In auditing the retained earnings, the following items does not concern the auditor even if it was not approved by the Board of Directors. a. Issuance of convertible debt securities b. Issuance of redeemable preferred shares c. Declaration of 20% share dividends d. Changes in retained earnings due to closing of net income

In auditing the retained earnings, the following items does not concern the auditor even if it was not approved by the Board of Directors. a. Issuance of convertible debt securities b. Issuance of redeemable preferred shares c. Declaration of 20% share dividends d. Changes in retained earnings due to closing of net income

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter13: Auditing Debt Obligations And Stockholders’ Equity Transactions

Section: Chapter Questions

Problem 22MCQ

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Which of the following may not be included in a typical audit program for auditing Retained Earnings? Group of answer choices Reference to market quotations for the granting of share options to employees. Determination of the effect of a change in policy regarding the use of average cost formula for inventories for the current year, where the entity previously elected the first-in-first-out cost formula. Reference to market quotations for the declaration of a 10% stock dividends. Reference to fair market value of real property declared as property dividends.
Which of the following audit procedures would not likely be performed for audits of shareholders’ equity?a. Read board of directors’ minutes for authorization of equity transactions.b. Confirm outstanding common and preferred stock with stock registrar.c. Compare valuation of stock to published market prices.d. Obtain management representation about number of shares issued and outstanding.
Which of the following may not be included in a typical audit program for auditing Retained Earnings? a. Reference to market quotations for the granting of share options to employees. b. Reference to fair market value of real property declared as property dividends. c. Determination of the effect of a change in policy regarding the use of average cost formula for inventories for the current year, where the entity previously elected the first-in-first-out cost formula. d. Reference to market quotations for the declaration of a 10% stock dividends.
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 procedure most likely is intended to verify management’s assertion ofa. Existence or occurrence.b. Completeness.c. Valuation or allocation.d. Presentation and disclosure.
Which of the following is the most important audit consideration when examining the stockholders’ equity section of a client’s balance sheet?a. Changes in the capital stock account are verified by an independent stock transfer agent.b. Stock dividends and stock splits during the year under audit were approved by the stockholders.c. Stock dividends are capitalized at par or stated value on the dividend declaration date.d. Entries in the capital stock account can be traced to resolutions in the minutes of meetings of the board of directors.
Your audit team is reviewing the third-quarter financial statements of smirks Inc. a publicly traded company the audit manager Jason thinks the client may have omitted an important item and has asked you to research whether interim financial statements are required to include earnings per share amounts prepare an email respond to Jason's question, or any other potential ramifications of smirks inks omission that come to mind which you can offer to research. 4.10
Management informed the auditor that they erroneously charged the acquisition of SMC shares to the account “Marketable Securities” when they never had any intention to dispose of this when in need of cash. These shares should be treated as securities @ FVOCI – noncurrent. The company recorded a 20,000 decline in market value of these shares and charged this to operating expenses. Requirement: Prepare adjusting entries
Which of the following transactions will not have a direct effect on a company's Retained Earnings account? * Acquisition of Treasury Share at cost Higher than Ordinary Share Capital Fair Value Exchange of Building for an Equipment where the fair value of the building exchanged is lower than the fair value of the equipment acquired Declaration and Issuance of Small Stock Dividend Declaration and Issuance of Large Stock Dividend In auditing the retained earnings, the following items does not concern the auditor even if it was not approved by the Board of Directors. * Issuance of convertible debt secutiries Issuance of redeemable preferred shares Changes in re9tained earnings due to closing of net income Declaration of 20% share dividends Total shareholder's Equity is not affected by the transactions below, except: * Appropriation of Retained Earnings to be used for plant expansion Acquisition of Treasury Shares at cost lower than fair value of Ordinary Share Capital Payment of Cash…
IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTION TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. The internal audit reports to the chairman of the board who is a minority stockholder. Does it have a: A. INCREASE effect B. DECREASE effect C. NO EFFECT effect
The auditors join client stock take at the year end and see whether the way that they count is in the correct procedures or not. This procedure is an example of: * Observation Inquiry Inspection of tangible assets O Inspection of records and documents
The following audit procedures are commonly performedby auditors in the verification of owners’ equity:1. Review the articles of incorporation and bylaws for provisions about owners’ equity.2. Analyze all owners’ equity accounts for the year and document the nature of anyrecorded change in each account.3. Account for all certificate numbers in the capital stock book for all shares outstanding.4. Examine the stock certificate book for any stock that was cancelled.5. Review the minutes of the board of directors’ meetings for the year for approvalsrelated to owners’ equity.6. Recompute earnings per share.7. Review debt provisions and senior securities with respect to liquidation preferences,dividends in arrears, and restrictions on the payment of dividends or the issue of stock.a. State the purpose of each of these seven audit procedures.b. List the type of misstatements the auditors can uncover by the use of each auditprocedure.
Explain the relationship between the audit of owners’ equityand the calculations of earnings per share. What are the main auditing considerations inverifying the earnings per share figure?