Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 22, Problem 27DQP
(a).
To determine
Determine the purpose of each
(b).
To determine
Determine the misstatements that can be uncovered by use of each audit procedure.
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Students have asked these similar questions
The 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.
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.
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.
Chapter 22 Solutions
Auditing And Assurance Services
Ch. 22 - List four examples of interest-bearing liability...Ch. 22 - Prob. 2RQCh. 22 - Prob. 3RQCh. 22 - Prob. 4RQCh. 22 - Prob. 5RQCh. 22 - Distinguish between (a) tests of controls and...Ch. 22 - Prob. 7RQCh. 22 - Prob. 8RQCh. 22 - Prob. 9RQCh. 22 - Prob. 10RQ
Ch. 22 - Prob. 11RQCh. 22 - Prob. 12RQCh. 22 - Prob. 13RQCh. 22 - Prob. 14RQCh. 22 - Prob. 15RQCh. 22 - Explain the relationship between the audit of...Ch. 22 - Prob. 17.1MCQCh. 22 - Prob. 17.2MCQCh. 22 - Prob. 17.3MCQCh. 22 - Prob. 18.1MCQCh. 22 - Prob. 18.2MCQCh. 22 - Prob. 18.3MCQCh. 22 - Prob. 19.1MCQCh. 22 - Prob. 19.2MCQCh. 22 - Prob. 19.3MCQCh. 22 - Prob. 20DQPCh. 22 - Prob. 21DQPCh. 22 - Prob. 22DQPCh. 22 - Prob. 23DQPCh. 22 - Prob. 24DQPCh. 22 - Prob. 25DQPCh. 22 - Prob. 26DQPCh. 22 - Prob. 27DQPCh. 22 - Prob. 28DQPCh. 22 - Prob. 29DQPCh. 22 - Prob. 30DQP
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Similar questions
- 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_forwardWhich 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_forwardThe annual financial statements of all large, publicly owned corporations are audited.a. What is an audit of financial statements?b. Who performs audits?c. What is the purpose of an audit?arrow_forward
- In the normal course of performing their responsibilities,auditors often conduct audits or reviews of the following:1. Federal income tax returns of an officer of the corporation to determine whether heor she has included all taxable income in his or her return.2. Financial statements for use by stockholders when there is an internal audit staff.3. A bond indenture agreement to make sure a company is following all requirementsof the contract.4. Internal controls at a casino to ensure the casino is in compliance with federal andstate regulations.5. Computer operations of a corporation to evaluate whether the computer center isbeing operated as efficiently as possible.6. Annual statements for the use of management.7. Operations of the IRS to determine whether the internal revenue agents are usingtheir time efficiently in conducting audits.8. Statements for bankers and other creditors when the client is too small to have anaudit staff.9. Financial statements of a branch of the federal…arrow_forwardA well-financed audit client of a CPA firm invests large amounts in marketable securities. As part of its internal control, the company uses a monthly report of securities transactions. the report is prepared by the controller and presented to the investment committee of the board of directors. What information should this report contain?arrow_forwardWhich of the following engagement planning procedures would most likely assist the auditor in identifying related-party transactions before the balance-sheet date?a. Interviewing internal auditors about their reporting responsibilities.b. Reviewing accounting records for recurring transactions occurring near year-end.c. Inspecting communications with the client’s legal counsel regarding recorded contingentliabilities.d. Scanning the minutes for significant transactions with members of the board of directorsarrow_forward
- Describe the audit procedures you would use to learn about each of the situations listed. Begin by identifying all of the audit procedures you would use to learn about situation 1. (Select the 4 choices that apply.) A.Analyze legal expense for the period under audit and review invoices and statements of legal counsel for indications of contingent liabilities. B.Review records for unusual journal entries made to the equity accounts (Common stock and Retained earnings) subsequent to year-end. C.Discuss, specifically, any related party transactions with management and include information in letter of representation. D.Obtain letters from all major attorneys performing legal services for the client as to the status of pending litigation or other contingent liabilities. E.Confirm details of stock transactions with registrar and transfer agent. F.Review financial statements of affiliate, and where related party transactions are apparent, make direct…arrow_forwardThe auditor has a responsibility to design audit procedures to obtain sufficient and appropriate evidence. Apply two types of audit procedures that the auditor might use to support each of the following. i. Physical attendance at stock take ii. Valuation of accounts receivable iii. Balance in Bank iv. Authorised and paid-up share capital v. Accounts payablearrow_forwardJones was engaged to examine the financial statements of Gamma Corporation for the year ended June 30. Having completed an examination of the investment securities, which of the following is the best method of verifying the accuracy of recorded dividend income?a. Tracing recorded dividend income to cash receipts records and validated deposit slips.b. Performing analytical procedures and statistical sampling.c. Comparing recorded dividends with amounts appearing on federal information Form 1099.d. Comparing recorded dividends with a standard financial reporting service’s record of dividends.arrow_forward
- An auditor’s permanent file audit documentation most likely will containa. Internal control analysis for the current year.b. The most recent engagement letter.c. Memoranda of conference with management.d. Excerpts of the corporate charter and bylaws.arrow_forwardIn the normal course of performing their responsibilities, auditors often conduct audits or reviewsof the following:1. The computer operations of a large corporation to evaluate whether the internal controlsare likely to prevent misstatements in accounting and operating data.2. Financial statements for use by stockholders when there is an internal audit staff.3. A bond indenture agreement to make sure a company is following all requirements of thecontract.4. Internal controls at a casino to ensure the casino is in compliance with federal and stateregulations.5. Computer operations of a corporation to evaluate whether the computer center is beingoperated as efficiently as possible.6. Annual statements for the use of management.7. Operations of the IRS to determine whether the internal revenue agents are using theirtime efficiently in conducting audits.8. Statements for bankers and other creditors when the client is too small to have an auditstaff.9. Financial statements of a branch of…arrow_forwardIn 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.arrow_forward
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