
•   Identify unusual events of circumstances etc