[Escala] Chapter 31 - Substantive Test of Shareholder's Equity

In the audit of a medium sized manufacturing concern, which one of the following areas would be expected to acquire the least amount of audit time?

A. Owner's equity

Which of the following assertions is least likely considered by the auditor in an audit of shareholder's equity?

D. Rights and obligations

Because of the limited number of transactions involved in shareholder's equity items, the auditor normally asses control risk at the maximum level and performs.

B. Detailed test of transactions.

A registrar/transfer agent system relating to capital stock is most likely used by:

B. A large publicly traded company.

An auditor usually obtains evidence of stockholders' equity transactions by reviewing the entity's ____.

A. Minutes of board of directors meeting.

Changes in capital stock accounts should normally be approved by ___.

A. The board of directors.

Which of the following is the most important consideration of an auditor when examining the stockholders' equity section of a client's statement of financial position?

D. Entries in the capital stock account can be traced to resolution in the minutes of the board of director's meeting.

Which of the following procedures is least likely in the audit of capital stock?

A. Examine all outstanding stock certificates for completeness.

For a large publicly traded client the auditor's examination of capital stock accounts will not normally include ___.

D. Reconciliation of a stock certificate book with the general ledger.

Which of the following is correct in confirming shareholder's equity items to independent registrar and stock transfer agent?

C. The confirmation request should be written under the client's letterhead and mailed by the auditor.

When the client of a CPA firm does not maintain its own shareholder records, the auditor should obtain written confirmation from the transfer agent and registrar concerning ___.

D. The type and number of shares issued and outstanding.

Company A does not employ an independent stock transfer agent,bbut rather issues its own stock and maintains its stock records. When outstanding shares are transferred from one holder to another the certificate of the selling shareholder should be ___.

A. Canceled (generally by perforation) and attached to the certificate book.

An audit program for the examination of the retained earnings to account should include a step that requires verification of the ___.

C. Authorization for both cash and stock dividends.

In auditing retained earnings, the following item does not concern the auditor even if it was not approved by the BOD?

D. Changes in retained earnings due to closing of net income.

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedures most likely is intended to verify management's assertion of ___.

D. Presentation and disclosure

Which of the following transactions is an auditor most likely to examine when auditing the retained earnings account?

B. Correcting an error in depreciation in a prior year.

The audit program for acquired treasury stock will normally include ___.

B. Inspection of certificates.

An auditor should trace corporate stock issuances and treasury stock transaction to the ___.

D. Minutes of the board of directors.

When an auditing treasury shares, one objective of the auditor includes checking whether ___.

D. Retained earnings were restricted for the amount of issue price of the treasury shares.

Footing the shares outstanding in the stock register and comparing the total to shares outstanding in the general ledger stock amount addresses the audit objective of ___.

A. Completeness