The following questions are commonly found in internal control questionnaires used by auditors to obtain an understanding of internal control over stockholders' equity. In using the questionnaire for a client, a "YES" response indicates a possible internal control, while a "NO" answer indicates a potential weakness. QUESTIONS COMMONLY FOUND IN INTERNAL CONTROL QUESTIONNAIRE FOR AUDIT OF STOCKHOLDERS' EQUITY (a) Does the company use the services of an independent registrar or transfer agent? (b) Are issues and retirements of stock authorized by the board of directors? (c) If an independent registrar or transfer agent are not used: (1) Are unissued certificates properly controlled? (2) Are canceled certificates mutilated to prevent their reuse? (d) Are common stock master files and stock certificate books periodically reconciled with the general ledger by an independent person? (e) Is an independent transfer agent used for disbursing dividends? If not, is an imprest dividend account maintained? (f) Are all entries in the stockholders' equity accounts authorized at the proper level in the organization? REQUIRED: Using the attached answer sheet, for each of the questions listed, indicate the following: (1) (2) (3) The control objective to be accomplished by the control. The type of potential financial statement error or fraud that could occur if the control is not in effect. For each of the potential errors or fraud indicated in (2) above, list a specific audit procedure that the auditor can use to determine whether a material error or fraud has occurred. eu (c) (2) (c) (1) (b) DISCUSSION OF ITEMS ON INTERNAL CONTROL QUESTIONNAIRE FOR STOCKHOLDERS' EQUITY (1) (2) Potential Error or Fraud Audit Procedure to Detect Error or Fraud Item Purpose of Control (a) DISCUSSION OF ITEMS ON INTERNAL CONTROL QUESTIONNAIRE FOR STOCKHOLDERS' EQUITY (CONTINUED) (1) (2) (3) Item (d) Purpose of Control (e) (f) Potential Error or Fraud Audit Procedure to Detect Error or Fraud