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20 Cards in this Set
- Front
- Back
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What are four characteristics of the capital acquisition and repayment cycles
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1) relatively few transactions but each transaction is often highly material
2) The exclusion or misstatement of a single transaction can be material 3) A legal relationship exists between the client entity and the holder of the stock, bond, or similar ownership document 4) A direct relationship exists nbetween the interest and dividends accounts and debt and equity |
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How do auditors often learn about capital acquisition transactions
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While gaining an understanding of the clients business and industusty. During the risk assessment procedures
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What are the objectives of the Audit of Notes Payable
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Internal controls over notes payable are adequate
Transactions for principle and interest are properly authorized and recorded The liability for notes payable and the related interest expense and accrued liability are properly stated |
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What are the four important controls over notes payable
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1) Proper authorization for the issue of new notes (High-level management, and two signatures on loan agreements)
2) Adequate controls over the repayment of principal and interest 3) Proper documents and records (paid notes are cancelled, notes and loan agreements are maintained) 4) Periodic independent verification |
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What is the normal starting point for the audits of notes payables
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Schedule of notes payable (obtained from the client)
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What are the two most important balance related audit objectives in notes payable
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1) Exisiting notes payable are included (Completeness)
2) Notes payable in the schedule are accurately recorded ( Accuracy) |
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What does GAAP require for notes payable
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That the footnotes adequately describe the terms of notes payable outstanding and the assets pledged as collateral for the loans
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Closely held corporation characteristics
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typically few shareholders
Typically few transactions and usually only net income (loss) and maybe declaration of dividends Little time spent auditing this area |
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Publicly held corporation characteristics
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Large number of shareholders and frequent change of ownership
More likely to see other transactions related to options and employee stock purchase plans |
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What types of owners' equity transactions usually require specific authorization
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Issuance of capital stock (type of equity, number of shares, par value, date of issue)
Repurchase of capital stock (timing of repurchase, amount to pay for the shares) approved by board of directors Declaration of dividends ((authorize form of dividends{cash or stock}, amount per share, record and payment dates) |
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What are the 3 transaction related audit objectives for Dividends
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Occurrence
Completeness Accuracy |
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When issuing and recording capital stock, what must the client comply with
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Both the state laws governing corporations and the requirements in the corporate charter
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Shareholders' Capital stock master file
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The record of the outstanding shares at any given time. The master file acts as a check on the accuracy of the capital stock certificate record and the common stock balance in the general ledger
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Independent Registrar
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Any company with stock listed on a securities exchange is required to engage an Independent Registrar as a control to prevent the improper issue of stock certificates
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Stock Transfer Agent
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Most large corporations also employ the service of this agent to maintain stockholder records. Helps strengthen control over the stock records
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What are the four main concerns in auditing capital stock and paid in capital in excess of par
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1) Existing capital stock transactions are recorded(completeness, Test of control)
2) Recorded capital stock transactions occurred and are accurately recorded(occurrence and accuracy, Test of Control) 3) Capital stock is accurately recorded (accuracy, test of details) 4) capital stock is properly presented and disclosed(test of details) |
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How do auditors uncover issuances and repurchases of capital stock
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Review the minutes of the board of directors meetings
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What is one major consideration when audting the accuracy objective for capital stock
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Verifying whether the number of shared used in the calculation of earnings per share is accurate
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What are the most important sources of information for determining whether all four presentation and disclosure-related objectives for capital stock are satisfied
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Corporate charter
Minutes of the board of directors meetings Auditors analysis of capital stock transactions |
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What is the auditors primary concern in determining whether presentation and disclosure objectives for retained earnings are satisfied
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Relates to disclosure of any restrictions on the payment of dividends
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