Exam 15: Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts

Several years ago,Conway,Inc.,secured a conventional real estate mortgage loan.Which of the following audit procedures would least likely be performed by an auditor examining the mortgage balance?

What kind of information would typically be found on an income statement account analysis working paper? What kind of tests can an auditor perform using this information? Why would an auditor conduct additional analysis on an income statement account?

Which of the following transactions is an auditor most likely to examine when auditing the retained earnings account?

Which of the following is the most important consideration of an auditor when examining the stockholders' equity section of an entity's balance sheet?

If recorded interest expense is higher than the auditor's expectation calculated using recorded debt,all of the following are potential explanations except that

Notes receivable is a common type of long-term financing.

The auditor typically begins an audit of retained earnings by obtaining a schedule of account activity for the period.

Identify the four major assertions made regarding stockholders' equity and describe one control activity for each.

Reviewing interest expense to examine payments to debt holders not listed on the debt analysis schedule is a procedure that can be used to test the audit assertion of

In connection with the examination of bonds payable,an auditor would expect to find in a bond agreement

The auditor can best verify an entity's bond sinking fund transactions and year-end balance by

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to

The auditor is concerned with establishing that dividends are paid to stockholders of the entity owning stock as of the

Erik Rekdahl,senior-in-charge,is auditing Koonce Katfood,Inc.'s,long-term debt for the year ended December 31.Long-term debt is composed of two bond issues,which are due in 10 and 15 years,respectively.The debt is held by two insurance companies.Rekdahl has examined the bond agreements for each issue.The agreements provide that if Koonce fails to comply with the covenants of the contract,the debt becomes payable immediately.Rekdahl identified the following covenants when reviewing the bond agreements: "The debtor company shall endeavor to maintain a working capital ratio of 2 to 1 at all times,and in any fiscal year following a failure to maintain said ratio,the company shall restrict compensation of officers to a total of $650,000.Officers include the chairperson of the board and the president." "The debtor company shall keep all property that is security for these debt agreements insured against loss by fire to the extent of 100 percent of its actual value.Policies of insurance comprising this protection shall be filed with the trustee." "The company is required to restrict 40 percent of retained earnings from availability for paying dividends." "A sinking fund shall be established with the First Morgan Bank of Austin,and semiannual payments of $500,000 shall be deposited in the fund.The bank may,at its discretion,purchase bonds from either issue." a.Provide any audit steps that Rekdahl should conduct to determine if the company is in compliance with the bond indentures. b.List any reporting requirements that the financial statements or footnotes should include.

Of the following,which is the most important procedure that an auditor should use when making an overall review of the income statement?

Where no independent stock transfer agents are employed and the corporation issues its own stocks and maintains stock records,canceled stock certificates should

Which audit procedure is most closely related to management's assertion regarding presentation and disclosure of liabilities?

The occurrence assertion is being tested when the auditor vouches stock repurchases to the canceled stock certificates.

You have been assigned the duty of auditing long-term debt and retained earnings for Keys,Inc.Describe the tests you would use to support management's assertions regarding disclosure for these accounts.

The repurchase of stock includes the reacquisition of stock (treasury stock),but not the retirement of stock.