Question 1

Which of the following will an auditor not perform when looking for additions to debt?

Accepted Answer

A) Trace the proceeds into the cash receipts records. 
B) Examine canceled notes. 
C) Obtain assurance regarding board approval of the debt through review of board meeting minutes. 
D) Trace the proceeds into the bank statement.

Question 2

Which of the following statements is typically not true regarding controls related to proper accounting for stock option grants?

Accepted Answer

A) The proper accounting for stock option grants is researched by the organization's accountant. 
B) The analysis of the accountant regarding stock option grants is reviewed by the CFO. 
C) The analysis of the accountant regarding stock option grants is reviewed by the organization's legal counsel. 
D) The analysis of the accountant regarding stock option grants is reviewed by the board of directors.

Question 3

A typical control for stockholders' equity transactions is for the board of directors to approve all stock transactions (including options and warrants).

Accepted Answer

A) True 
 B)False

Question 4

Relevant accounts when auditing stockholders' equity include dividends per share.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following does an auditor consider when gaining an overall understanding of the client's internal controls?

Accepted Answer

A) Entity-wide controls at the account level only. 
B) Transaction controls at the account level only. 
C) Entity-wide controls at the assertion level only. 
D) Both entity-wide controls and transaction controls at the account and assertion levels.

Question 6

Rights/obligations is the most relevant audit assertion associated with an inherent risk for finding stock options or warrants being granted without being properly approved.

Accepted Answer

A) True 
 B)False

Question 7

Why is valuation of most stock issuances usually considered to be relatively straightforward?

Accepted Answer

A) The number of transactions is small. 
B) The transactions are typically material. 
C) Most stock is issued for cash. 
D) There are no disclosure issues to worry about,since stock amounts are reported in the body of the balance sheet.

Question 8

When auditing the gains or losses on refinancing debt,the auditor primarily focuses on which assertion?

Accepted Answer

A) Completeness. 
B) Existence. 
C) Valuation. 
D) Presentation and disclosure.

Question 9

Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level only.

Accepted Answer

A) True 
 B)False

Question 10

The inherent risk of proceeds from stock sales not being received is most likely related to which of the following management assertions?

Accepted Answer

A) Completeness. 
B) Presentation and disclosure. 
C) Valuation. 
D) Existence.

Question 11

If the auditor identifies control deficiencies,the auditor will not need to judge the severity of the deficiencies but instead would consult management about the need for a fraud audit.

Accepted Answer

A) True 
 B)False

Question 12

Trend analyses are typically used as planning analytical procedures related to debt.

Accepted Answer

A) True 
 B)False

Question 13

When identifying and assessing control risks of material misstatement associated with debt and stockholders' equity transactions,documentation is only required for integrated audits,not financial statement only audits.

Accepted Answer

A) True 
 B)False

Question 14

Completeness is the most relevant assertion associated with an inherent risk for dividends that are recorded and paid before being declared.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following will an auditor not perform when looking for debt reductions?

Accepted Answer

A) Examine proceeds into the cash receipts records. 
B) Examine canceled checks. 
C) Examine payments through the cash disbursements records. 
D) Examine canceled notes.

Question 16

When planning the audit related to debt,the auditor should not have expectations as to the nature and magnitude of any account balance changes because they might bias the outcome of the audit.

Accepted Answer

A) True 
 B)False

Question 17

A bond premium/discount amortization spreadsheet can be used to help assure that the bond is appropriately valued and disclosed in the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

Existence is the most relevant assertion associated with an inherent risk for treasury stock transactions recorded in the wrong period.

Accepted Answer

A) True 
 B)False

Question 19

If there were unusual or unexpected relationships,the planned audit procedures (tests of controls,substantive procedures)would be adjusted to address the potential material misstatements.

Accepted Answer

A) True 
 B)False

Question 20

Using substantive procedures to test debt is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.

Accepted Answer

A) True 
 B)False

Exam 13: Auditing Long-Term Liabilities and Stockholders Equity Transactions

Which of the following will an auditor not perform when looking for additions to debt?

Which of the following statements is typically not true regarding controls related to proper accounting for stock option grants?

A typical control for stockholders' equity transactions is for the board of directors to approve all stock transactions (including options and warrants).

Relevant accounts when auditing stockholders' equity include dividends per share.

Which of the following does an auditor consider when gaining an overall understanding of the client's internal controls?

Rights/obligations is the most relevant audit assertion associated with an inherent risk for finding stock options or warrants being granted without being properly approved.

Why is valuation of most stock issuances usually considered to be relatively straightforward?

When auditing the gains or losses on refinancing debt,the auditor primarily focuses on which assertion?

Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud at the financial statement level only.

The inherent risk of proceeds from stock sales not being received is most likely related to which of the following management assertions?

If the auditor identifies control deficiencies,the auditor will not need to judge the severity of the deficiencies but instead would consult management about the need for a fraud audit.

Trend analyses are typically used as planning analytical procedures related to debt.

When identifying and assessing control risks of material misstatement associated with debt and stockholders' equity transactions,documentation is only required for integrated audits,not financial statement only audits.

Completeness is the most relevant assertion associated with an inherent risk for dividends that are recorded and paid before being declared.

Which of the following will an auditor not perform when looking for debt reductions?

When planning the audit related to debt,the auditor should not have expectations as to the nature and magnitude of any account balance changes because they might bias the outcome of the audit.

A bond premium/discount amortization spreadsheet can be used to help assure that the bond is appropriately valued and disclosed in the financial statements.

Existence is the most relevant assertion associated with an inherent risk for treasury stock transactions recorded in the wrong period.

If there were unusual or unexpected relationships,the planned audit procedures (tests of controls,substantive procedures)would be adjusted to address the potential material misstatements.

Using substantive procedures to test debt is most appropriate because there are a relatively large number of transactions involving immaterial dollar amounts.