Question 1

Usually dividends are audited

Accepted Answer

A)  using block sampling. 
B)  on a 100% basis. 
C)  using variables sampling. 
D)  using attributes sampling. 
A)  using block sampling. 
B)  on a 100% basis. 
C)  using variables sampling. 
D)  using attributes sampling.

Question 2

What procedure can an auditor use to determine whether notes payable on the notes payable schedule are properly classified?

Accepted Answer

A)  Review the notes to determine whether any are with related parties. 
B)  Confirm notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Examine notes, minutes, and bank confirmations for restrictions. 
A)  Review the notes to determine whether any are with related parties. 
B)  Confirm notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Examine notes, minutes, and bank confirmations for restrictions.

Question 3

The emphasis in the audit of dividends is on

Accepted Answer

A)  ending equity balance. 
B)  transactions. 
C)  opening dividends payable balance. 
D)  confirming the number of shares outstanding. 
A)  ending equity balance. 
B)  transactions. 
C)  opening dividends payable balance. 
D)  confirming the number of shares outstanding.

Question 4

Which of the following audit procedures assists the auditor with testing for completeness?

Accepted Answer

A)  Analyze interest expense to uncover a payment to a creditor who is not included in the notes payable schedule. 
B)  Examine notes to determine whether the company has obligations for payment. 
C)  Examine duplicate copies of notes to determine whether notes were dated on or before the balance sheet date. 
D)  Examine the dates on duplicate copies of notes to determine whether all or part of the notes are non-current liabilities. 
A)  Analyze interest expense to uncover a payment to a creditor who is not included in the notes payable schedule. 
B)  Examine notes to determine whether the company has obligations for payment. 
C)  Examine duplicate copies of notes to determine whether notes were dated on or before the balance sheet date. 
D)  Examine the dates on duplicate copies of notes to determine whether all or part of the notes are non-current liabilities.

Question 5

One of the reasons the auditor reads debt agreements is to discover whether there are any restrictions on the company, such as restrictions on the payment of dividends. It is important for the auditor to identify such restrictions so that

Accepted Answer

A)  corroborative evidence can then be obtained from management. 
B)  the auditor can make sure that management is adhering to the restrictions. 
C)  the auditor can include the restrictions in the management representation letter. 
D)  they can be disclosed in the footnotes of the financial statements. 
A)  corroborative evidence can then be obtained from management. 
B)  the auditor can make sure that management is adhering to the restrictions. 
C)  the auditor can include the restrictions in the management representation letter. 
D)  they can be disclosed in the footnotes of the financial statements.

Question 6

A common test of details of balances procedure for notes payable is to examine duplicate copies of notes to determine whether notes were dated on or before the balance sheet date. Which audit assertion is this test of detail associated with?

Accepted Answer

A)  allocation (accuracy) 
B)  allocation (cutoff) 
C)  existence 
D)  completeness 
A)  allocation (accuracy) 
B)  allocation (cutoff) 
C)  existence 
D)  completeness

Question 7

Discuss the four characteristics of the capital acquisition and repayment cycle that make it unique from other cycles.

Accepted Answer

The four characteristics are:
•Relativel

Question 8

Which of the following internal controls over notes payable address risks associated with the accuracy, allocation, and completeness audit assertions?

Accepted Answer

A)  Renewals or new notes should be approved by the board of directors (as evidenced in the minutes) or by senior management. 
B)  Authorized employees should perform independent recalculations of interest and reconciliation of the notes payable balance to the general ledger. 
C)  Subsidiary records should be maintained for each note and there should be control over blank and paid notes. 
D)  Paid notes should be cancelled and retained under the custody of an authorized official. 
A)  Renewals or new notes should be approved by the board of directors (as evidenced in the minutes) or by senior management. 
B)  Authorized employees should perform independent recalculations of interest and reconciliation of the notes payable balance to the general ledger. 
C)  Subsidiary records should be maintained for each note and there should be control over blank and paid notes. 
D)  Paid notes should be cancelled and retained under the custody of an authorized official.

Question 9

For publicly held corporations, the verification of owners' equity is more complex due to the

Accepted Answer

A)  fact that there are many more equity accounts to audit. 
B)  larger numbers of shareholders and frequent changes in the individuals holding the shares. 
C)  problem of having to confirm shares held with many more different individuals. 
D)  need to consider that audit risk will be lower, and different shareholders have different points of view with respect to materiality. 
A)  fact that there are many more equity accounts to audit. 
B)  larger numbers of shareholders and frequent changes in the individuals holding the shares. 
C)  problem of having to confirm shares held with many more different individuals. 
D)  need to consider that audit risk will be lower, and different shareholders have different points of view with respect to materiality.

