Exam 13: Auditing Debt Obligations and Stockholders Equity Transactions

Normally, an auditor can gain an understanding of internal controls by means of a walkthrough of the process, inquiry, observation, and review of the client's documentation.

When auditing debt obligations, which of the following is the primary substantive analytical procedure?

Which of the following will an auditor not perform when looking for debt reductions?

Which of the following is not a relevant account when auditing stockholders' equity?

The auditor is primarily concerned with overstatement when auditing bonds.

As part of brainstorming activities, the auditor might identify possible fraudulent transactions related to stockholders' equity accounts that are the result of charging expenses directly to retained earnings rather than to the appropriate expense accounts.

Bonds are issued to finance major expansions or to refinance existing debt.

Which of the following is not a common transaction affecting stockholders' equity?

Using substantive procedures to test debt obligations is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.

A CPA firm is engaged in the examination of the financial statements of Garrison Corporation for the year ended December 31, 2014. Garrison Corporation's financial statements and records have never been audited by a CPA. The stockholders' equity section of Garrison Corporation's balance sheet at December 31, 2014, follows: Stockholders' Equity: REQUIRED: Prepare the detailed audit program for the examination of the three accounts composing the stockholders’ equity section of Garrison Corporation’s balance sheet. (Do not include in the audit program the verification of the results of the current-year operations.)

Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level only.

An auditor determines that there is an inherent risk that dividends may be recorded and paid before being declared. This determination is most likely tied to which of the following management assertions?

An auditor determines that there is an inherent risk that stock options exercised or expired remain on the organization's books. This determination is most likely tied to which of the following management assertions?

Which of the following is not typically included in the audit of debt obligations?

Which of the following will an auditor not perform when looking for additions to debt?

If interest expense recorded by the client is significantly lower than the auditor's expectation, it may mean that interest payments have not been properly recorded, possibly having been charged to principal.

Which of the following is not important documentation for substantive procedures for capital stock and equity transactions?

Which of the following is not a common debt covenant restriction?

When auditing the gains or losses on refinancing debt, the auditor primarily focuses on which assertion?

If preliminary analytical procedures do not identify any unexpected relationships related to debt obligations, the auditor would conclude that there is not a heightened risk of material misstatements in these accounts.