Ch 10 Connect Quiz

A related party is a person or entity that... Has a family tie to a management member. Can exert significant influence over or be influenced by the company. Does business with the company. Is a member of the company's management team or board of directors.

Can exert significant influence over or be influenced by the company.

The auditors should insist that a representative of the client be present during the inspection and count of securities to... Coordinate the return of all securities to proper locations. Lend authority to the auditors' directives. Acknowledge the receipt of securities returned. Detect forged securities.

Acknowledge the receipt of securities returned.

Which of the following questions would auditors most likely include on an internal control questionnaire for notes payable? Are the proceeds from notes payable used to purchase noncurrent assets? Are assets that collateralize notes payable critically needed for the entity's continued existence? Are two or more authorized signatures required on checks that repay notes payable? Are direct borrowings on notes payable authorized by the board of directors?

Are direct borrowings on notes payable authorized by the board of directors?

An audit plan for the examination of the retained earnings account should include a step that requires verification of the... (2 answers) Market value used to charge retained earnings to account for a 2-for-1 stock split. Approval of the adjustment to the beginning balance as a result of a write-down of account receivables. Authorization for both cash and stock dividends declared and paid. Gain or loss resulting from disposition of treasury shares.

Authorization for both cash and stock dividends declared and paid. Gain or loss resulting from disposition of treasury shares.

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 assertions about... Existence. Completeness. Valuation. Classification.

Classification

In auditing for unrecorded long-term bonds payable, an audit team most likely will... Confirm the existence of individual bondholders at year-end. Perform analytical procedures on the bond premium and discount accounts. Compare interest expense with the bond payable amount for reasonableness. Examine documentation of assets purchased with bond proceeds for liens.

Compare interest expense with the bond payable amount for reasonableness.

Jones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income? Comparing recorded dividends with a standard financial reporting service's record of dividends. Performing analytical procedures and statistical sampling. Comparing recorded dividends with amounts appearing on federal information Form 1099. Tracing recorded dividend income to cash receipts records and validated deposit slips.

Comparing recorded dividends with a standard financial reporting service's record of dividends.

Which of the following audit procedures would not likely be performed for audits of investments? Confirm investments with broker or trustee. Read board of directors' minutes for authorization of investment strategies. Confirm investments with registrar. Compare valuation to published market prices.

Confirm investments with registrar.

An audit plan to examine long-term debt most likely would include steps that require... Correlating interest expense recorded for the period with outstanding debt. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. Verifying the existence of the holders of the debt by direct confirmation. Comparing the carrying amount of held-to-maturity securities with their year-end market values.

Correlating interest expense recorded for the period with outstanding debt.

Which of the following is not a relevant aspect of internal controls over estimates? External auditor involvement in developing assumptions Adequate review by appropriate levels of authority Comparison of prior estimates with subsequent results All the above are relevant aspects of internal controls over estimates.

External auditor involvement in developing assumptions

An audit team would most likely verify the interest earned on bond investments by... Confirming the bond interest rate with the issuer of the bonds. Recomputing the interest earned on the basis of face amount, interest rate, and period held. Testing internal controls relevant to cash receipts. Vouching the receipt and deposit of interest checks.

Recomputing the interest earned on the basis of face amount, interest rate, and period held.

When a client company does not maintain its own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerning... Guarantees of preferred stock liquidation value. Restrictions on the payment of dividends. The number of shares issued and outstanding. The number of shares subject to agreements to repurchase.

The number of shares issued and outstanding.

Loan covenants are used for which of the following reasons? To protect the lender from the borrower's substantially weakening of the latter's financial position. To protect the auditors from false information by the borrower. To protect shareholders from management taking on too much debt. To protect the borrower from the lender's calling the loan early.

To protect the lender from the borrower's substantially weakening of the latter's financial position.

When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if the... Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records. Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities. Securities are registered in the name of the trust company rather than the entity itself. The trust company places the securities in a bank safe deposit vault under the custodian's exclusive control.

Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.

The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense in the financial statements is to... detect unrecorded liabilities. evaluate internal control over securities. ascertain the reasonableness of imputed interest. determine the validity of prepaid interest expense.

detect unrecorded liabilities.