Question 10

Describe the audit procedures and related audit assertions for the audit of dividends.

Accepted Answer

•Recorded dividends occurred (occurrence

Question 11

First Global is a public company. You are currently performing the audit of the owners' equity section and you have been asked to write a short memo about the control weaknesses you have identified and the potential risk attached to each weakness.
First Global has been a public company since March of the current year, when it underwent its IPO. The corporation has been implementing various controls with regards to keeping records of the company, but it is still a growing company. Sasha, the equity accountant, has been having a tough time learning all the new regulations, keeping the records up to date, and ensuring that the dividend payments are made on time.
First Global issued two classes of shares in its IPO. Class A shares with 10 votes were issued to the Truman family so they could retain control of the company and Class B shares with 1 vote each were issued to the general public. When you reviewed the accounting records, you noticed that they contained only one account for capital stocks.
What control weaknesses are evident at First Global and what are their implications?

Accepted Answer

Control weaknesses at First Global inclu

Question 12

Describe the risks of error and fraud in the debt or equity accounts.

Accepted Answer

The risks of fraud and error for such ac

Question 13

Most large corporations employ the services of a stock transfer agent for the purpose of

Accepted Answer

A)  maintaining the shareholder records. 
B)  recording share capital in the accounts. 
C)  issuing the shares for the company. 
D)  ensuring that stock issuances are complying with federal and provincial laws. 
A)  maintaining the shareholder records. 
B)  recording share capital in the accounts. 
C)  issuing the shares for the company. 
D)  ensuring that stock issuances are complying with federal and provincial laws.

Question 14

Comparison of the total balance in notes payable, interest expense, and accrued interest with these accounts in the prior year could detect what type of possible misstatement?

Accepted Answer

A)  misstatement of interest expense or accrued interest, or omission of a note payable 
B)  omission or misstatement of a note payable 
C)  misclassification of a note payable as long-term rather than current 
D)  misstatement of notes payable, interest expense, or accrued interest 
A)  misstatement of interest expense or accrued interest, or omission of a note payable 
B)  omission or misstatement of a note payable 
C)  misclassification of a note payable as long-term rather than current 
D)  misstatement of notes payable, interest expense, or accrued interest

Question 15

When a dividend is declared by the board, the source for determining who should receive dividend cheques is the

Accepted Answer

A)  shareholders' capital stock register or master file. 
B)  stock certificate books. 
C)  common stock account in the general ledger. 
D)  corporate directory. 
A)  shareholders' capital stock register or master file. 
B)  stock certificate books. 
C)  common stock account in the general ledger. 
D)  corporate directory.

Question 16

Explain why the auditor's verification of owners' equity is more complex for publicly-held corporations than closely-held corporations.

Accepted Answer

For publicly-held corporations

Question 17

Control risk for notes payable is usually assessed as low. This occurs because internal controls are normally good for notes payable and

Accepted Answer

A)  creditors would complain if the notes are not paid. 
B)  interest expense can easily be distinguished from bank service charges. 
C)  there are a small number of large transactions for this type of transaction. 
D)  inclusion in the accounts payable listing helps track the notes. 
A)  creditors would complain if the notes are not paid. 
B)  interest expense can easily be distinguished from bank service charges. 
C)  there are a small number of large transactions for this type of transaction. 
D)  inclusion in the accounts payable listing helps track the notes.

Question 18

As part of the audit of dividends, the auditor would verify whether the payment was made to the shareholders who owned the stock at the dividend record date. Which of the following audit tests assists with this objective?

