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BSA 34P AUDIT APP 2 > CH13 TB > Flashcards

CH13 TB Flashcards

1
Q

Valuation is a relevant assertion when auditing bond premium or discount.

T or F?

A

TRUE

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2
Q

Stock issuances generally do not present valuation problems because most stock is issued in exchange for cash.

T or F?

A

TRUE

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3
Q

Relevant accounts when auditing stockholders’ equity include dividends per share.

T or F?

A

FALSE

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4
Q

Bonds are issued to finance major expansions or to refinance existing debt.

T or F?

A

TRUE

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5
Q

The auditor is primarily concerned with overstatement when auditing bonds.

T or F?

A

FALSE

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6
Q

An organization typically has many debt transactions during the year, with each individual transaction being material.

T or F?

A

FALSE

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7
Q

A bond premium/discount amortization spreadsheet can be used to help assure that the bond is appropriately valued
and disclosed in the financial statements.

T or F?

A

TRUE

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8
Q

Typically, the most relevant assertion related to debt is existence.

T or F?

A

FALSE

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9
Q

Inherent risks related to debt primarily concern the authorization of debt, receipt of funds, recording debt
transactions, and compliance with any debt covenants.

T or F?

A

TRUE

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10
Q

Existence is the most relevant assertion associated with an inherent risk for treasury stock transactions recorded in the wrong period.

T or F?

A

FALSE

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11
Q

Valuation is the most relevant assertion associated with an inherent risk for the cost of treasury stock that is subsequently retired and not properly allocated among the appropriate accounts.

T or F?

A

TRUE

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12
Q

When an auditor is investigating the inherent risk associated with stock issuances/sales that are recorded in the wrong period, the auditor is most likely assessing the risks of material misstatements associated with the existence assertion.

T or F?

A

TRUE

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13
Q

Presentation and disclosure is the most relevant audit assertion associated with the inherent risk of using inaccurate periods of service for stock options.

T or F?

A

FALSE

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14
Q

Completeness is the most relevant assertion associated with an inherent risk for dividends that are recorded and paid before being declared.

T or F?

A

FALSE

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15
Q

Rights/obligations is the most relevant audit assertion associated with an inherent risk for finding stock options or warrants being granted without being properly approved.

T or F?

A

FALSE

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16
Q

A potential fraud risk associated with debt is the intentional misclassification of short-term debt as long-term debt.

T or F?

A

TRUE

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17
Q

If an auditor discovers that a company intentionally applied loan payments to interest rather than principal, this would result in fraudulent overstatement of income.

T or F?

A

FALSE

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18
Q

As part of brainstorming activities, the auditor might identify possible fraudulent transactions related to stockholders’ equity accounts that are the result of charging expenses directly to retained earnings rather than to the appropriate expense accounts.

T or F?

A

TRUE

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19
Q

Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level only.

T or F?

A

FALSE

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20
Q

Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level only.

T or F?

A

TRUE

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21
Q

A typical control for stockholders’ equity transactions is for the board of directors to approve all stock transactions (including options and warrants).

T or F?

A

TRUE

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22
Q

When identifying and assessing control risks of material misstatement associated with debt and stockholders’ equity transactions, documentation is only required for integrated audits, not financial statement only audits.

T or F?

A

FALSE

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23
Q

Normally, an auditor can gain an understanding of internal controls by means of a walkthrough of the process, inquiry, observation, and review of the client’s documentation.

T or F?

A

TRUE

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24
Q

When documenting controls, the auditor can provide this documentation in various formats including a control matrix, a control risk assessment questionnaire, and/or a memo.

T or F?

A

TRUE

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25
Q

When planning the audit related to stockholders’ equity transactions, the auditor is not required to perform planning analytical procedures.

T or F?

A

FALSE

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26
Q

Trend analyses are typically used as planning analytical procedures related to debt.

T or F?

A

TRUE

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27
Q

If planning analytical procedures do not identify any unexpected relationships related to debt, the auditor would conclude that there is not a heightened risk of material misstatements in these accounts.

T or F?

