Audit - Ch 15

Outside specialists are often consulted to ensure that long-term debt is properly ______.

valued

When an account contains sensitive information the auditor generally ______ analyze the recorded transactions in detail.

will

Normal sources of information for stockholders' equity disclosures include ______.

- board of directors' meeting minutes - contractual agreements - the corporate charter

Features that long-term debt may have include that the debt may be ______.

- combined with warrants or options - convertible into stock - callable

When a substantive strategy is followed to audit long-term debt, the assertions that are of primary concern to the auditor are ______.

- completeness - occurrence - authorization

When an auditor analyzes the transactions included in certain revenue and expense accounts such as other income, travel and entertainment or charity expense in detail, the accounts generally ______.

- contain detailed information needed for the tax return - contain sensitive information - are not directly affected by a business process

When auditing retained earnings, an auditor ______

- ensures are necessary disclosures are in the footnotes - agrees the beginning balance to prior year's working papers - traces net income or loss to the income statement - trace appropriations to the relevant contractual agreements

The valuation issue for capital stock transactions is considered complex when capital stock is issued ______.

- in exchange for services - as part of a merger

Small stock dividends are recorded at the _________ value of the stock and large stock dividends are recorded at the _________ value of the stock.

- market or Fair - par

Stockholders' equity transactions that will likely result in an outflow of cash include the ______.

- payment of dividends - repurchase of stock

Common disclosures for long-term debt include ______.

- related-party transactions - revolving lines of credit - restrictive debt covenants

Appropriate segregation of duties for stockholders' equity is demonstrated when the individual ______.

- responsible for maintaining the detailed stockholders' records does not process cash receipts or disbursements - with no accounting responsibilities is responsible for issuing, transferring, and canceling stock certificates

Transactions recorded directly to retained earnings include ______.

- stock retirements - prior-period adjustments - correction of errors

Stock issuances, stock repurchases, and dividends should be recorded by the ________ department at an amount that conforms to ________.

- treasurer - GAAP

Which of the following provides assurance that the entity has controls in place over occurrence and authorization of long-term debt?

A properly signed lending agreement is available.

True or false: All valid capital-stock transactions must be approved by the chief executive officer (CEO).

False Reason: The approval must come from the board of directors.

To verify occurrence for stockholders' equity the auditor should verify that stock and dividend transactions ______.

are valid and comply with the corporate charter

Which of the following transactions impacts retained earnings?

Stock dividends

True or false: Auditors use the corporate charter and minutes of meetings of the board of directors to ensure the completeness of disclosures for stockholders' equity.

True Reason: These along with contractual agreements can be used.

True or false: The auditing standard on the consideration of fraud risk indicates the auditor should presume that there is a risk of material misstatement due to fraud relating to revenue recognition.

True Reason: This should ordinarily be done.

An auditor compares the payee names and amounts on individual canceled dividend checks with the stock register or stock certificate book due to concerns ______.

about the entity's controls over dividend disbursements

Auditor reconciliation of stockholders' records with the number of shares outstanding is a control activity for the assertion of ________

accuracy

When an auditor reconciles the number of shares outstanding with stockholder records and dividends paid with the total shares outstanding on the dividend record date (s)he is most likely testing for ______.

accuracy

The entity should maintain detailed records of long-term debt transactions to ensure ______.

all borrowings and repayments are recorded

The minutes of board of director's meetings normally documents __________ for stock and dividend transactions.

authorization

When the allowance for doubtful accounts is audited, ________ _______ expense is also tested.

bad debt

The major issue with proper _______ of debt is that controls are in place to ensure that the portion of long-term debt due within the next year is recorded as a short-term liability.

classification

When an entity doesn't have enough personnel to fully segregate all duties associated with stockholders' equity, there should be ______.

compensating management review controls in place

When the debt amount recorded in the subsidiary ledger is reconciled to the general ledger account regularly, the auditor gains assurance of ______.

completeness

Issuing costs of debt should be recorded as ______.

deferred charges

Substantive analytical procedures designed to provide evidence regarding the fairness of a revenue account should be conducted at a sufficiently _______ level to detect potential misstatements.

disaggregated

To verify accuracy for stockholders' equity the auditor should verify that stock and dividend transaction ______.

have been properly posted and summarized in the accounting records

The auditor likely to follow a reliance strategy during the audit of long-term debt when the ______.

entity engages in frequent financing activities

The assessment of proper valuation of capital stock is considered straightforward when capital stock is issued ______.

for cash

When auditing notes receivable, the auditor can test _______ income.

interest

The authorization for stock and dividend transactions is normally found in the ______.

minutes of board of director's meeting

The auditor has evidence that the total number of shares outstanding at the end of the year is correct when the ______.

number of shares listed as outstanding on a confirmation from a registrar reconciles to the general ledger capital-stock account

Controls to ensure that any transactions involving long-term debt are properly initiated by authorized individuals relate to ______.

occurrence

Having an entity's officer ensure every stock or dividend transaction complies with the corporate charter or any regulatory requirements affecting the entity provides support for the __________ assertion.

occurrence

When considering material misstatement due to fraud regarding revenue recognition, auditing standard indicate the auditor should ______.

ordinarily presume there is a risk of material misstatement due to fraud

The auditor must test the design and operating effectiveness of key controls over stockholders' equity for ______ companies.

public

To test the valuation assertion for stockholders' equity the auditor can ______.

recompute the recording of the stock and dividend transactions

The auditor can recompute the dividend amount by multiplying the number of shares outstanding on the _________ date with the amount of the per-share dividend approved by the board of directors.

record

The auditor traces net income or loss to the income statement, verifies cash or stock dividends and traces new or changed appropriations to contractual agreements when auditing _________ _________

retained earnings

A pool of money set aside to repay debt or repurchase a portion of existing bonds every year is called a(n) ___________ _________

sinking fund

Because the number of transactions is usually small and the value is often large, a(n) __________ strategy is normally used to audit stockholders' equity.

substantive

For many entities where the auditor is not required to test internal controls over financial reporting, it is more efficient for the auditor to follow a(n) ____________ strategy when auditing long-term debt.

substantive

The auditor needs sufficient understanding of the entity's internal control system over debt to be able to anticipate the types of misstatements that may occur when a(n) ______ strategy is followed to audit long-term debt.

substantive

The auditor needs sufficient understanding of the entity's internal control system over debt to be able to anticipate the types of misstatements that may occur when a(n) ____________ strategy is followed to audit long-term debt.

substantive

When an auditor compares the current year's dollar amount for service revenue with the prior year's balance and investigates any material deviations, they are performing a ______.

substantive analytical procedure

The individual who maintains the stockholders' ledger should be ______.

the entity officer who ensures compliance of every stock and dividend transaction

The reacquisition of a company's own stock is referred to as ______ stock.

treasury