Question 2 (a)

For most businesses, long-term debt and equity are the primary sources of funding. Despite the small number of transactions, each one is typically important. Auditors also conduct the following procedures in the verification of owners' equity:

1. Review for clauses on owners' equity in the articles of incorporation and bylaws.

2. Review the minutes of the board of directors' meetings for the year and see if there were any approvals pertaining to the owners' equity.

3. For all outstanding shares, account for all certificate numbers in the capital shares reports.

4. Re-perform calculation for earnings per share.

Required: Explain the possibility of misstatement the auditor can uncover for each of the above procedure.