审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案22 Solutions Manual

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1、Chapter 22Audit of the Capital Acquisition and Repayment Cyclen Review Questions22-1Four examples of interest bearing liability accounts commonly found on balance sheets are:1.Notes payable2.Contracts payable3.Mortgages payable4.Bonds payableThese liabilities have the following characteristics in co

2、mmon:1.Relatively few transactions affect the account balance, but each transaction is often highly material in amount.2.The exclusion of a single transaction could be material in itself.3.There is a legal relationship between the client entity and the holder of the stock, bond, or similar ownership

3、 document.4.There is a direct relationship between interest and dividend accounts and debt and equity.These liabilities differ in what they represent and the nature of their respective liabilities.22-2The characteristics of the liability accounts in the capital acquisition and repayment cycle that r

4、esult in a different auditing approach than the approach followed in the audit of accounts payable are:1.Relatively few transactions affect the account balance, but each transaction is often highly material in amount.2.The exclusion of a single transaction could be material in itself.3.There is a le

5、gal relationship between the client entity and the holder of the stock, bond, or similar ownership document.4.There is a direct relationship between interest and dividend accounts and debt and equity.22-3It is common to audit the balance in notes payable in conjunction with the audit of interest exp

6、ense and interest payable because it minimizes the verification time and reduces the likelihood of overlooking misstatements in the balance. Once the auditor is satisfied with the balance in notes payable and the related interest rates and due dates for each note, it is easy to test the accuracy of

7、accrued interest. If the interest expense for the year is also tested at the same time, the likelihood of omitting a note from notes payable for which interest has been paid is minimized. When there are a large number of notes or a large number of transactions during the year, it is usually too time

8、 consuming to completely tie out interest expense as a part of the audit of the notes payable and related accrued interest. Normally, however, there are only a few notes and few transactions during the year.22-4The most important controls the auditor should be concerned about in the audit of notes p

9、ayable are:1.The proper authorization for the issuance of new notes (or renewals) to insure that the company is not being committed to debt arrangements that are not authorized.2.Controls over the repayment of principal and interest to insure that the proper amounts are paid.3.Proper records and pro

10、cedures to insure that all amounts in all transactions are properly recorded.4.Periodic independent verification to insure that all the controls over notes payable are working.22-5The most important analytical procedures used to verify notes payable is a test of interest expense. By the use of this

11、test, auditors can uncover misstatements in interest calculations or possible unrecorded notes payable.22-6It is more important to search for unrecorded notes payable than unrecorded notes receivable because the omission of an asset is less likely to occur than the omission of a debt. Several audit

12、procedures the auditor can use to uncover unrecorded notes payable are:1.Examine the notes paid after year-end to determine whether they were liabilities at the balance sheet date.2.Obtain a standard bank confirmation that includes specific reference to the existence of notes payable from all banks

13、with which the client does business.3.Review the bank reconciliation for new notes credited directly to the bank account by the bank.4.Obtain confirmation from creditors who have held notes from the client in the past and are not currently included in the notes payable schedule.5.Analyze interest ex

14、pense to uncover a payment to a creditor who is not included on the notes payable schedule.6.Review the minutes of the board of directors for authorized but unrecorded notes.22-7The primary purpose of analyzing interest expense is to uncover a payment to a creditor who is not included on the notes p

15、ayable schedule. The primary considerations the auditor should keep in mind when doing the analysis are:1.Is the payee for the interest payment listed in the cash disbursements journal also included in the notes payable list?2.Has a confirmation for notes payable been received from the payee?22-8The

16、 tests of controls and substantive tests of transactions for liability accounts in the capital acquisition and repayment cycle consists of tests of the control and substantive tests over the payment of principal and interest and the issuance of new notes or other liabilities, whereas the tests of de

17、tails of balances concern the balance of the liabilities, interest payable, and interest expense. A unique aspect of the capital acquisition and repayment cycle is that auditors normally verify the transactions and balances in the account at the same time, as described in the solution to Review Ques

18、tion 22-3.22-9Four types of restrictions long-term creditors often put on companies in granting them a loan are:1.Financial ratio restrictions2.Payment of dividends restrictions3.Operations restrictions4.Issue of additional debt restrictionsThe auditor can find out about these restrictions by examin

19、ing the loan agreement and related correspondence associated with the loan, and by confirmation. The auditor must perform calculations and observe activities to determine whether the client has observed the restrictions.22-10The primary objectives in the audit of owners equity accounts are to determ

20、ine whether:1.The internal controls over capital stock and related dividends are adequate.2.Owners equity transactions are recorded properly, as defined by the following six transaction-related audit objectives:n Occurrencen Completenessn Accuracyn Posting and summarizationn Classificationn Timing22

21、-10(continued)3. Owners equity balances in the financial statements satisfy the following balance-related audit objectives:n Detail tie-inn Existencen Completenessn Accuracyn Classificationn Cutoff4. Owners equity balances are properly presented and disclosed to satisfy the following presentation an

22、d disclosure-related audit objectives:n Occurrence and Rights and Obligationsn Completenessn Accuracy and Valuationn Classification and Understandability22-11Although the corporate charter and bylaws are legal documents, their legal nature is not being judged by the auditor. They are being used only

23、 to reference transactions being tested by the auditor and provide insight into some of the key control features of the company. The auditor should consult an attorney if the information the auditor needs from the documents is not clear or if a legal interpretation is needed.22-12The major internal

24、controls over owners equity are:1.Proper authorization of transactions2.Proper record keeping3.Adequate segregation of duties between maintaining owners equity records and handling cash and stock certificates4.The use of an independent registrar and stock transfer agent22-13The audit of owners equit

25、y for a closely held corporation differs from that for a publicly held corporation in that the amount of time spent in verifying owners equity in a closely held corporation is usually minimal because of the relatively few transactions for capital stock accounts that occur during the year. For public

26、ly held corporations, the audit of owners equity is more complex due to the existence of a larger number of shareholders and frequent changes in the individuals holding stock.The audits are not significantly different in regard to whether the transactions in the equity accounts are properly authoriz

27、ed and recorded and whether the amounts in the accounts are properly classified, described, and stated in accordance with generally accepted accounting principles. 22-14The duties of a stock registrar are to make sure that stock is issued by a corporation in accordance with the capital authorization

28、 of the board of directors, to sign all newly issued stock certificates, and to make sure old certificates are received and cancelled before a replacement certificate is issued when there is a change in the ownership of the stock.The duties of a transfer agent are to maintain the stockholder records

29、, and in some cases, disburse cash dividends to shareholders.The use of the services of a stock registrar improves the effectiveness of the clients internal controls by preventing the improper issuance of stock certificates. Along similar lines, the use of the services of an independent transfer age

30、nt improves the control over the stock records by putting them in the hands of an independent organization.22-15The number of shares outstanding, the correct valuation of capital stock transactions, and par value can all be confirmed with a transfer agent. The balance can then be easily recalculated

31、 from this information.22-16Since it is important to verify that properly authorized dividends have been paid to owners of stock as of the dividend record date, a comparison of a random sample of cancelled dividend checks to a dividend list prepared by management would be inadequate. Such an audit s

32、tep is useless unless the dividend list has first been verified to include all stockholders of record at the dividend record date. A better test is to determine the total number of shares outstanding at the dividend date from the stock registrar and recompute the total dividends that should have bee

33、n paid for comparison with the total amount actually paid. A random sample of cancelled checks should then be compared to the independent registrars records to verify that the payments were actually made to valid shareholders.22-17If a transfer agent disburses dividends for a client, the total divid

34、ends declared can be verified by tracing the amount to a cash disbursement entry to the agent and also confirming the amount. There should ordinarily be no need to test individual dividend disbursement transactions if a stock transfer agent is used. 22-18The major emphasis in auditing the retained e

35、arnings account should be on the recorded changes that have taken place during the year, such as net earnings for the year, dividends declared, prior period adjustments, extraordinary items charged or credited directly to retained earnings, or setting up or elimination of appropriations. Except for

36、dividends declared, the other items should be verified during other parts of the engagement. This is especially true of the net earnings for the year. Therefore, the audit of retained earnings primarily consists of an analysis of the changes in retained earnings and the verification of the authoriza

37、tion and accuracy of the underlying transactions. 22-19For auditing owners equity and calculating earnings per share, it is crucial to verify that the number of shares used in each is accurate. Earnings are verified as an integral part of the entire audit and should require no additional verificatio

38、n as a part of owners equity. The most important auditing considerations in verifying the earnings per share figure are the accounting principles prescribed by APB 15 and the descriptions of the various classes of stock in the corporate charter and minutes of the board of directors.Multiple Choice Q

39、uestions From CPA Examinations22-20a.(2)b.(2)c.(2)22-21a.(4)b.(3)c.(1)n Discussion Questions and Problems22-22a.PURPOSE OF CONTROLb.POTENTIAL FINANCIAL STATEMENT MISSTATEMENTc.AUDIT PROCEDURE TO DETERMINE EXISTENCE OF MATERIAL MISSTATEMENT 1.To insure that all note liabilities are actual liabilities

40、 of the company.Loss of assets through payment of excess interest rates or the diversion of cash to unauthorized persons.Examine note request forms for proper authorization and discuss terms of note with appropriate management personnel.2.To insure that note transactions are recorded in full and in

41、detail.Improper disclosure or misstatements in notes payable through duplication.Reconcile detailed contents of master file or other records to control account.3.To insure that all note-related transactions agree with account balances.Misstatement of notes payable.Reconcile master file with outstand

42、ing notes payable.4.To prevent misuse of notes and funds earmarked for notes.Misstatement of liabilities and cash.Perform all substantive procedures on extended basis. Trace from paid notes file to cash receipts to determine that the appropriate amount of cash was received when the note was issued.5

43、.To insure that notes are not paid more than once.Loss of cash.Examine outstanding notes and paid notes for similarities and the potential for reusing the notes.6.To insure that only the proper interest amount is paid and recorded.Misstatement of interest expense and related accrual.Recompute intere

44、st on a test basis.22-23 a.AUDIT PROCEDUREPURPOSE1To determine the nature of restrictions on client as a means of verifying whether the restrictions have been met and to insure they are adequately disclosed.2To insure that the bonds are not subject to unnecessary early retirement by bondholders and

45、that proper disclosures are made. 3To determine if the account balances are reasonable as related to each other and to examine for unreasonable changes in the account balances. 4To determine if the calculations are correct and accounts are accurate.5To obtain independent confirmation of bond indebte

46、dness and collateral.b.The auditor should be alert for the following provisions in the bond indenture agreement:1.Restrictions on payment of dividends2.Convertibility provisions3.Provisions for repayment4.Restrictions on additional borrowing5.Required maintenance of specified financial ratiosc.The a

47、uditor can determine whether the above provisions have been met by the following procedures:22-23 a. (continued) 1.Audit of payments of dividends2.Determine if the appropriate stock authorizations are adequate3.Determine if sinking fund is adequate4.Search for other liabilities5.Calculate ratios and

48、 compare to agreementd.The auditor should verify the unamortized bond discount or premium on a bond that was in force at the beginning of the year by recalculation. This is done by dividing the premium or discount by the number of total months the bonds will be outstanding and multiplying by the num

49、ber of months remaining. For bonds issued in the current year, the bond premium or discount must first be verified. The monthly premium or discount is then calculated and multiplied by the number of months still outstanding.e.The following information should be requested from the bondholder in the c

50、onfirmation of bonds payable:1.Amount of bond2.Maturity date3.Interest rate4.Payment dates5.Payment amounts6.Assets pledged as security7.Restrictions on client activities22-24a.The auditing necessary for notes payable and related interest accounts in these circumstances would be minimal. Aside from

51、checking interest calculations and postings to the proper accounts as a matter of audit routine, the only major audit procedure would be to confirm the amount and provisions of the note with the bank.b.If Fox was unprofitable, had a need for additional financing, and had deficient internal controls,

52、 it would be necessary to search for unrecorded notes. This could be done by obtaining standard bank confirmations with specific reference to the existence of notes payable, reviewing the bank statements and reconciliations for new notes credited directly to the bank account by the bank, and analyzi

53、ng interest expense to uncover a payment to a creditor who is not included on the notes payable schedule.22-25a.The emphasis in the verification of notes payable in this situation should be in determining whether all existing notes are included in the clients records. The four audit procedures liste

54、d do not satisfy this emphasis.b.AUDIT PROCEDUREPURPOSE1To determine if the notes payable list reconciles to the general ledger.2To determine if the notes payable on the list are correctly recorded and disclosed.3To verify that all recorded notes payable are properly recorded and disclosed.4To insur

55、e that interest expense is properly recorded on the books.22-25(continued)c.Procedure 2 is not necessary in light of procedure 3. They both perform the same function and the confirmation is from an independent source. The sample sizes for the procedures are probably appropriate, considering the defi

56、ciencies in record keeping procedures.d.In addition to the procedures mentioned, the following ones are essential because there must be a search for unrecorded notes:1.Analyze interest expense and send a confirmation for notes payable to all payees not receiving a confirmation for notes.2.Confirm th

57、e balance in notes payable to payees included in last years notes payable list but not confirmed in the current year.3.Examine notes paid after year-end to determine whether they were liabilities at the balance sheet date.4.Obtain a standard bank confirmation that includes a specific reference to no

58、tes payable from all banks with which the client does business.5.Review the minutes of the board of directors.22-26In each case, any actual failure to comply would have to be reported in a footnote to the statements in view of the possible serious consequences of advancing the maturity date of the l

59、oan. The individual audit steps that should be taken are as follows:a.Calculate the working capital ratio at the beginning of and through the previous fiscal year. If it is under 2 to 1, determine compensation of officers for compliance with the limitation.b.Examine the clients copies of insurance p

60、olicies or certificates of insurance for compliance with the covenant, preparing a schedule of book value, appraised or estimated value, and coverage for the report. Confirm policies held with trustee.c.Examine vouchers supporting tax payments on all property covered by the indenture. By reference t

61、o the local tax laws and the vouchers, determine that all taxes have been paid before the penalty-free period expired. If the vouchers in any case are inadequate, confirm with the trustee who holds the tax receipts.d.Vouch the payments to the sinking fund. Confirm bond purchases and sinking fund bal

62、ance with trustee. Observe evidence of destruction of bonds for bonds cancelled. Report the fund as an asset, preferably giving the composition as to cash and bonds held alive, if any.22-27a.It is desirable to prepare an audit schedule for the permanent file for the mortgage so that the appropriate

63、information concerning the mortgage will be conveniently available for future years audits. This information should include all the provisions of the mortgage as well as the purchase price, date of purchase, and a list of items pledged as collateral. It may also contain an amortization schedule of p

64、rincipal and interest (especially if the auditor has access to a computer program for preparation of such a schedule)b.The audit of mortgage payable, interest expense, and interest payable should all be done together since these accounts are related and the results of testing each account have a bearing on the other accounts. The likelihood of misstatement in the cli