Exam 22: Audit of the Capital Acquisition and Repayment Cycle

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.

Capital stock represents a legal obligation to a shareholder and ensures a certain return to the shareholder.

Tolerable misstatement is often set at a(n) ________ level for notes payable.

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

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

An auditor's substantive analytical procedure provides the auditor with an interest expense amount that is significantly higher than the client's recorded interest expense. This finding would most likely lead the auditor to conclude that:

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:

You are employing tests of details of balances for notes payable and interest expense. Describe below specific audit procedures you would perform for the balance-related audit objectives of detail tie-in and existence. List at least two for each objective.

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

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

If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock:

Which of the following types of owners' equity transactions would not require authorization by the board of directors?

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

The two most important balance related objectives in notes payable are:

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

List six accounts in the capital acquisition and repayment cycle commonly found on balance sheets. What characteristics do these accounts have in common that distinguish them from other accounts?

Which of the following statements is true?

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

Which of the following would generally not need to be approved by the board of directors?

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