CHAPTER 10 QUIZ

Which ASB balance assertion is of the most importance to auditors for long-term liabilities? Existence Rights and obligations Completeness Valuation

Completeness

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

Correlating interest expense recorded for the period with outstanding debt.

Inspecting marketable securities provides primary evidence about the ASB balance assertion of Valuation. Rights and obligations. All of the choices are correct Existence.

Existence

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 Guarantee. Loan Covenant Collateral. Indenture.

Loan Covenant

Which of the following would not be a typical feature of management's control over the production of estimates? Preparation of estimates by qualified personnel Review by the independent auditor Accumulation of relevant, sufficient, and reliable data Consideration by management of whether particular accounting estimates are consistent with the company's operational plans

Review by the independent auditor

Which of the following assertions is most likely to have the highest risk of material misstatement for the goodwill account? Existence Completeness Rights & Obligations Valuation

Valuation

Related party transactions: must be assumed to be valued differently than if they were arm's length. must be disclosed in the financial statements and the auditor's report. must be valued as if they were arm's length. must be disclosed in the financial statements.

must be disclosed in the financial statements.

Goodwill impairment refers to A need for increased professional skepticism. A decline in value of recorded goodwill. The amount of amortization. Loss of trust from customers.

A decline in value of recorded goodwill.

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 direct borrowings on notes payable authorized by the board of directors? Are two or more authorized signatures required on checks that repay notes payable? Are assets that collateralize notes payable critically needed for the entity's continued existence?

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

Which of the following audit procedures would not likely be performed for audits of shareholders' equity? Read board of directors' minutes for authorization of equity transactions. Confirm outstanding common and preferred stock with stock registrar. Compare valuation of stock to published market prices. Obtain management representation about number of shares issued and outstanding.

Compare valuation of stock to published market prices.

If it would be appropriate to confirm capital stock, the auditor would obtain the confirmation from: stockholders. management. the board of directors. an independent registrar.

an independent registrar.

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: the number of shares issued and outstanding. restrictions on the payment of dividends. the number of shares subject to agreements to repurchase. guarantees of preferred stock liquidation value.

the number of shares issued and outstanding.

In auditing intangible assets, an auditor most likely would review or recompute amortization and determine whether the amortization period is reasonable in support of the ASB balance assertion of: existence. completeness. valuation. rights and obligations.

valuation