A

TRUE

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28
Q

If there were unusual or unexpected relationships, the planned audit procedures (tests of controls, substantive procedures) would be adjusted to address the potential material misstatements.

T or F?

A

TRUE

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29
Q

When planning the audit related to debt, the auditor should not have expectations as to the nature and magnitude of any account balance changes because they might bias the outcome of the audit.

T or F?

A

FALSE

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30
Q

Typically, when determining the appropriate audit procedures to perform for debt accounts, the auditor will usually decide to test debt, including interest, using only substantive procedures.

T or F?

A

TRUE

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31
Q

Using substantive procedures to test debt is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.

T or F?

A

FALSE

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32
Q

Using substantive procedures to test debt is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.

T or F?

A

FALSE

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33
Q

For both debt accounts and stockholders’ equity accounts, evidence would typically be obtained only through substantive procedures.

T or F?

A

TRUE

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34
Q

When obtaining evidence about internal control operating effectiveness, the auditor will select only entity-wide controls for testing.

T or F?

A

FALSE

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35
Q

For integrated audits, a typical test of controls may include an inquiry of personnel performing the control.

T or F?

A

TRUE

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36
Q

For integrated audits, a typical test of controls may include an inquiry of personnel performing the control.

T or F?

A

TRUE

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37
Q

If the auditor identifies control deficiencies, the auditor will not need to judge the severity of the deficiencies but instead would consult management about the need for a fraud audit.

T or F?

A

FALSE

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38
Q

Confirmations are not a substantive procedure designed to obtain evidence on the completeness of debt.

T or F?

A

FALSE

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39
Q

Stockholders’ equity accounts typically will be tested with only substantive analytical procedures.

T or F?

A

FALSE

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40
Q

The transactions in the stockholders’ equity accounts are typically tested using a statistical sampling approach.

T or F?

A

FALSE

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41
Q

If interest expense recorded by the client is significantly lower than the auditor’s expectation, it may mean that interest payments have not been properly recorded, possibly having been charged to principal.

T or F?

A

TRUE

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42
Q

When performing a substantive analytical procedure related to interest expense, the auditor will likely not test the client’s internal controls.

T or F?

A

TRUE

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43
Q

A starting point for substantive tests of details on debt is to have the client provide a cash flow statement.

T or F?

A

FALSE

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44
Q

For additions to debt, the auditor traces the proceeds into the cash receipts records and the bank statement.

T or F?

A

TRUE

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45
Q

To determine whether notes have been paid in full, the auditor would obtain the most appropriate evidence by examining the board of directors meeting minutes.

T or F?

A

FALSE

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46
Q

As a starting point for testing capital stock and equity transactions, the auditor should review a copy of the client’s articles of incorporation.

T or F?

A

TRUE

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47
Q

When auditing debt and equity transactions, the auditor should be skeptical, and therefore alert to the possibility that management is managing earnings by not appropriately recording expenses, such as charging expenses directly to retained earnings or under-recording interest expense.

T or F?

A

TRUE

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48
Q

If the auditor identifies a risk of material misstatement due to fraud related to debt or stockholders’ equity accounts, the auditor needs to determine the appropriate responses, potentially including changing the nature, timing, and extent of audit procedures.

T or F?

A

TRUE

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49
Q

Auditors can choose to test the client’s warranty reserves using primarily tests of controls and substantive analytical procedures.

T or F?

A

TRUE

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50
Q

When auditing pension obligations, the auditor may hire an actuarial specialist to assist the audit team.

T or F?

A

TRUE

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51
Q

Which of the following is the auditor’s primary objective when auditing debt?
a. Understatement of the debt obligation focusing on the completeness assertion.
b. Proper valuation of bond premium or bond discount, including amortization valuation.
c. Valuation of gains or losses on refinancing debt.
d. Proper presentation and disclosure, including important restrictions contained in the debt.

A

A

52
Q

Which of the following is not typically included in the audit of debt?
a. Interest expense.
b. Interest income.
c. Notes payable.
d. Bonds payable.

A

B

53
Q

How are most bonds marketed?
a. Through the board of directors.
b. Through an underwriter.
c. Through auditors.
d. Through employees.

