Exam 22: Audit of the Capital Acquisition and Repayment Cycle

State the four most important audit objectives for capital stock and describe how the auditor typically verifies each of the four objectives.

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Question 1

Correct Answer:

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The four most important audit objectives for capital stock are:
•Existing capital stock transactions are recorded (completeness).Confirm with the registrar or transfer agent whether any capital stock transactions occurred.
•Recorded capital stock transactions occurred and are accurately recorded (occurrence and accuracy).Existence can be tested by examining the minutes of the board of directors' meetings for proper authorization.Accuracy can be tested by confirming the amount with the transfer agent and tracing the amount of the recorded capital stock transactions to the cash receipts journal.
•Capital stock is accurately recorded (accuracy).The ending balance in the capital stock account is verified by first determining,via confirmation from the transfer agent,the number of shares outstanding at the balance sheet date.The recorded par value in the capital account can be verified by multiplying the number of shares outstanding by the par value of the stock.
•Capital stock is properly presented and disclosed (presentation and disclosure).Using the corporate charter,the minutes of board of directors' meeting and the auditor's analysis of capital stock transactions,the auditor should determine that there is a proper description of each class of stock.The proper presentation and disclosure of stock options,stock warrants,and convertible securities should also be verified by examining legal documents or other evidence of the provisions of these agreements.

When there are not numerous transactions involving notes payable during the year,the normal starting point for the audit of notes payable is

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Question 2

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Which of the following audit objectives is least important in the audit of capital stock and paid-in-capital in excess of par?

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Question 3

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The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

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Question 4

All corporations must have

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Question 5

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

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Question 6

Any restrictions on the payment of dividends must be disclosed in the footnotes to the financial statements.

(True/False)

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Question 7

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

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Question 8

The balance-related audit objective realizable value is not applicable when auditing notes payable.

(True/False)

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Question 9

Auditing capital stock transactions as part of a merger is challenging because judgment is often involved.

(True/False)

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Question 10

When performing substantive analytical procedures for notes payable,if actual interest expense is materially larger than the auditor's expectation,one possible cause would be interest payments on unrecorded notes payable.

(True/False)

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Question 11

To determine if notes payable are included in the proper period,the auditor should

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Question 12

Discuss the internal controls related to owners' equity that are of concern to the auditor.

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Question 13

What is the difference between an independent registrar and a stock transfer agent?

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Question 14

The Securities and Exchange Commission requires companies listed on exchanges to employ stock transfer agents.

(True/False)

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Question 15

The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

(Multiple Choice)

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Question 16

Which balance-related audit objective is important for uncovering both errors and fraud?

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Question 17

The audit objective to determine that notes payable in the schedule actually exist is verified by the test of details of balances procedure to

(Multiple Choice)

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Question 18

Examining the minutes of the board of directors' meetings for proper authorization ordinarily tests the existence objective for capital stock transactions.

(True/False)

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Question 19

When auditing interest-bearing debt,the auditor should ________ verify the related interest expense and interest payable.

(Multiple Choice)

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Question 20

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Exam 22: Audit of the Capital Acquisition and Repayment Cycle

State the four most important audit objectives for capital stock and describe how the auditor typically verifies each of the four objectives.

When there are not numerous transactions involving notes payable during the year,the normal starting point for the audit of notes payable is

Which of the following audit objectives is least important in the audit of capital stock and paid-in-capital in excess of par?

The audit procedure "Foot the notes payable list and trace the totals to the general ledger" is performed when verifying the accuracy objective for notes payable.

All corporations must have

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

Any restrictions on the payment of dividends must be disclosed in the footnotes to the financial statements.

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

The balance-related audit objective realizable value is not applicable when auditing notes payable.

Auditing capital stock transactions as part of a merger is challenging because judgment is often involved.

When performing substantive analytical procedures for notes payable,if actual interest expense is materially larger than the auditor's expectation,one possible cause would be interest payments on unrecorded notes payable.

To determine if notes payable are included in the proper period,the auditor should

Discuss the internal controls related to owners' equity that are of concern to the auditor.

What is the difference between an independent registrar and a stock transfer agent?

The Securities and Exchange Commission requires companies listed on exchanges to employ stock transfer agents.

The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

Which balance-related audit objective is important for uncovering both errors and fraud?

The audit objective to determine that notes payable in the schedule actually exist is verified by the test of details of balances procedure to

Examining the minutes of the board of directors' meetings for proper authorization ordinarily tests the existence objective for capital stock transactions.

When auditing interest-bearing debt,the auditor should ________ verify the related interest expense and interest payable.

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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