Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 20, Problem 17.2MCQ
To determine
Identify the action of the auditor.
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In performing tests concerning the granting of stock options, an auditor should(1) confirm the transaction with the Secretary of State in the state of incorporation.(2) verify the existence of option holders in the entity’s payroll records or stock ledgers.(3) determine that sufficient treasury stock is available to cover any new stock issued.(4) trace the authorization for the transaction to a vote of the board of directors.
Which of the following audit procedures would be most relevant when examiningthe completeness transaction-related audit objective for capital stock?(1) The auditor examines minutes of the board of directors’ meetings to identifyany actions involving the issuance of capital stock.(2) The auditor vouches entries in the client’s capital stock records to board minutes.(3) Confirmations of new stock issuances are sent to the client’s stock transfer agent.(4) The auditor traces entries of new stock issuances to the cash receipts journal.
In establishing the existence and ownership of an investment held by a corporationin the form of publicly traded stock, an auditor should inspect the securities or(1) obtain written representations from management confirming that the securitiesare properly classified as trading securities.(2) inspect the audited financial statements of the investee company.(3) confirm the number of shares owned that are held by an independent custodian.(4) determine that the investment is carried at the lower of cost or market.
Chapter 20 Solutions
Auditing And Assurance Services
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Distinguish among a payroll master file, a W-2...Ch. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16.1MCQCh. 20 - Prob. 16.2MCQCh. 20 - Prob. 16.3MCQCh. 20 - Prob. 17.1MCQCh. 20 - Prob. 17.2MCQCh. 20 - Prob. 17.3MCQCh. 20 - Prob. 18.1MCQCh. 20 - Prob. 18.2MCQCh. 20 - Prob. 18.3MCQCh. 20 - Prob. 19DQPCh. 20 - Prob. 20DQPCh. 20 - Prob. 21DQPCh. 20 - Prob. 22DQPCh. 20 - Prob. 23DQPCh. 20 - Prob. 24DQPCh. 20 - Prob. 25DQPCh. 20 - Prob. 26DQPCh. 20 - Prob. 27DQPCh. 20 - Prob. 28C
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- 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.arrow_forwardIn testing the valuation of the company's quoted investments in stocks measured at fair value, the auditor would most likely perform the following: Group of answer choices a.Obtain the market price of the investments in stocks b.Obtain representation from the management's expert. c.Send confirmation letter's to the company's trading agent. d.Engage the auditor's expert. You were assigned to audit the bond investments of JIHUZ company. The company maintains the records and custody of its certificates, thus you have decided to conduct a count of securities to test the existence assertion. You have asked that a person from JIHUZ company should accompany you during the count. Why is this important? a.To detect fraudulent securities b.So that the company representative may assist you during the count c.To acknowledge any variances during the inspection. d.So that the inspection of securities will be conducted in an efficient manner. The treasury department…arrow_forwardThe following audit procedures are commonly performed by auditors in the verification of owners’ equity: 1.Review articles of incorporation and bylaws for provisions about owners’ equity. 2.Analyze all owners’ equity accounts for the year and document the nature of any recorded change in each account. 3.Confirm capital stock transactions with the stock registrar and transfer agent. 4.Confirm shares issued and outstanding with the stock registrar and transfer agent. 5.Review the minutes of the board of directors’ meetings for the year for approvals related 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. Required State the purpose of each of these seven audit procedures. List the type of misstatements the auditors can uncover by the use of each audit procedure.arrow_forward
- 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.arrow_forwardIn testing the valuation of the company's quoted investments in stocks measured at fair value, the auditor would most likely perform the following: a. Obtain the market price of the investments in stocks b. Obtain representation from the management's expert. c. Send confirmation letter's to the company's trading agent. d. Engage the auditor's expert.arrow_forwardThe 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.arrow_forward
- In testing the valuation of the company's quoted investments in stocks measured at fair value, the auditor would most likely perform the following: Obtain the market price of the investments in stocks Obtain representation from the management's expert. Send confirmation letter's to the company's trading agent. Engage the auditor's expert.arrow_forwardIn testing the valuation of the company's quoted investments in stocks measured at fair value, the auditor would most likely perform the following: Group of answer choices Obtain the market price of the investments in stocks Obtain representation from the management's expert. Send confirmation letter's to the company's trading agent. Engage the auditor's expert.arrow_forwardDuring the auditor's risk assessment procedures, a meeting was held together with the company's management. During the meeting, management has discussed that the company recently acquired bond securities from various government agencies and publicly listed shares. In light of this, the audit senior asked the management about the company's investment policy, risk appetite and investment objectives. The audit senior's inquiry would most likely address which assertion? a. Rights and obligations b. Occurence c. Completeness d. Valuationarrow_forward
- Following are typical questions that might appear on an internal control questionnaire for investments in marketable securities. Is custody of investment securities maintained by an employee who does not maintain the detailed records of the securities? Are securities registered in the company name? Are investment activities reviewed by an investment committee of the board of directors? Describe the manner in which each of the above procedures might be tested.arrow_forwardDuring 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.arrow_forwardIn performing risk assessment procedures for investments, an auditor may inquire of the client personnel which of the following questions? a. Are investment securities acquisitions and disposals properly authorized by the board of directors? b. Is access to investment securities restricted to at least two authorized officials? c. All of the choices. d. Are the duties of authorization, custody, recording keeping and valuation of investment securities transactions segregated?arrow_forward
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