A

B

54
Q

Which of the following statements about bonds is false?
a. They may be issued to finance major expansions.
b. They may be issued to refinance existing debt.
c. They account for many of the organization’s transactions.
d. They are generally highly material to the financial statements.

A

C

55
Q

Which assertion is generally the most relevant when auditing the restrictions contained in debt?
a. Completeness.
b. Valuation.
c. Proper presentation and disclosure.
d. Existence.

A

C

56
Q

Which of the following is not a common debt covenant restriction?
a. Maintenance of a minimum level of retained earnings before dividends can be paid.
b. Maintenance of a minimum working-capital ratio.
c. Specification of a maximum debt-equity ratio.
d. Specification of a minimum earnings per share.

A

D

57
Q

Which of the following is not a relevant account when auditing stockholders’ equity?
a. Treasury stock.
b. Dividends.
c. Sinking fund for plant expansion.
d. Retained earnings.

A

C

58
Q

Which of the following is not a common transaction affecting stockholders’ equity?

a. The purchase of treasury stock.
b. The declaration and payment of dividends.
c. The exercises and expirations of stock options and warrants.
d. Bond amortization.

A

D

59
Q

Which of the following results in a situation where an auditor has the least amount of difficulty in determining stock valuation?
a. When stock is issued for land.
b. When stock is exchanged for another business.
c. When stock options are issued and exercises occur.
d. When stock is issued for cash.

A

D

60
Q

How would an auditor generally measure the value of a stock option expense?
a. Fair value.
b. Appraised value.
c. By computing a weighted average value of all classes of stock authorized.
d. All of these methods can be used.

A

A

61
Q

In auditing equity accounts, the auditor primarily focuses on which of the following two assertions?
a. Valuation and completeness.
b. Valuation and existence.
c. Presentation and disclosure and valuation.
d. Presentation and disclosure and completeness.

A

C

62
Q

When auditing the gains or losses on refinancing debt, the auditor primarily focuses on which assertion?
a. Completeness.
b. Existence.
c. Valuation.
d. Presentation and disclosure.

A

C

63
Q

When auditing the premium or discount on bonds (including amortization), the auditor primarily focuses on which assertion?
a. Existence.
b. Completeness.
c. Presentation and disclosure.
d. Valuation.

A

D

64
Q

Which of the following would a bond indenture not provide information about?
a. The time period before repayment.
b. Whether the bond is convertible.
c. Whether the bond is callable.
d. The date the bond will be called.

A

D

65
Q

Which of the following would not typically be included as part of the balance sheet disclosures related to stockholders’ equity?
a. Accumulated other comprehensive income
b. Details on stock repurchases.
c. Price/earnings ratios for stock.
d. Prior period adjustments to retained earnings.

A

C

66
Q

Which of the following is not an inherent risk typically associated with the existence of dividends?
a. Dividends are recorded in the wrong period.
b. Dividends are recorded before declared.
c. Dividends are not properly amortized.
d. Dividends have not been approved before being declared.

A

C

67
Q

Which of the following is not an inherent risk typically associated with debt covenant compliance issues?
a. Whether debt covenants are calculated accurately.
b. Whether debt payment transactions are properly initiated.
c. Whether compliance with debt covenants is appropriately disclosed.
d. Whether compliance with debt covenants is appropriately reviewed.

A

B

68
Q

Which of the following is not an inherent risk recording debt transactions?
a. Interest expense not being properly recorded.
b. Failure to accrue interest expense.
c. Debt not being properly classified.
d. Debt not being properly authorized.

A

D

69
Q

The inherent risk of proceeds from stock sales not being received is most likely related to which of the following management assertions?
a. Completeness.
b. Presentation and disclosure.
c. Valuation.
d. Existence.

A

D

70
Q

An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury stock. This determination is most likely tied to which of the following management assertions?
a. Completeness.
b. Presentation and disclosure.
c. Valuation.
d. Existence.

A

A

71
Q

An auditor determines that there is an inherent risk that dividends may be recorded and paid before being declared. This determination is most likely tied to which of the following management assertions?
a. Completeness.
b. Presentation and disclosure.
c. Valuation.
d. Existence.

