fically, SAS No. 31 states that appropriate procedures should be followed by auditors to assure that asset, liability, revenue, and expense components have been included in the financial statements at appropriate amounts. SAS No. 31 states further that the auditor should seek guidance in GAAPs to measure or disclose transactions and balances.
Within the context of SAS No. 31, the outside auditors clearly were correct in seeking the latest and best information with which to consider the valuation of the company's grains inventory. The appropriateness of the application and interpretation of these data, however, are still to be assessed.
Statement of Position (SOP) No. 94-6 issued by the Accounting Standards Executive Committee (ASEC), American Institute of Certified Public Accountants requires the identification and disclosure of possible risks that may affect financial statements. This rule applies to the audit of the Western Trading Company under Disclosure No. 4 of SOP 94-6. Disclosure No. 4 states that risks must be identified and disclosed when concentrations in revenue from particular products characterizes the operations of a company.
Within the context of SOP 94-6, the outside auditors clearly were correct in identifying the potential risk to the value of the company's assets in its grains inventory. The proposal of the auditors to disclose this risk still must be justified within the context of the reality of the potential risk.
Statement of Financial Accounting Concepts (FA
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