AUDIT OF SHAREHOLDERS EQUITY Flashcards
(13 cards)
Tests in the audit of shareholders’ equity typically include all of the following, except
A. Determining that dividend declarations comply with debt agreements.
B. Verifying the authorization of dividends by inspecting the board of directors’ minutes of
meetings.
C. Tracing individual dividend payments to the capital stock records.
D. Reviewing the bank reconciliation for the imprest dividend account.
C
In an examination of shareholders’ equity, an auditor is most concerned that
A. Capital stock transactions are properly authorized.
B. Stock splits are capitalized at par or stated value on the dividend declaration date.
C. Dividends during the year under audit were approved by the shareholders.
D. Changes in the accounts are verified by a bank serving as a registrar and stock transfer
agent.
A
In an audit of a medium-sized manufacturing concern, which one of the following areas can
be expected to require the least amount of audit time?
A. Owner’s equity
B. Assets
C. Revenue
D. Liabilities
A
When a corporate client maintains its own stock records, the auditor primarily will rely upon
A. Confirmation with the company secretary of shares outstanding at year-end.
B. Review of the corporate minutes for data as to shares outstanding.
C. Confirmation of the number of shares outstanding at year-end with the appropriate state
official.
D. Inspection of the stock book at year-end and accounting for all certificate numbers.
D
Choose the correct statement.
A. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning restrictions on the
payment of dividends.
B. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning the number of
shares issued and outstanding.
C. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning guarantees of
preference share liquidation value.
D. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning the number of
shares subject to agreements to repurchase.
B
With respect to treasury shares, the auditor should not object to which of the following?
A. Restrictions on retained earnings have not been met.
B. Dividends have been paid on treasury shares.
C. The treasury share certificates have been destroyed.
D. Treasury shares are recorded at cost rather than par value.
D
A client company declared and paid a stock dividend. Its independent external auditor
should determine that
A. Shareholders received their additional shares by confirming year-end holdings with
them.
B. The stock dividend was properly recorded by means of a memorandum entry only.
C. The officers authorized the issuance of the stock dividend.
D. Appropriate amounts were transferred from retained earnings to share capital and share
premium.
D
During an audit of an entity’s shareholders’ equity accounts, the auditor determines whether
there are restrictions on retained earnings resulting from loans, agreements, or law. This
audit procedure most likely is intended to verify management’s assertion of
A. Existence
B. Completeness
C. Valuation
D. Presentation and disclosure
D
Which of the following statements is correct?
A. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is always required.
B. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is required when the company classifies treasury shares with
other assets.
C. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is not required if the treasury share is a deduction from
shareholders’ equity.
D. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is required when the company had treasury share transactions
during the year.
A
In performing tests concerning the granting of stock options, an auditor should
A. Confirm the transaction with the Securities and Exchange Commission.
B. Verify the existence of option holders in the entity’s payroll records or stock ledgers.
C. Determine that sufficient treasury stock is available to cover any new stock issued.
D. Trace the authorization for the transaction to a vote of the board of directors.
D
The auditor does not expect the client to debit retained earnings for which of the following
transactions?
A. A 10% stock dividend.
B. An appropriation of retained earnings for treasury shares.
C. A large stock dividend.
D. A four-for-one stock split.
D
Where no independent stock transfer agents are employed and the corporation issues its
own stocks and maintains stock records, cancelled stock certificates should
A. Not be defaced, but segregated from other stock certificates and retained in a cancelled
certificates file.
B. Be destroyed to prevent fraudulent reissuance.
C. Be defaced and sent to the Secretary of the Department of Finance.
D. Be defaced to prevent reissuance and attached to their corresponding stubs.
D