A

D

72
Q

An auditor determines that there is an inherent risk that a company has not included both the basic earnings per share and diluted earnings per share amounts in financial statements even though significant dilutive securities are part of the company’s complex capital structure. This determination is most likely tied to which of the following management assertions?
a. Valuation.
b. Presentation and disclosure.
c. Rights and obligations.
d. Existence.

A

B

73
Q

An auditor determines that there is an inherent risk that a company has not included both the basic earnings per share and diluted earnings per share amounts in financial statements even though significant dilutive securities are part of the company’s complex capital structure. This determination is most likely tied to which of the following management assertions?
a. Valuation.
b. Presentation and disclosure.
c. Rights and obligations.
d. Existence.

A

C

74
Q

Which of the following is not a potential fraud related to debt?
a. Long-term or short-term debt is misclassified.
b. Entire loan payments are charged to either principal or interest.
c. Dividends are paid in violation of restrictive covenants.
d. Debt is not properly authorized.

A

C

75
Q

Which of the following is not a potential fraud related to stockholders’ equity accounts?
a. Stock sales or issuances are not authorized.
b. Entire loan payments are charged to either principal or interest.
c. Dividends are paid in violation of restrictive covenants.
d. Stock options are back-dated.

A

B

76
Q

What type of risk is intentional failure by management to accurately disclose violations of debt covenants?
a. Inherent risk.
b. Fraud risk.
c. Control risk.
d. Detection risk.

A

B

77
Q

Which of the following statements is true regarding the identification and assessment of the risks of material
misstatements by the auditor?
a. Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level.
b. Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the assertion level.
c. As part of brainstorming activities, the auditor should identify possible frauds that could occur.
d. All of these statements are true.

A

D

78
Q

Which of the following would an auditor not typically perform as part of gaining an understanding of the client’s controls related to debt?
a. Review policies related to approval required for new debt.
b. Inquire of management about the process for reviewing compliance with debt covenants.
c. Review the client’s documentation of controls.
d. Recalculate interest expense.

A

D

79
Q

In general, which of the following would an auditor not typically perform as part of gaining an understanding of the client’s controls?
a. A walkthrough of the process.
b. Inquiry.
c. Observation.
d. All of these are used to gain an understanding of the controls.

A

D

80
Q

Which of the following does an auditor consider when gaining an overall understanding of the client’s internal controls?
a. Entity-wide controls at the account level only.
b. Transaction controls at the account level only.
c. Entity-wide controls at the assertion level only.
d. Both entity-wide controls and transaction controls at the account and assertion levels.

A

D

81
Q

Which of the following would the auditor consider as part of the control environment related to debt?
a. Inquiry of trustee regarding the registration of current bondholders and distribution of interest payments.
b. Recalculation of the underwriter’s commission.
c. Independence of the board of directors with respect to long-term financing.
d. Inspection of documentation to confirm refinancing of debt.

A

C

82
Q

Which of the following are entity-wide components of internal control that can mitigate the risk of material misstatement related to debt?
a. Risk assessment.
b. Information and communication.
c. Monitoring controls.
d. All of these are entity-wide components of internal control.

A

D

83
Q

Which of the following is a typical control for debt?
a. The board of directors approves all new debt.
b. The stockholders approve all new debt.
c. The CFO approves all new debt.
d. Upper managers approve all new debt.

A

A

84
Q

Which of the following statements is typically not true regarding controls related to proper accounting for stock option grants?
a. The proper accounting for stock option grants is researched by the organization’s accountant.
b. The analysis of the accountant regarding stock option grants is reviewed by the CFO.
c. The analysis of the accountant regarding stock option grants is reviewed by the organization’s legal counsel.
d. The analysis of the accountant regarding stock option grants is reviewed by the board of directors.

