Question 1

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 2

The amount of time spent verifying owners' equity is frequently minimal for closely-held corporations because

Accepted Answer

A)  these companies are so small that it is not necessary to audit the capital section. 
B)  the few owners all have access to the books, so the auditor spends more time on accounts like liabilities, which affect outsiders. 
C)  there are few, if any, transactions during the year for the capital stock accounts, except for earnings and dividends. 
D)  there is no public interest in these companies. 
A)  these companies are so small that it is not necessary to audit the capital section. 
B)  the few owners all have access to the books, so the auditor spends more time on accounts like liabilities, which affect outsiders. 
C)  there are few, if any, transactions during the year for the capital stock accounts, except for earnings and dividends. 
D)  there is no public interest in these companies.

Question 3

Caroline is performing the audit of the capital acquisition and repayment cycle. She is currently auditing the payments of interest made during the year. The proper documentation that Caroline should use as supporting evidence of the payment is

Accepted Answer

A)  a copy of the note. 
B)  a bank reconciliation. 
C)  documentation of her inquiries with management. 
D)  the notes payable sub-ledger. 
A)  a copy of the note. 
B)  a bank reconciliation. 
C)  documentation of her inquiries with management. 
D)  the notes payable sub-ledger.

Question 4

Identify three analytical procedures commonly performed for notes payable.

Accepted Answer

Some possible analytical procedures for

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

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.

Question 7

State the specific balance-related audit objectives applicable to notes payable and interest and, for each objective, identify one common test of details of balances.

Accepted Answer

•Notes payable in the schedule exist (ex

Question 8

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 9

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 10

The tests of details of balances procedure that requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of

Accepted Answer

A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  classification. 
A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  classification.

Question 11

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 12

The tests of details of balances procedure that requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the objective of

Accepted Answer

A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  rights and obligations. 
A)  existence. 
B)  completeness. 
C)  accuracy. 
D)  rights and obligations.

Question 13

Recalculation of an approximate interest expense using the basis of average interests rates and overall monthly notes payable 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)  misclassification 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)  misclassification of notes payable, interest expense, or accrued interest

Question 14

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 15

The audit objective requiring that existing notes payable are included in the notes payable schedule (completeness) is satisfied by performing the following audit procedure.

Accepted Answer

A)  Recalculate accrued interest. 
B)  Examine duplicate copies of notes for details. 
C)  Review the notes payable schedule to determine whether any are related parties. 
D)  Obtain confirmations from creditors who have held notes from the client in the past and are not currently included in the notes payable schedule. 
A)  Recalculate accrued interest. 
B)  Examine duplicate copies of notes for details. 
C)  Review the notes payable schedule to determine whether any are related parties. 
D)  Obtain confirmations from creditors who have held notes from the client in the past and are not currently included in the notes payable schedule.

Question 16

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 17

A note payable is

Accepted Answer

A)  a long-term account payable. 
B)  a legal obligation to a creditor secured by assets. 
C)  an unsecured legal obligation to a creditor. 
D)  a legal obligation to a creditor that may be unsecured or secured by assets. 
A)  a long-term account payable. 
B)  a legal obligation to a creditor secured by assets. 
C)  an unsecured legal obligation to a creditor. 
D)  a legal obligation to a creditor that may be unsecured or secured by assets.

Question 18

As part of the audit, the auditor may examine authorization procedures with respect to the repurchase or redemption of capital stock. In particular, for a public company the auditor would verify that which of the following details have been authorized?

Accepted Answer

A)  general ledger accounts affected, dividends included, amount to be paid 
B)  type of stock, timing, amount to be paid 
C)  individuals from whom repurchase will be permitted, maximum amount 
D)  type of stock, amount to be paid, effect upon bond sinking funds 
A)  general ledger accounts affected, dividends included, amount to be paid 
B)  type of stock, timing, amount to be paid 
C)  individuals from whom repurchase will be permitted, maximum amount 
D)  type of stock, amount to be paid, effect upon bond sinking funds

Question 19

State the four audit concerns for capital stock and describe how the auditor typically verifies each of these areas.

Accepted Answer

The four most important audit objectives

Question 20

The transfer agent confirmed to the auditor that the company had 2 500 000 shares outstanding at December 31, 2010. To have assurance over the accuracy of the dividend payable, the auditor would multiply 2 500 000 by the

Accepted Answer

A)  dividend per share declared. 
B)  dividend per share paid during the year. 
C)  dividend per share as per the articles of incorporation, even if it was not declared during the year. 
D)  average dividend for the industry. 
A)  dividend per share declared. 
B)  dividend per share paid during the year. 
C)  dividend per share as per the articles of incorporation, even if it was not declared during the year. 
D)  average dividend for the industry.

The emphasis in the audit of dividends is on

The amount of time spent verifying owners' equity is frequently minimal for closely-held corporations because

Caroline is performing the audit of the capital acquisition and repayment cycle. She is currently auditing the payments of interest made during the year. The proper documentation that Caroline should use as supporting evidence of the payment is

Identify three analytical procedures commonly performed for notes payable.

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

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

State the specific balance-related audit objectives applicable to notes payable and interest and, for each objective, identify one common test of details of balances.

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?

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

The tests of details of balances procedure that requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of

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

The tests of details of balances procedure that requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the objective of

Recalculation of an approximate interest expense using the basis of average interests rates and overall monthly notes payable could detect what type of possible misstatement?

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

The audit objective requiring that existing notes payable are included in the notes payable schedule (completeness) is satisfied by performing the following audit procedure.

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

A note payable is

As part of the audit, the auditor may examine authorization procedures with respect to the repurchase or redemption of capital stock. In particular, for a public company the auditor would verify that which of the following details have been authorized?

State the four audit concerns for capital stock and describe how the auditor typically verifies each of these areas.

The transfer agent confirmed to the auditor that the company had 2 500 000 shares outstanding at December 31, 2010. To have assurance over the accuracy of the dividend payable, the auditor would multiply 2 500 000 by the

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

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Exam 16: Audit of the Capital Acquisition and Repayment Cycle

The emphasis in the audit of dividends is on

The amount of time spent verifying owners' equity is frequently minimal for closely-held corporations because

Caroline is performing the audit of the capital acquisition and repayment cycle. She is currently auditing the payments of interest made during the year. The proper documentation that Caroline should use as supporting evidence of the payment is

Identify three analytical procedures commonly performed for notes payable.

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

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

State the specific balance-related audit objectives applicable to notes payable and interest and, for each objective, identify one common test of details of balances.

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?

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

The tests of details of balances procedure that requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of

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

The tests of details of balances procedure that requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the objective of

Recalculation of an approximate interest expense using the basis of average interests rates and overall monthly notes payable could detect what type of possible misstatement?

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

The audit objective requiring that existing notes payable are included in the notes payable schedule (completeness) is satisfied by performing the following audit procedure.

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

A note payable is

As part of the audit, the auditor may examine authorization procedures with respect to the repurchase or redemption of capital stock. In particular, for a public company the auditor would verify that which of the following details have been authorized?

State the four audit concerns for capital stock and describe how the auditor typically verifies each of these areas.

The transfer agent confirmed to the auditor that the company had 2 500 000 shares outstanding at December 31, 2010. To have assurance over the accuracy of the dividend payable, the auditor would multiply 2 500 000 by the

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

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