Other Assets, Liabilities, and Equities 2 Flashcards Preview

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Flashcards in Other Assets, Liabilities, and Equities 2 Deck (20)
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1
Q

How would I test the existence and rights of an investment in the common stock of a publicly traded company?

A

By confirming the number of shares owned that are held by an independent custodian

2
Q

How would I gain assurance that all guarantees of the affiliate’s indebtedness have been detected?

A

By reviewing the client’s minutes and obtain a representation letter

3
Q

What is a primary concern when examining the shareholders’ equity section of a client’s balance sheet?

A

Whether entries in the capital stock account can be traced to a resolution in the minutes of the board of directors’ meetings

E.g. This tells the auditor whether all capital stock transactions are properly authorized

4
Q

What detail information can I find on a security count worksheet?

A

An acknowledgment by a client representative that the securities were returned intact

E.g. This ensures a clear chain of custody; and

  • securities were returned intact when the count was complete
5
Q

What procedure(s) would I use to audit a mortgage balance?

A
  • Examine the current year’s canceled checks
  • Re-compute mortgage interest expense
  • Review the mortgage amortization schedule
6
Q

What should I do when;

An entity (the client) holds an asset (e.g. securities) of another entity as security (e.g. collateral) for an outstanding debt?

A

Examine the securities and determine their fair value

E.g. I want to examine the collateral; and
- estimate its fair value to determine the reasonableness of the arrangement

7
Q

How would I best verify the interest earned on bond investment?

A

By re-computing the interest earned on the basis of face amount, interest rate, and period held

E.g. I can use the information from bond certificates to;

  • Recalculate bond interest earned
8
Q

What item would I verify in conjunction with accrued commissions payable?

A

Sales cutoff test

Why?: This helps me obtain reasonable assurance that revenues and related liabilities are recorded in the same period

E.g. The “Matching Principle”

9
Q

What should I be concerned with when establishing whether dividends are paid to client corporation shareholders who hold stock?

A

That dividends are paid to client corporation shareholders who hold stock as of the:

“Record Date”

Why?: Because these shareholders are entitled to the dividend

10
Q

When auditing the private placement of bonds, what step should I use in my auditor’s plan for the audit of bonds payable?

A

Tracing the cash received from the issue to the accounting records

Why?: Because I am most concerned that the cash received from the issue is accurately recorded

11
Q

How would I test the valuation assertion when auditing an investment accounted for by the equity method?

A

By examining the audited financial statements of the investee company

12
Q

What account would I analyze to verify whether all fixed assets have been capitalized?

A

Repairs and maintenance

13
Q

How could I best test for unrecorded retirements of equipment?

A

Select items of equipment from the accounting records and then locate them during the plant tour

14
Q

What assertion am I best testing for when I am testing for unrecorded retirements of equipment?

A

I am testing for the “Existence” assertion

15
Q

When RMM is low for assertions related to payroll, what analytical procedures would I perform?

A

Applying analytical procedures and Recalculating payroll accruals

E.g. Analytical procedures and testing for completeness and cutoff of the year-end accruals

16
Q

What is a primary concern when auditing payroll transactions?

A

The possibility of:

  • Overpayments and unauthorized payments
17
Q

How could I best test the existence and ownership of long-term investments in the form of publicly traded stock?

A

By inspecting the securities or confirming the number of shares owned that are held by an independent custodian

18
Q

What assertion am I satisfying when I:

  • Physically examine new additions listed on an analysis of plant and equipment?
A

I am satisfying the “Existence” assertion

E.g. By inspecting assets identified as new additions I am;

  • determining whether the assets recorded in the balance actually exist
19
Q

What should an audit plan for noncurrent debt include?

A

Steps that require; Examining bond trust indentures

I need to do this in order to;

  • determine that the client is meeting the conditions of the contract and is in compliance with the law
20
Q

What ratio would I use to identify the possible existence of idle equipment or the possibility that equipment has been disposed of without having been written off?

A

I should take a look at “Gross manufacturing equipment cost to units produced”