A

D

85
Q

Which of the following statements is true regarding planning analytical procedures for debt and stockholders’ equity transactions?
a. Trend analysis would not typically be performed for debt.
b. The long-term debt to equity ratio could be considered by the auditor as part of the planning analytical procedures.
c. Because there are typically only a few stockholders’ equity transactions, the auditor is not required to perform planning analytical procedures for stockholders’ equity accounts.
d. If unusual or unexpected relationships are identified by planning analytical procedures, the auditor should stick with the original expectations of misstatements, because this could be an anomaly and bias the audit overall.

A

B

86
Q

Which of the following is not an example of typical analytical procedures related to debt?
a. Perform a trend analysis of the balances in notes payable, interest expense, and accrued interest with prior periods,
considering known client activities related to debt.
b. Calculate the total debt-to-equity ratio and perform a trend analysis with prior periods.
c. Calculate the times interest earned ratio and perform a trend analysis with prior periods.
d. Calculate the current ratio and perform a trend analysis with prior periods.

A

D

87
Q

Which of the following is not true regarding planning analytical procedures performed by the auditor when planning the audit?
a. The primary planning analytical procedure for stockholders’ equity accounts is a comparison of current year account balances with prior year account balances.
b. If there are unusual or unexpected relationships, the planned audit procedures would be adjusted to address the potential material misstatements.
c. The auditor should have an expectation as to the nature and magnitude of any account balance changes.
d. Auditors show focus on just the numbers when performing analytical procedures.

A

D

88
Q

Which of the following statements is true regarding the appropriate audit procedures to perform for debt and stockholder’s equity accounts?
a. The auditor will usually decide to test debt, including interest, using only substantive procedures.
b. Testing debt, including interest, is typically accomplished using only control procedures.
c. When auditing stockholders’ equity transactions, the auditor commonly uses a control procedure approach, but uses only substantive procedures to test debt obligation transactions.
d. None of these statements is true.

A

A

89
Q

Which of the following is not true about auditing stockholders’ equity transactions?
a. The auditor usually uses a substantive approach.
b. The number of equity transactions with outside parties is usually small.
c. The dollar amount is usually immaterial.
d. An approach using only tests of details is most commonly used to audit equity accounts.

A

C

90
Q

For integrated audits, when does the auditor test the operating effectiveness of important controls?
a. As of the beginning of the client’s fiscal year.
b. As of the client’s year end.
c. As of the end of the second quarter of the client’s fiscal year.
d. None of these answers is correct.

A

B

91
Q

Which of the following is not true regarding appropriate tests of controls?
a. The auditor selects controls that are important to the auditor’s conclusion about whether the organization’s controls
adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.
b. The client’s audit committee selects controls that are important to the auditor’s conclusion about whether the organization’s controls adequately address the assessed risk of material misstatement for the relevant debt and equity accounts.as of the client’s year end.
c. The auditor will select both entity-wide and transaction controls for testing.
d. If the auditor wants to rely on controls for the financial statement audit, the auditor would test the operating effectiveness of those controls throughout the year.

A

B

92
Q

If tests of controls result in identified control deficiencies, how will the auditor assess those deficiencies?
a. By estimating interest expense based on average interest rates and average debt outstanding.
b. By comparing current year account balances with prior year account balances.
c. By determining their severity and the impact on the opinion of internal control effectiveness.
d. By calculating the long-term debt-to-equity ratio and performing a trend analysis with prior periods.

A

C

93
Q

Which of the following is not a typical test of controls when auditing debt and equity transactions?
a. Inquiry of personnel performing the control.
b. Comparing current year account balances with prior year account balances.
c. Observation of the control being performed.
d. Reperformance of the control by the auditor testing the control.

A

B

94
Q

Which of the following procedures would be included in the auditor’s audit program for long-term debt?
a. Investigation of credits to the bond interest income account.
b. Inspection of the accounts payable master file.
c. Verification of the existence of the bondholders.
d. Review debt loan agreements.

A

D

95
Q

Which of the following is not true regarding the testing of transactions in the stockholders’ equity accounts?
a. The transactions are typically tested on a 100% basis.
b. The transactions are typically tested on a sampling basis.
c. The number of transactions is typically small.
d. Most of these transactions are highly material.

