Question 1

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

Accepted Answer

A)  The number of transactions (private companies have fewer transactions). 
B)  Payment of dividends (public companies rarely pay dividends). 
C)  Complexity of transactions (public companies generally have more complex transactions). 
D)  Type of noncurrent debt (public companies issue more bonds). 
A)  The number of transactions (private companies have fewer transactions). 
B)  Payment of dividends (public companies rarely pay dividends). 
C)  Complexity of transactions (public companies generally have more complex transactions). 
D)  Type of noncurrent debt (public companies issue more bonds).

Question 2

When auditing the capital acquisition and repayment cycle, it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.

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

The primary audit objectives to focus on when auditing debt are:

Accepted Answer

A)  accuracy and completeness. 
B)  accuracy and existence. 
C)  completeness and valuation. 
D)  accuracy and valuation. 
A)  accuracy and completeness. 
B)  accuracy and existence. 
C)  completeness and valuation. 
D)  accuracy and valuation.

Question 5

The three most important balance-related audit objectives for notes payable are existence, realizable value, and accuracy.

Accepted Answer

A) True 
 B)False

Question 6

Any company that has more than 10 percent of its stock owned by one person is considered to be closely held.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Why are analytical procedures essential for notes payable?

Accepted Answer

They are essential because tes

Question 9

Notes payable are generally for short periods of time.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

The four characteristics are:
• Relative

Question 11

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

Accepted Answer

A)  To determine whether internal controls are adequate. 
B)  To determine whether client's financing arrangements are effective and efficient. 
C)  To determine whether transactions regarding the principal and interest of notes are properly authorized. 
D)  To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated. 
A)  To determine whether internal controls are adequate. 
B)  To determine whether client's financing arrangements are effective and efficient. 
C)  To determine whether transactions regarding the principal and interest of notes are properly authorized. 
D)  To determine whether the liability for notes and related interest expense and accrued liabilities are properly stated.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

The starting point for the audit of notes payable is a schedule of notes payable and accrued interest. Discuss the information typically included in the schedule.

Accepted Answer

The usual schedule includes detailed inf

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not an important control over notes payable?

Accepted Answer

A)  proper authorization over the issuance of new notes payable 
B)  notes payable are issued when the business climate is favorable 
C)  adequate controls exist over repayment of interest and principal 
D)  there exists proper documents and records 
A)  proper authorization over the issuance of new notes payable 
B)  notes payable are issued when the business climate is favorable 
C)  adequate controls exist over repayment of interest and principal 
D)  there exists proper documents and records

Question 17

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

Accepted Answer

A)  correct calculation of the net income or loss for the year. 
B)  correct calculation of dividend payments for the year. 
C)  whether prior-period adjustments have been made correctly. 
D)  whether there are any restrictions on the payment of dividends. 
A)  correct calculation of the net income or loss for the year. 
B)  correct calculation of dividend payments for the year. 
C)  whether prior-period adjustments have been made correctly. 
D)  whether there are any restrictions on the payment of dividends.

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Assessed control risk and results of substantive tests of transactions are normally unimportant for designing tests of details of balances for which of the following accounts?

Accepted Answer

A)  Accounts receivable 
B)  Inventory 
C)  Accounts payable 
D)  Notes payable 
A)  Accounts receivable 
B)  Inventory 
C)  Accounts payable 
D)  Notes payable

Question 20

The audit procedure "Examine notes payable, minutes, and bank confirmations for restrictions" is performed when verifying the classification objective for notes payable.

Accepted Answer

A) True 
 B)False

Exam 22: Audit of the Capital Acquisition and Repayment Cycle

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

When auditing the capital acquisition and repayment cycle, it is common to verify each transaction taking place in the cycle for the entire year as a part of verifying the balance sheet accounts.

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

The primary audit objectives to focus on when auditing debt are:

The three most important balance-related audit objectives for notes payable are existence, realizable value, and accuracy.

Any company that has more than 10 percent of its stock owned by one person is considered to be closely held.

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

Why are analytical procedures essential for notes payable?

Notes payable are generally for short periods of time.

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

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

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

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

The starting point for the audit of notes payable is a schedule of notes payable and accrued interest. Discuss the information typically included in the schedule.

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.

Which of the following is not an important control over notes payable?

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

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.

Assessed control risk and results of substantive tests of transactions are normally unimportant for designing tests of details of balances for which of the following accounts?

The audit procedure "Examine notes payable, minutes, and bank confirmations for restrictions" is performed when verifying the classification objective for notes payable.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and 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 Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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