What are the inherent risks related to the valuation assertion for options/warrants related to equity. Please use the illustration below to help you answer this question. AssertionExistenceInherent RiskIssuances or sales are not authorized in accordance with organization's bylaws.Proceeds are not received.Stock issuances or sales are recorded in the wrong period.ValuationPresentation and disclosureCompletenessStock issued in exchange for goods or services is not properly valued.Equity activities are not properly disclosed in accordance with GAAP.All stock repurchased is not recorded as treasury stock.Treasury stock transactions are recorded in the wrong period.ValuationThe cost of treasury stock that is subsequently retired is not properly allocated amongthe appropriate accounts.ExistenceDividends may be recorded and paid before being declared.Dividends may not be properly approved before being declared.Dividends are recorded in the wrong period.ExistenceOptions/warrants are granted without being properly approvedInadequate records as to options/warrants issued but not exercised.Rights/obligationsValuationOptions exercised or expired remain on the organization's books.Option/warrant grants are not properly valued due to inappropriate assumptions ormodels.Inappropriate amortization methods are used.Inaccurate period of service is used.

Inherent risk refers to the risk which is presented through the omission as well as error in the…

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What are the inherent risks related to the valuation assertion for options/warrants related to equity.

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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Question

What are the inherent risks related to the valuation assertion for options/warrants related to equity. Please use the illustration below to help you answer this question.

Assertion
Existence
Inherent Risk
Issuances or sales are not authorized in accordance with organization's bylaws.
Proceeds are not received.
Stock issuances or sales are recorded in the wrong period.
Valuation
Presentation and disclosure
Completeness
Stock issued in exchange for goods or services is not properly valued.
Equity activities are not properly disclosed in accordance with GAAP.
All stock repurchased is not recorded as treasury stock.
Treasury stock transactions are recorded in the wrong period.
Valuation
The cost of treasury stock that is subsequently retired is not properly allocated among
the appropriate accounts.
Existence
Dividends may be recorded and paid before being declared.
Dividends may not be properly approved before being declared.
Dividends are recorded in the wrong period.
Existence
Options/warrants are granted without being properly approved
Inadequate records as to options/warrants issued but not exercised.
Rights/obligations
Valuation
Options exercised or expired remain on the organization's books.
Option/warrant grants are not properly valued due to inappropriate assumptions or
models.
Inappropriate amortization methods are used.
Inaccurate period of service is used.

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