A

B

96
Q

When auditing debt, which of the following is the primary substantive analytical procedure?
a. Reading loan agreements.
b. Developing an independent expectation of interest expense. c. Tracing bond proceeds to cash receipts.
d. Confirming transactions with outside parties.

A

B

97
Q

Which of the following is the least important in helping the auditor develop an independent expectation of interest expense as a substantive analytical procedure?
a. Determine average interest rates.
b. Determine average debt outstanding.
c. Examine disaggregated data by type of debt.
d. Examine an interest revenue schedule.

A

D

98
Q

Which of the following will an auditor not perform when looking for additions to debt?
a. Trace the proceeds into the cash receipts records.
b. Examine canceled notes.
c. Obtain assurance regarding board approval of the debt through review of board meeting minutes.
d. Trace the proceeds into the bank statement.

A

B

99
Q

Which of the following will an auditor not perform when looking for debt reductions?
a. Examine proceeds into the cash receipts records.
b. Examine canceled checks.
c. Examine payments through the cash disbursements records.
d. Examine canceled notes.

A

A

100
Q

Which of the following procedures is a typical substantive procedure related to the relevant assertion of completeness for debt?
a. Recalculating accrued interest.
b. Reviewing debt agreements for the restrictive covenants.
c. Using analytical procedures to analyze interest expense.
d. Confirming debt with relevant outside parties.

A

D

101
Q

Which of the following procedures is a typical substantive procedure related to the relevant assertion of valuation and allocation for debt?
a. Determine the related parties resulting from debt transactions.
b. Reviewing debt agreements for the restrictive covenants.
c. Recalculating accrued interest.
d. Confirming debt with relevant outside parties.

A

C

102
Q

Which of the following is a typical substantive procedure related to the relevant assertion of presentation and disclosure for debt?
a. Vouching additions and deletions to debt.
b. Reviewing debt agreements for the restrictive covenants.
c. Recalculating accrued interest.
d. Confirming debt with relevant outside parties.

A

B

103
Q

If the auditor determines that the client’s current ratio is below a particular covenant level, which of the following would the auditor not do?
a. Assess the effects of the violation.
b. Assume that the debt will need to be reclassified, if the violation is not waived.
c. Consider that the debt will be due and payable, if the violation is not waived.
d. Issue an adverse audit opinion.

A

D

104
Q

As a starting point for testing capital stock and equity transactions, which of the following should the auditor perform?
a. Trace the proceeds of stock sold to the cash receipts journal.
b. Review the minutes of the board of directors’ meetings.
c. Examine documentation maintained by the transfer agent.
d. Review a copy of the client’s articles of incorporation.

A

D

105
Q

For those clients with treasury stock, which of the following would the auditor be least likely to perform?
a. Obtaining confirmations from the stock transfer agent.
b. Tracing transactions through the cash receipts journal.
c. Tracing transactions through the cash disbursements journal.
d. Reviewing a copy of the client’s articles of incorporation.

A

D

106
Q

Which of the following is not a substantive test of details for dividends?
a. Calculation of the dividend payout ratio.
b. Examination of the minutes of the board of directors’ meetings for authorization of the dividend per share amount.
c. Examination of the minutes of the board of directors’ meetings for the dividend record date.
d. Agreement of the dividend amount with the payment in the cash disbursements journal.

A

A

107
Q

If the auditor wants to obtain evidence as to whether the dividend payment was made to the stockholders who owned the stock as of the dividend record date, which of the following would the auditor do?
a. Recalculate the dividends per share.
b. Examine the minutes of the board of directors’ meetings for authorization.
c. Trace the payee’s name on the canceled check to the dividend records.
d. Determine that dividend restrictions are adequately disclosed in the financial statements.

A

C

108
Q

Which of the following is not
a. These restrictions typically arise when loan agreements prohibit the registrant from paying cash dividends without the
consent of the lender.
b. In certain cases, restrictions at a subsidiary-company level exist such that the registrant’s subsidiary companies may not transfer amounts to the registrant without the consent of a third party.
c. Amounts subject to restrictions must be disclosed.
d. The auditor will typically confirm with shareholders whether there are any side agreements regarding dividend
restrictions.

