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

Auditors can test whether dividend payments have been made to shareholders by selecting a sample of recorded dividend payments and agreeing payee information on the cancelled check to the dividend records.

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

What are two important internal control procedures that companies should implement to prevent misstatements in owners' equity when a company maintains its own records of stock transactions and outstanding stock?

The accuracy of a dividend declaration can be audited by recalculating the amount on the basis of the dividend per share times the number of shares outstanding.

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.

Because the accounts in the capital acquisition and repayment cycle contain few transactions, control risk and the results of substantive transactions are normally more important for designing tests of details of balances in these accounts.

Few large companies employ stock transfer agents, but small companies commonly do so.

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

All of the following are owners' equity accounts except for

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

Common hybrid securities do not include which of the following?

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

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

One unique characteristic of the capital acquisition and repayment cycle is that relatively few transactions affect the account balances, but each transaction is often highly material in amount.

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

The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is

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

The primary audit objectives to focus on when auditing accounts in the capital acquisition and repayment cycle are

The shareholders' capital stock master file is used as the basis for the payment of dividends and also acts as a check on the accuracy of the common stock balance in the general ledger.