Chapter 22 24

Question 1

capital acquisition and repayment cycle

Answer 1

concerns the acquisition of capital resources through interest bearing debt and owners equity and the repayment of capital

Question 2

four characteristics of CA& R cycle

Answer 2

1. relatively few transactions affect the account balances
2. the exclusion or misstatement of a single transaction can be material
3. a legal relationship exists between the client entity and the holder of the stock, bond, or similar ownership document
4. direct relationship exists between the interest and dividends accounts and debt and equity

Question 3

note payable

Answer 3

legal obligation to a creditor

Question 4

proper controls over notes payable

Answer 4

1. proper authorization for the issue of new notes
2. adequate controls overt the repayment of principal and interest
3. proper documents and records
4. periodic independent verification

Question 5

balance related audit objectives in notes payable

Answer 5

1. existing notes payable are included(completeness)

2. notes payable in the schedule are accurately recorded(accuracy)

Question 6

publicly held corporation

Answer 6

more complex, many shareholders and frequent changes

Question 7

closely held corporation

Answer 7

have few shareholders, occasional if any transactions

Question 8

shareholders capital stock master file

Answer 8

the record of outstanding shares at any given time

Question 9

capital stock certificate record

Answer 9

records the issuance and repurchase of capital stock for the life of the corporation

Question 10

independent registrar

Answer 10

makes sure that stock is issued correctly

Question 11

dividends objectives

Answer 11

1. recorded dividends occurred
2. existing dividends are recorded
3. dividends are accurately recorded
4. dividends are paid to stockholders that exist
5. dividends payable are recorded
6. dividends payable are accurately recorded

Question 12

stock transfer agent

Answer 12

maintains stockholder records including those documenting transfers of stock ownership

Question 13

Ch 24

Answer 13

…

Question 14

contingent liability

Answer 14

potential future obligation
remote(not disclosure)
reasonably possible(footnote disclosure necessary)
probable - est, f/s are adjusted, not reasonably estimated, footnote disclosure

Question 15

committments

Answer 15

agreements to purchase something

Question 16

inquiry f a client’s attorney

Answer 16

used for auditors to find out about legal stuff
1. pending threatened litigation
2. asserted or unasserted claims
progress or comment on each
list to identify any unlisted pending litigation
statement informing attorney of the responsibility to inform management of legal matters requiring disc. in the F/S

Question 17

unasserted claim

Answer 17

ex: violation of a patent agreement

Question 18

review for subsequent events

Answer 18

auditing procedures required by auditing standards to verify these transactions and events are commonly called this

Question 19

subsequent events

Answer 19

direct effect on the f/s and require adj. of current year

no direct effect but require disclosure

Question 20

direct events that require restatement

Answer 20

declaration of bankruptcy by a customer with A/R
settlement of litigation at an amount different than on the books
disposal of equipment not being used in oper. at a price below the current book value

Question 21

no direct effect but require disclosure

Answer 21

a decline in the market value of securities held for inv or resale
the issuance of bonds or equity securities
decline in market value of inventory as a consequence of gov action barring further sale of a product
merger or acquisition

Question 22

subsequent event occurs after field work was completed but audit report was not issued

Answer 22

1. expand all subsequent events tests to the new date

2. restrict the subsequent events review to matters related to the new subsequent event

Question 23

dual dated report

Answer 23

occurs when there is a subsequent event in between completion of field work and audit report issuance

Question 24

letter of representation

Answer 24

documents managements most important oral representations during the audit
should include 
F/S
completeness info
recognition, measurement, and disclosure
subsequent events

Question 25

other info included in annual reports

Answer 25

auditors are required to read other info that is related to the financial statements

Question 26

unadjusted misstatement audit schedule

Answer 26

summary of possible misstatements

Question 27

financial statement disclosure checklist

Answer 27

goes over common disclosure problems

Question 28

independent review

Answer 28

required by the SEC, it is a review of the audit conducted

Question 29

management letter

Answer 29

intended to inform client personnel of the CPA’s recommendations for improving any part of the clients business