Chapter 22 24 Flashcards
capital acquisition and repayment cycle
concerns the acquisition of capital resources through interest bearing debt and owners equity and the repayment of capital
four characteristics of CA& R cycle
- relatively few transactions affect the account balances
- the exclusion or misstatement of a single transaction can be material
- a legal relationship exists between the client entity and the holder of the stock, bond, or similar ownership document
- direct relationship exists between the interest and dividends accounts and debt and equity
note payable
legal obligation to a creditor
proper controls over notes payable
- proper authorization for the issue of new notes
- adequate controls overt the repayment of principal and interest
- proper documents and records
- periodic independent verification
balance related audit objectives in notes payable
- existing notes payable are included(completeness)
2. notes payable in the schedule are accurately recorded(accuracy)
publicly held corporation
more complex, many shareholders and frequent changes
closely held corporation
have few shareholders, occasional if any transactions
shareholders capital stock master file
the record of outstanding shares at any given time
capital stock certificate record
records the issuance and repurchase of capital stock for the life of the corporation
independent registrar
makes sure that stock is issued correctly
dividends objectives
- recorded dividends occurred
- existing dividends are recorded
- dividends are accurately recorded
- dividends are paid to stockholders that exist
- dividends payable are recorded
- dividends payable are accurately recorded
stock transfer agent
maintains stockholder records including those documenting transfers of stock ownership
Ch 24
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contingent liability
potential future obligation
remote(not disclosure)
reasonably possible(footnote disclosure necessary)
probable - est, f/s are adjusted, not reasonably estimated, footnote disclosure
committments
agreements to purchase something
inquiry f a client’s attorney
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
unasserted claim
ex: violation of a patent agreement
review for subsequent events
auditing procedures required by auditing standards to verify these transactions and events are commonly called this
subsequent events
direct effect on the f/s and require adj. of current year
no direct effect but require disclosure
direct events that require restatement
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
no direct effect but require disclosure
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
subsequent event occurs after field work was completed but audit report was not issued
- expand all subsequent events tests to the new date
2. restrict the subsequent events review to matters related to the new subsequent event
dual dated report
occurs when there is a subsequent event in between completion of field work and audit report issuance
letter of representation
documents managements most important oral representations during the audit should include F/S completeness info recognition, measurement, and disclosure subsequent events
other info included in annual reports
auditors are required to read other info that is related to the financial statements
unadjusted misstatement audit schedule
summary of possible misstatements
financial statement disclosure checklist
goes over common disclosure problems
independent review
required by the SEC, it is a review of the audit conducted
management letter
intended to inform client personnel of the CPA’s recommendations for improving any part of the clients business