Accepted Answer

A)  examining the minutes of board of directors' meetings for the amount of the dividend per share and the dividend date 
B)  reviewing the permanent audit working paper file to determine if there are restrictions on the payment of dividends 
C)  recomputing the amount of dividends declared by multiplying the dividend amount per share by the number of shares outstanding 
D)  selecting a sample of recorded dividend payments and tracing the payee's name on the cancelled cheque to the dividend records 
A)  examining the minutes of board of directors' meetings for the amount of the dividend per share and the dividend date 
B)  reviewing the permanent audit working paper file to determine if there are restrictions on the payment of dividends 
C)  recomputing the amount of dividends declared by multiplying the dividend amount per share by the number of shares outstanding 
D)  selecting a sample of recorded dividend payments and tracing the payee's name on the cancelled cheque to the dividend records

Question 19

Responsibility for the issuance of new notes should be vested in the

Accepted Answer

A)  board of directors. 
B)  accounting department. 
C)  accounts payable department. 
D)  purchasing department. 
A)  board of directors. 
B)  accounting department. 
C)  accounts payable department. 
D)  purchasing department.

Question 20

When setting the objectives for auditing notes, the auditor should consider inherent risks associated with

Accepted Answer

A)  recording errors. 
B)  uncollectible notes. 
C)  duplicated notes. 
D)  management bias. 
A)  recording errors. 
B)  uncollectible notes. 
C)  duplicated notes. 
D)  management bias.

Usually dividends are audited

What procedure can an auditor use to determine whether notes payable on the notes payable schedule are properly classified?

The emphasis in the audit of dividends is on

Which of the following audit procedures assists the auditor with testing for completeness?

One of the reasons the auditor reads debt agreements is to discover whether there are any restrictions on the company, such as restrictions on the payment of dividends. It is important for the auditor to identify such restrictions so that

A common test of details of balances procedure for notes payable is to examine duplicate copies of notes to determine whether notes were dated on or before the balance sheet date. Which audit assertion is this test of detail associated with?

Discuss the four characteristics of the capital acquisition and repayment cycle that make it unique from other cycles.

Which of the following internal controls over notes payable address risks associated with the accuracy, allocation, and completeness audit assertions?

For publicly held corporations, the verification of owners' equity is more complex due to the

Describe the audit procedures and related audit assertions for the audit of dividends.

Describe the risks of error and fraud in the debt or equity accounts.

Most large corporations employ the services of a stock transfer agent for the purpose of

Comparison of the total balance in notes payable, interest expense, and accrued interest with these accounts in the prior year could detect what type of possible misstatement?

When a dividend is declared by the board, the source for determining who should receive dividend cheques is the

Explain why the auditor's verification of owners' equity is more complex for publicly-held corporations than closely-held corporations.

Control risk for notes payable is usually assessed as low. This occurs because internal controls are normally good for notes payable and

As part of the audit of dividends, the auditor would verify whether the payment was made to the shareholders who owned the stock at the dividend record date. Which of the following audit tests assists with this objective?

Responsibility for the issuance of new notes should be vested in the

When setting the objectives for auditing notes, the auditor should consider inherent risks associated with

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 16: Audit of the Capital Acquisition and Repayment Cycle

Usually dividends are audited

What procedure can an auditor use to determine whether notes payable on the notes payable schedule are properly classified?

The emphasis in the audit of dividends is on

Which of the following audit procedures assists the auditor with testing for completeness?

One of the reasons the auditor reads debt agreements is to discover whether there are any restrictions on the company, such as restrictions on the payment of dividends. It is important for the auditor to identify such restrictions so that

A common test of details of balances procedure for notes payable is to examine duplicate copies of notes to determine whether notes were dated on or before the balance sheet date. Which audit assertion is this test of detail associated with?

Discuss the four characteristics of the capital acquisition and repayment cycle that make it unique from other cycles.

Which of the following internal controls over notes payable address risks associated with the accuracy, allocation, and completeness audit assertions?

For publicly held corporations, the verification of owners' equity is more complex due to the

Describe the audit procedures and related audit assertions for the audit of dividends.

Describe the risks of error and fraud in the debt or equity accounts.

Most large corporations employ the services of a stock transfer agent for the purpose of

Comparison of the total balance in notes payable, interest expense, and accrued interest with these accounts in the prior year could detect what type of possible misstatement?

When a dividend is declared by the board, the source for determining who should receive dividend cheques is the

Explain why the auditor's verification of owners' equity is more complex for publicly-held corporations than closely-held corporations.

Control risk for notes payable is usually assessed as low. This occurs because internal controls are normally good for notes payable and

As part of the audit of dividends, the auditor would verify whether the payment was made to the shareholders who owned the stock at the dividend record date. Which of the following audit tests assists with this objective?

Responsibility for the issuance of new notes should be vested in the

When setting the objectives for auditing notes, the auditor should consider inherent risks associated with

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters