Question 1

When conducting the audit of stockholders' equity, it is normal practice to verify all capital stock transactions

Accepted Answer

A)  only when the client is small. 
B)  that are in excess of a material amount. 
C)  if there aren't very many during the year. 
D)  regardless of the controls in existence, because of their materiality and permanence in the records. 
A)  only when the client is small. 
B)  that are in excess of a material amount. 
C)  if there aren't very many during the year. 
D)  regardless of the controls in existence, because of their materiality and permanence in the records.

Question 2

Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client's business and industry.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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

Question 4

Discuss the overall objectives of the audit of notes payable.

Accepted Answer

The overall objectives of the audit of n

Question 5

If a legal relationship exists between the client and the holder of bonds, the auditor must determine if the client has met the requirements of the bondholder agreement.

Accepted Answer

A) True 
 B)False

Question 6

You are auditing the long-term notes payable account for a client. Which of the following audit procedures would you most likely employ?

Accepted Answer

A)  Compare interest expense recorded by the client with the notes payable account for reasonableness. 
B)  Confirm bonds payable with individual bond holders. 
C)  Perform analytical procedures on the bond discount or premium account. 
D)  Examine bond documents for the presence of hybrid securities. 
A)  Compare interest expense recorded by the client with the notes payable account for reasonableness. 
B)  Confirm bonds payable with individual bond holders. 
C)  Perform analytical procedures on the bond discount or premium account. 
D)  Examine bond documents for the presence of hybrid securities.

Question 7

Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable?

Accepted Answer

A)  Examine due dates on duplicate copies of notes. 
B)  Examine balance sheet for proper presentation and disclosure of notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Foot the notes payable list for notes payable and accrued interest. 
A)  Examine due dates on duplicate copies of notes. 
B)  Examine balance sheet for proper presentation and disclosure of notes payable. 
C)  Examine corporate minutes for loan approval. 
D)  Foot the notes payable list for notes payable and accrued interest.

Question 8

Responsibility for the issuance of new notes payable would normally be vested in the

Accepted Answer

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

Question 9

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

Accepted Answer

A)  a schedule of notes payable and accrued interest prepared by the audit team. 
B)  a schedule of notes payable and accrued interest obtained from the client. 
C)  a schedule of only those notes with unpaid balances at the end of the year prepared by the client. 
D)  the notes payable account in the general ledger. 
A)  a schedule of notes payable and accrued interest prepared by the audit team. 
B)  a schedule of notes payable and accrued interest obtained from the client. 
C)  a schedule of only those notes with unpaid balances at the end of the year prepared by the client. 
D)  the notes payable account in the general ledger.

Question 10

When verifying if capital stock is accurately recorded,

Accepted Answer

A)  the ending balance in the account does not need to verified. 
B)  the number of shares outstanding at the balance sheet date is verified by examining the corporate minutes. 
C)  the recorded par value can be determined by multiplying the number of shares by the market price of the stock. 
D)  a confirmation from the transfer agent is the simplest way to verify the number of shares outstanding at the balance sheet date. 
A)  the ending balance in the account does not need to verified. 
B)  the number of shares outstanding at the balance sheet date is verified by examining the corporate minutes. 
C)  the recorded par value can be determined by multiplying the number of shares by the market price of the stock. 
D)  a confirmation from the transfer agent is the simplest way to verify the number of shares outstanding at the balance sheet date.

Question 11

Discuss the four key controls over notes payable.

Accepted Answer

The four key controls over notes payable

Question 12

Which of the following statements regarding the capital acquisition and repayment cycle is most correct?

Accepted Answer

A)  A relatively few transactions affect the cycle, and most are smaller amounts. 
B)  A large number of transactions affect the cycle, and most are smaller amounts. 
C)  A relatively few transactions affect the cycle, and most are highly material. 
D)  A large number of transactions affect the cycle, and most are highly material. 
A)  A relatively few transactions affect the cycle, and most are smaller amounts. 
B)  A large number of transactions affect the cycle, and most are smaller amounts. 
C)  A relatively few transactions affect the cycle, and most are highly material. 
D)  A large number of transactions affect the cycle, and most are highly material.

Question 13

The dollar amounts of bond issues are normally large, making it difficult for auditors to verify each transaction in this account.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is correct regarding the audit of dividends?

Accepted Answer

A)  The emphasis is on the ending balance in the dividends account. 
B)  When auditors verify that the dividends are paid to stockholders that exist, they are concerned with the completeness objective. 
C)  If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed. 
D)  All of the above are correct statements. 
A)  The emphasis is on the ending balance in the dividends account. 
B)  When auditors verify that the dividends are paid to stockholders that exist, they are concerned with the completeness objective. 
C)  If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed. 
D)  All of the above are correct statements.

Question 15

The tests of details of balances procedure which 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 16

If there is an adjustment to retained earnings resulting from a change in accounting principle, the auditor should test the prior period effects of the change, but not test the entry to adjust prior period balances or retained earnings.

Accepted Answer

A) True 
 B)False

Question 17

Independent registrars commonly disburse cash dividends to shareholders.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  recorded all long-term interest-bearing debt in the accounting records. 
B)  recorded all interest expense paid or accrued. 
C)  properly accounted for the discount of bonds payable account. 
D)  properly recorded interest income. 
A)  recorded all long-term interest-bearing debt in the accounting records. 
B)  recorded all interest expense paid or accrued. 
C)  properly accounted for the discount of bonds payable account. 
D)  properly recorded interest income.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 22: Audit of the Capital Acquisition and Repayment Cycle

When conducting the audit of stockholders' equity, it is normal practice to verify all capital stock transactions

Auditors seldom learn about the capital acquisition and repayment cycle when gaining an understanding of the client's business and industry.

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

Discuss the overall objectives of the audit of notes payable.

If a legal relationship exists between the client and the holder of bonds, the auditor must determine if the client has met the requirements of the bondholder agreement.

You are auditing the long-term notes payable account for a client. Which of the following audit procedures would you most likely employ?

Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable?

Responsibility for the issuance of new notes payable would normally be vested in the

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

When verifying if capital stock is accurately recorded,

Discuss the four key controls over notes payable.

Which of the following statements regarding the capital acquisition and repayment cycle is most correct?

The dollar amounts of bond issues are normally large, making it difficult for auditors to verify each transaction in this account.

Which of the following statements is correct regarding the audit of dividends?

The tests of details of balances procedure which 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

If there is an adjustment to retained earnings resulting from a change in accounting principle, the auditor should test the prior period effects of the change, but not test the entry to adjust prior period balances or retained earnings.

Independent registrars commonly disburse cash dividends to shareholders.

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

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

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

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 Materiality

Assessing the Risk of Material Misstatement

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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

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