Exam 22: Audit of the Capital Acquisition and Repayment Cycle

During the course of an audit, a CPA observes that the recorded interest expense seems to be excessive in relation to the balance in the long-term debt account.This observation could lead the auditor to suspect that:

The audit of owners' equity of public and private companies is very different.Which of the following is not one of these differences?

The audit procedure "examine duplicate copies of notes payable to determine whether the notes payable were dated on or before the balance sheet date" is done for which of the following balance-related audit objective?

Which of the following is not an objective of the auditor's examination of notes payable?

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

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

When a dividend is declared by the board of directors, the source for determining who should receive dividend checks is the:

When verifying if capital stock is accurately recorded:

Discuss the overall objectives of the audit of notes payable.

In the audit of notes payable, it is common to include tests of principal and interest payments as a part of the audit of the acquisitions and payment cycle because the payments are in the cash disbursements journal that is being sampled.It is also normal to test these transactions as part of the capital acquisitions and repayment cycle because:

When a company has treasury stock certificates on hand, a year-end count of the certificates by the auditor is:

The auditor's independent estimate of interest expense from notes payable uses average interest rates and:

Actual interest expense is significantly higher than the auditor's estimate.This would most likely lead the auditor to conclude that the client has not:

When performing 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.

The capital acquisition and repayment cycle does not include:

Why are analytical procedures essential for notes payable?

Which of the following types of owners' equity transactions would require authorization by the board of directors?

For most companies, the only transactions involving retained earnings are net earnings for the year and dividends declared.

The emphasis in the audit of dividends is on the ending balance rather than the transactions.

Independent registrars commonly disburse cash dividends to shareholders.