Chapter 10
Goodwill impairment refers to
A permanent decline in value of recorded goodwill.
Financing Activities Substantive Procedure: Confirm debt balances with debtors including terms collateral interest ect. Confirm stock certificates issued outstanding with registrar
Existence
Investing Activities Substantive Procedure: Confirm stock investments with brokerage
Existence
Inspecting marketable securities provides primary evidence about the ASB balance assertion of
Existence.
A notes payable analysis shows the beginning balance, additional notes, & the ending balance of each individual __________.
Note
Debits to a mortgage payable account typically are ______ on the account
Payments
Sales of capital stock and large debt financing transactions are usually authorized by
The board of directors.
Investing Activities Substantive Procedure: Obtain client documentation for the calculations of goodwill & test. Inquire whether management is aware of any impairments to investment securities
Valuation & Allocation
The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year & interest expense in the financial statements is to....
Detect unrecorded liabilities
What is the most important audit consideration when examining the stockholder's equity section of a client's balance sheet?
Entries in the capital stock account can be traced to resolutions in the minutes of meeting of the board of directors
Actual signed copies of the notes are often put in the auditors' __________ file.
Permanent
Investing Activities Substantive Procedure: Inquire of management as intent for holding investments. Ensure that hedges meet requirements for hedging treatment
Presentation & Disclosures
An audit team would most likely verify the interest earned on bond investments by....
Recomputing the interest earned on the basis of face amount, interest rate, & period held
Financing Activities Substantive Procedure: Examine debt agreements & include information about restrictions, terms, & collateral on debt confirmations
Rights & Obligations
Investing Activities Substantive Procedure: Examine documents for acquisitions
Rights & Obligations
Audit timeline 3 Date of Auditor's Report
Subsequently Discovered Facts
When a client company does not maintain it's own capital stock records, the auditors should obtain written confirmation from the transfer agent & registrar concerning....
The number of shares issued & outstanding
If market prices are not readily available for fair value measurements, management should use
Their own assumptions as long as there are no contrary data.
Loan covenants are used for ?
To protect the lender from the borrower's substantially weakening of the latter's financial position
Company bonds and stocks are normally handled by an intermediary called a
Transfer agent
Agent of a bond issuer who handles the administrative aspects of a loan and ensures that the borrower complies with the terms of the bond indenture
Trustee
Bond transactions are typically confirmed directly with _______.
Trustee
Hedging refers to
Using derivatives to protect companies from market uncertainties.
Financing Activities Substantive Procedure: Recalculate amortization of discount or premiums on debt
Valuation & Allocation
Audit timeline 2 Year End Date
-Completing Substantive Procedures -Attorney's Letters -Written Representations -Going-Concern Assessments -Adjust Journal Entries -Audit Documentation Review -Subsequent Events
Inherent risks of Investing & Financing Cycles
-Lease Accounting -Loan Covenants -Related-Party transactions -Complex Transactions -Impairments
Controls over making estimates include....
-Management communication of the need for proper accounting estimates. -Comparison of prior estimates with subsequent results. -consideration of whether estimates are consistent with the company's operational plans.
Estimates in the finance and investment cycle include
-Probability of a correlated hedge. -Classification of equity investments. -Actuarial assumptions for pension costs.
Audit timeline 4 Audit Report Release Date
-Subsequently Discovered Facts -Omitted Audit Procedures -Management Letter -Communications with those charged with governance
An important step in testing investments is to ensure all persons with access to investments are properly ________.
Bonded
A related party is a person or entity that
Can exert significant influence over or be influenced by the company
Notes payable to financial institutions are often confirmed together with the ________ accounts.
Cash
Financial planning usually starts with the
Cash flow forecast.
An audit team's purpose in reviewing the documentation concerning the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management's assertion about?
Classification
Financing Activities Substantive Procedure: Inquire & obtain representations from management. Read footnote disclosures & agree to debt instruments
Classification
Financing Activities Substantive Procedure: Calculate ratios & balances required by debt covenants
Completeness
Financing Activities Substantive Procedure: Confirmations with debt & equity holders, should include inquiry into other debts or equities not listed. Examine large cash receipts for related debt or equity transactions
Completeness
Investing Activities Substantive Procedure: Examine documentation for large expenditures. Confirm stock investments with brokerage
Completeness
What approach is most suitable for auditing the finance & investment cycle?
Gain an understanding of internal controls & perform extensive substantive procedures
Audit timeline 1 Beginning of the year
Interim testing -Test of Controls - Substantive Procedures
A clause in a loan agreement that is intended to keep the borrower's financial position at the same level it was when the loan was made is called a
Loan covenant.
All corporate capital stock transactions should ultimately be traced to the ....
Minutes of the meetings of the board of directors
