You are engaged in an audit of the financial statements of Pate Corporation for the year ended December 31, 1999. The financial statements and records of Pate Corporation have not been audited by another auditor in prior years. The shareholders' equity section of Pate Corporation's balance sheet at December 31, 1999, follows:

Founded in 1997, Pate Corporation has ten shareholders and serves as its own registrar and transfer agent. There are no capital stock subscription contracts in effect.

Required:

1. Prepare a program to audit the three accounts constituting the Pate Corporation's shareholders' equity section.

2. Why do auditors audit retained earnings?

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Shareholders' equity: Capital stock-10,000 shares of $10 par value authorized; 5,000 shares issued and outstanding Capital contributed in excess of par value Retained earnings Total shareholders' equity $ 50,000 32,580 47,320 $ 129,900