MULTIPLE-CHOICE QUESTIONS
1. Which of the following statements is true regarding preliminary analytical procedures for debt obligations and stockholders' equity transactions?
a. Because there are typically only a few stockholders' equity transactions, the auditor is not required to perform preliminary analytical procedures for stockholders' equity accounts.
b. Trend analysis would not typically be performed for debt obligations.
c. The long-term debt to equity ratio could be considered by the auditor as part of the preliminary analytical procedures.
d. All of the above statements are true.

2. Which of the following are typical preliminary analytical procedures related to debt obligations?
a. Estimate interest expense based on average interest rates and average debt outstanding.
b. Calculate the total debt-to-equity ratio and perform a trend analysis with prior periods.
c. Calculate the long-term debt-to-equity ratio and perform a trend analysis with prior periods.
d. Calculate the times interest earned ratio and perform a trend analysis with prior periods.
e. All of the above could be performed as preliminary analytical procedures related to debt obligations.

3. How does an auditor typically respond to identified risks of material misstatement associated with debt obligations?
a. The auditor will plan to perform a controls reliance approach to the audit.
b. An approach that uses only substantive procedures would typically be appropriate.
c. The auditor does not need to respond to identified fraud risks since the risk of fraud related to debt obligations is typically minimal.
d. Because of the low level of risk of material misstatement, the auditor would only rely on preliminary analytical procedures.

4. How does an auditor typically respond to identified risks of material misstatement associated with stockholders' equity accounts?
a. The auditor will plan to perform a controls reliance approach to the audit.
b. An approach that uses only substantive procedures would typically be appropriate.
c. The auditor does not need to respond to identified fraud risks since the risk of fraud related to stockholders' equity accounts is typically minimal.
d. Because of the low level of risk of material misstatement, the auditor would only rely on preliminary analytical procedures.

5. Which of the following best describes the auditor's typical approach to testing controls related to debt obligations?
a. Controls would be tested for integrated audit purposes, but not for financial statement audit purposes.
b. Controls would be tested for financial statement audit purposes, but not for integrated audit purposes.
c. Controls would be tested for both the integrated audit and financial statement audit.
d. Controls would not be tested for either the integrated audit or financial statement audit.

6. Which of the following best describes the auditor's typical approach to testing controls related to stockholders' equity accounts?
a. Controls would be tested for integrated audit purposes, but not for financial statement audit purposes.
b. Controls would be tested for financial statement audit purposes, but not for integrated audit purposes.
c. Controls would be tested for both the integrated audit and financial statement audit.
d. Controls would not be tested for either the integrated audit or financial statement audit.

7. The auditor's audit program for long-term debt should include which of the following procedures?
a. Verification of the existence of the bondholders.
b. Review debt loan agreements.
c. Inspection of the accounts payable master file.
d. Investigation of credits to the bond interest income account.

8. When a client does not maintain its own stock records, the auditor should obtain written confirmation from the stock transfer agent concerning which of the following?
a. Restrictions on the payment of dividends.
b. The number of shares issued and outstanding.
c. Guarantees of preferred stock liquidation value.
d. The number of shares subject to agreements to repurchase.