Multiple Choice Questions
The following questions concern the audit of accounts in the capital acquisition and repayment cycle. Choose the best response.
a. During an audit of a publicly held company, the auditor should obtain written confirmation regarding debenture transactions from the
(1) Debenture holders.
(2) Client's attorney.
(3) Internal auditors.
(4) Trustee.
b. An audit program for the audit of the retained earnings account should include a step that requires verification of
(1) Market value used to charge retained earnings to account for a 2-for-1 stock split.
(2) Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable.
(3) Authorization for both cash and stock dividends.
(4) Gain or loss resulting from disposition of treasury shares.
c. Which of the following internal controls is least likely to reduce risks related to the occurrence transaction-related audit objective for issuances of stock?
(1) The board of directors must approve the distribution of cash dividends.
(2) The issuance of any shares of stock must be pre-approved by the board of directors.
(3) The company engages an independent registrar to issue stock certificates.
(4) The company maintains a capital stock certificate record that includes certificate number, number of shares issued, issue date, and name of person to whom certificates are issued.
d. Which of the following audit procedures would be most relevant when examining the completeness transaction-related audit objective for capital stock?
(1) The auditor examines minutes of the board of directors' meetings to identify any 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.