AT.16 Audit of Financing, Investing, Cash Balances, and Closing Process

When a company maintains its own records of stock transactions and outstanding stock, system of internal controls must be adequate to ensure that

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actual owners are recorded in the bylaws.

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the correct amount of dividends is paid to stockholders owning the stock on the dividend record date.

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the correct amount of dividends is paid to stockholders owning the stock on the declaration date.

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actual owners are recorded in the minutes.

Correct answer: the correct amount of dividends is paid to stockholders owning the stock on the dividend record date.

When verifying if capital stock is accurately recorded,

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the ending balance in the account does not need to verified.

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the number of shares outstanding at the balance sheet date is verified by examining the corporate minutes.

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the recorded par value can be determined by multiplying the number of shares by the market price of the stock.

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a confirmation from the transfer agent is the simplest way to verify the number of shares outstanding at the balance sheet date.

Correct answer: a confirmation from the transfer agent is the simplest way to verify the number of shares outstanding at the balance sheet date.

The audit objective that requires that existing notes payable be included in the notes payable schedule is satisfied by performing which of the following audit procedures?

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Confirm notes payable.

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Trace the total of the notes payable schedule to the general ledger.

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Review the notes payable schedule to determine whether any are related parties.

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Review the bank reconciliation for new notes credited directly to the bank account by the bank.

Correct answer: Review the bank reconciliation for new notes credited directly to the bank account by the bank.

The record of the outstanding shares at any given time is maintained in the

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corporate directory.

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stock certificate books.

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schedule of stock owners.

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shareholders' capital stock database.

Correct answer: shareholders' capital stock database.

The tests of details of balances procedure which requires the auditor to examine notes paid after year-end to determine whether they were liabilities at the balance sheet date is an attempt to satisfy the audit objective of

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existence.

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completeness.

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accuracy.

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classification.

Correct answer: completeness.

The two most important balance-related audit objectives for notes payable are

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completeness and detail tie-in.

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completeness and valuation.

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accuracy and valuation.

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accuracy and completeness.

Correct answer: accuracy and completeness.

Performance materiality is often set at a(n) ________ level for notes payable.

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high

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moderate

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low

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unknown

Correct answer: low

The audit objective that requires the auditor to determine that notes payable on the notes payable schedule are properly classified can be tested by performing the procedure to

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confirm notes payable.

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examine corporate minutes for loan approval.

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examine notes, minutes, and bank confirmations for restrictions.

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review the notes to determine whether any are with related parties.

Correct answer: review the notes to determine whether any are with related parties.

Which of the following is an accurate statement regarding the audit of the capital acquisition and repayment schedule?

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When system of internal controls over notes payable are deficient, auditors are required to confirm the notes payable.

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As auditors perform tests of details of balances for balance-related audit objectives, the evidence obtained helps satisfy the notes payable presentation and disclosure requirements.

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The normal starting point for the audit of notes payable is a list of fixed asset acquisitions.

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The schedule of notes payable and accrued interest must be prepared regardless of the number of transactions involved.

Correct answer: As auditors perform tests of details of balances for balance-related audit objectives, the evidence obtained helps satisfy the notes payable presentation and disclosure requirements.

If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock

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surrendered and canceled during the year.

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authorized at the balance sheet date.

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issued and outstanding at the balance sheet date.

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sold at a price above par during the year.

Correct answer: issued and outstanding at the balance sheet date.

Which of the following statements is correct regarding the capital acquisition and payment cycle?

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Bonds are frequently issued by companies in small amounts.

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There are relatively few transactions and each transaction is typically highly material.

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A primary emphasis in auditing debt is on existence.

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Audit procedures for notes payable and interest income are often performed simultaneously.

Correct answer: There are relatively few transactions and each transaction is typically highly material.

In auditing debits and credits to retained earnings, other than net income and dividends, the auditors first concern is

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whether the transactions should have been included in retained earnings.

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whether the transactions have been accurately recorded.

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whether the transactions are classified correctly in the footnotes.

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whether the transactions existed as of the balance sheet date.

Correct answer: whether the transactions should have been included in retained earnings.

To determine if notes payable is included in the proper period, the auditor should

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trace the cash received from the issuance to the accounting records.

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examine duplicate copies of notes to determine whether the notes were dated on or before the balance sheet date.

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examine duplicate copies of notes for principal and interest rates.

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trace the individual notes payable to the database.

Correct answer: examine duplicate copies of notes to determine whether the notes were dated on or before the balance sheet date.

Common hybrid securities do not include which of the following?

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treasury stock

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certain types of preferred stock

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convertible debt

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redeemable debt

Correct answer: treasury stock

Responsibility for the issuance of new notes payable would normally be vested in the

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board of directors.

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purchasing department.

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accounting department.

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accounts payable department.

Correct answer: board of directors.

Any company with stock listed on a securities exchange is required to engage a(n)

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equity analyst.

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stock transfer agent.

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independent registrar.

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equity placement specialist.

Correct answer: independent registrar.

The auditor's independent estimate of interest expense from notes payable uses average interest rates and

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average notes payable outstanding.

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year-end notes payable outstanding.

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only notes payable above the level of materiality.

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only notes payable to major lenders.

Correct answer: average notes payable outstanding.

All corporations must have

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preferred stock.

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capital stock.

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paid-in capital in excess of par.

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dividends payable.

Correct answer: capital stock.

The primary audit objectives to focus on when auditing accounts in the capital acquisition and repayment cycle are

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accuracy and completeness.

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accuracy and existence.

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completeness and valuation.

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accuracy and valuation.

Correct answer: accuracy and completeness.

When auditing interest-bearing debt, the auditor should ________ verify the related interest expense and interest payable.

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not

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attempt to

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simultaneously

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never

Correct answer: simultaneously

Which of the following statements is correct regarding the audit of dividends?

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The emphasis is on the ending balance in the dividends account.

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When auditors verify that the dividends are paid to stockholders that exist, they are concerned with the completeness objective.

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If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed.

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All of the above are correct statements.

Correct answer: If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed.

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

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to determine whether system of internal controls are adequate

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to determine whether client's financing arrangements are effective and efficient

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to determine whether transactions regarding the principal and interest of notes are properly authorized

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to determine whether the liability for notes and related interest expense and accrued liabilities are properly stated

Correct answer: to determine whether client's financing arrangements are effective and efficient

Which of the following audit tests would provide evidence regarding the balance-related audit objective of existence for an audit of notes payable?

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Examine due dates on duplicate copies of notes.

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Examine balance sheet for proper presentation and disclosure of notes payable.

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Examine corporate minutes for loan approval.

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Foot the notes payable list for notes payable and accrued interest.

Correct answer: Examine corporate minutes for loan approval.

What type of audit test will auditors use when testing to see if the amounts of capital stock transactions are accurately recorded?

	Tests of details of balances	Substantive tests of transactions	Tests of controls
A.	No	Yes	Yes
B.	Yes	No	Yes
C.	No	Yes	No
D.	Yes	No	No

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Choice A

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Choice B

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Choice C

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Choice D

Correct answer: Choice D

Which of the following owners' equity transactions usually require specific authorization from a company's board of directors?

	Repurchase of common stock	Issuance of common stock	Declaration of dividends
1.	Yes	Yes	Yes
2.	Yes	Yes	No
3.	No	Yes	No
4.	No	No	Yes

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Choice 1

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Choice 2

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Choice 3

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Choice 4

Correct answer: Choice 1