A

D

109
Q

In those audits where there is a heightened risk of fraud related to debt, which of the following will the auditor not typically perform?
a. Search public records to identify debt.
b. Vouch and trace loan proceeds and debt payments.
c. Send confirmations to lenders and creditors, including confirmation of compliance with any debt covenants.
d. Obtain photocopies of supporting documents.

A

D

110
Q

In those audits where there is a heightened risk of fraud related to stockholders’ equity accounts, which of the following will the auditor typically not perform?
a. Confirm terms of equity arrangements and shares held directly with shareholders.
b. Account for and vouch all proceeds from stock issues.
c. Confirm with shareholders whether there are any side agreements.
d. Review equity authorizations in the board meeting minutes.

A

D

111
Q

In those audits where there is a heightened risk of fraud related to stockholders’ equity accounts, which of the following will the auditor typically not perform?
a. Confirm terms of equity arrangements and shares held directly with shareholders.
b. Account for and vouch all proceeds from stock issues.
c. Confirm with shareholders whether there are any side agreements.
d. Review equity authorizations in the board meeting minutes.

A

B

112
Q

Which of the following is not important documentation for substantive procedures for capital stock and equity transactions?
a. Confirmations with transfer agent or shareholders.
b. The client’s articles of incorporation.
c. A summary of the changes in equity accounts.
d. A memo regarding audit ideas generated during the brainstorming session regarding potential frauds applicable to the capital stock and equity transactions.

A

D

113
Q

Why is valuation of most stock issuances usually considered to be relatively straightforward?
a. The number of transactions is small.
b. The transactions are typically material.
c. Most stock is issued for cash.
d. There are no disclosure issues to worry about, since stock amounts are reported in the body of the balance sheet.

A

C

114
Q

Which of the following is not a long-term liability account with a high risk of material misstatement?
a. Warranty reserves.
b. Pension obligations.
c. Other postemployment benefits.
d. Marketable securities.

A

D

115
Q

Which of the following is not a key type of evidence that the auditor needs to examine with respect to pensions and postemployment benefits?
a. Whether the actuarial firm hired by management is independent, capable, and objective.
b. The appropriateness of the actuarial firm’s work.
c. The reasonableness of significant interest rate assumptions. d. The length of illnesses that pension recipients contract.

A

D

116
Q

Which of the following is not an element of pensions and other post-employment benefits that is difficult to estimate?
a. Projected lifetime of former employees that will receive a pension.
b. The future earnings of employees prior to retiring for defined benefit plans.
c. Long-term interest rates to discount future costs back to present value.
d. Current amounts earned on pension plan assets.

A

D

117
Q

Which of the following factors would be least likely to affect the estimate of the warranty liability?
a. Changes in the product.
b. Changes in the nature of the warranty.
c. Changes in the sales staff.
d. Changes in sales volume.

A

C

118
Q

An audit of the other postemployment benefits does not require estimates with respect to which of the following?
a. Changes in medical expenses.
b. Changes in coverage.
c. Changes in average life expectancies.
d. Changes in human resources personnel in charge of postemployment benefits.

A

D

119
Q

List the assertion associated with each of these.

Proceeds are not received.

A

Existence

120
Q

List the assertion associated with each of these.

All stock repurchased is not recorded as treasury stock.

A

Completeness

121
Q

List the assertion associated with each of these.

The cost of treasury stock that is subsequently retired is not properly allocated among the appropriate accounts.

A

Valuation

122
Q

List the assertion associated with each of these.

Dividends are recorded in the wrong period.

A

Existence

123
Q

List the assertion associated with each of these.

Stock options exercised or expired remain on the organization’s books.

A

Rights/Obligations

124
Q

List the assertion associated with each of these.

Stock issued in exchange for goods/services is not properly valued.

A

Valuation

125
Q

List the assertion associated with each of these.

Issuance or sales are not authorized in accordance with the organization’s bylaws.

A

Existence

126
Q

List the assertion associated with each of these.

Dividends may be recorded and paid before being declared.

A

Existence

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