Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 15, Problem 16RQ
In the audit of a small corporation that issues paper stock certificates and does not utilize the services of an independent stock registrar and stock transfer agent, what use is made of the stock certificate book by the auditors?
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When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates shoulda. Be defaced to prevent reissuance and attached to their corresponding stubs.b. Not be defaced but be segregated from other stock certificates and retained in a canceled certificates file.c. Be destroyed to prevent fraudulent reissuance.d. Be defaced and sent to the secretary of state.
When a client company does not maintain its own capital stock records, the auditors should obtain written confirmation from the transfer agent and registrar concerninga. Restrictions on the payment of dividends.b. The number of shares issued and outstanding.c. Guarantees of preferred stock liquidation value.d. The number of shares subject to agreements to repurchase.
An auditor working with a publicly traded client learns that the client has been completing stock trades based on insider information. How should the auditor report any violations of the law?
Chapter 15 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 15 - What does the trust indenture used by a...Ch. 15 - Long-term creditors often insist upon placing...Ch. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Prob. 8RQCh. 15 - Prob. 9RQCh. 15 - Prob. 10RQ
Ch. 15 - Mansfield Corporation has outstanding an issue of...Ch. 15 - Prob. 12RQCh. 15 - Prob. 13RQCh. 15 - What do you consider to be the most important...Ch. 15 - What is the primary responsibility of an...Ch. 15 - In the audit of a small corporation that issues...Ch. 15 - Prob. 17RQCh. 15 - Prob. 18RQCh. 15 - Prob. 19RQCh. 15 - Corporations sometimes issue their own capital...Ch. 15 - Prob. 21RQCh. 15 - Prob. 22RQCh. 15 - Prob. 23RQCh. 15 - Prob. 24RQCh. 15 - Prob. 25RQCh. 15 - Prob. 26RQCh. 15 - Prob. 27QRACh. 15 - Prob. 28QRACh. 15 - Prob. 29QRACh. 15 - You are retained by Columbia Corporation to audit...Ch. 15 - Prob. 31QRACh. 15 - Prob. 32AOQCh. 15 - Prob. 32BOQCh. 15 - Prob. 32COQCh. 15 - Prob. 32DOQCh. 15 - Prob. 32EOQCh. 15 - When a client uses paper stock certificates, an...Ch. 15 - Prob. 32GOQCh. 15 - The auditors can best verify a clients bond...Ch. 15 - Prob. 32IOQCh. 15 - All corporate capital stock transactions should...Ch. 15 - Prob. 32KOQCh. 15 - Prob. 32LOQCh. 15 - Prob. 32MOQCh. 15 - Prob. 32NOQCh. 15 - Prob. 32OOQCh. 15 - An auditor most likely would inspect loan...Ch. 15 - Prob. 32QOQCh. 15 - Match the following definitions (or partial...Ch. 15 - Prob. 34PCh. 15 - Prob. 35PCh. 15 - Prob. 36PCh. 15 - Prob. 37P
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- Which of the following audit procedures would not likely be performed for audits of shareholders’ equity?a. Read board of directors’ minutes for authorization of equity transactions.b. Confirm outstanding common and preferred stock with stock registrar.c. Compare valuation of stock to published market prices.d. Obtain management representation about number of shares issued and outstanding.arrow_forwardWhich of the following audit procedures would be most relevant when examiningthe completeness transaction-related audit objective for capital stock?(1) The auditor examines minutes of the board of directors’ meetings to identifyany actions involving the issuance of capital stock.(2) The auditor vouches entries in the client’s capital stock records to board minutes.(3) Confirmations of new stock issuances are sent to the client’s stock transfer agent.(4) The auditor traces entries of new stock issuances to the cash receipts journal.arrow_forwardFollowing are typical questions that might appear on an internal control questionnaire for investments in marketable securities. Is custody of investment securities maintained by an employee who does not maintain the detailed records of the securities? Are securities registered in the company name? Are investment activities reviewed by an investment committee of the board of directors? Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.arrow_forward
- Items 1 through 6 are common questions found in internalcontrol questionnaires used by auditors to obtain an understanding of internal controlfor owners’ equity. In using the questionnaire for a client, a “yes” response indicates apossible internal control, whereas a “no” indicates a potential deficiency.1. Are all entries in the owners’ equity accounts authorized at the proper level in theorganization?2. Are issues and retirements of stock authorized by the board of directors?3. Does the company use the services of an independent registrar or transfer agent?4. If an independent registrar and transfer agent are not used:(a) Are unissued certificates properly controlled?(b) Are cancelled certificates mutilated to prevent their reuse?5. Are common stock master files and stock certificate books periodically reconciledwith the general ledger by an independent person?6. Is an independent transfer agent used for disbursing dividends? If not, is an imprestdividend account maintained?arrow_forwardIn establishing the existence and ownership of an investment held by a corporationin the form of publicly traded stock, an auditor should inspect the securities or(1) obtain written representations from management confirming that the securitiesare properly classified as trading securities.(2) inspect the audited financial statements of the investee company.(3) confirm the number of shares owned that are held by an independent custodian.(4) determine that the investment is carried at the lower of cost or market.arrow_forwardWilson's Corporation is one of your new audit clients. The corporation's accountant is uncertain how to report earnings per share in accordance with IFRS and is requesting that you provide the following information: Define the term 'earnings per share' as it applies to a corporation with a capitalization structure composed of only one class of ordinary shares. Explain how earnings per share should be computed and how the information should be disclosed in the corporation's financial statements.arrow_forward
- The following audit procedures are commonly performedby auditors in the verification of owners’ equity:1. Review the articles of incorporation and bylaws for provisions about owners’ equity.2. Analyze all owners’ equity accounts for the year and document the nature of anyrecorded change in each account.3. Account for all certificate numbers in the capital stock book for all shares outstanding.4. Examine the stock certificate book for any stock that was cancelled.5. Review the minutes of the board of directors’ meetings for the year for approvalsrelated to owners’ equity.6. Recompute earnings per share.7. Review debt provisions and senior securities with respect to liquidation preferences,dividends in arrears, and restrictions on the payment of dividends or the issue of stock.a. State the purpose of each of these seven audit procedures.b. List the type of misstatements the auditors can uncover by the use of each auditprocedure.arrow_forwardWhich of the following was NOT an issue associated with the Enron scandal? Falsification in numbers of stocks. Posting false earnings for their business. Internally trading without disclosures. Accurate and transparent stock ratings.arrow_forward. For large publicly listed and traded companies, which of the following should not be done as a step in gathering evidence concerning the company's capital stock account: a. Analysis of capital stock accounts b. Confirmation of Shares issued to existing stockholders c. Accounting for the proceeds of major stock issues d. Reconciliation of stock certificate book with the general ledgerarrow_forward
- When an entity uses a trust company as custodian of its marketable securities, the possibility of concealing fraud most likely would be reduced if thea. Trust company has no direct contact with the entity employees responsible for maintaining investment accounting records.b. Securities are registered in the name of the trust company rather than the entity itself.c. Interest and dividend checks are mailed directly to an entity employee who is authorized to sell securities.d. The trust company places the securities in a bank safe deposit vault under the custodian’s exclusive control.arrow_forwardWhich of the following is not true of a registration statement? A . It helps the SEC make judgments about the worth of securities. B. It contains financial statements certified by independent public accountants. C. It provides information about the management of the company. D. It is different for different types of companies that offer securities for sale.arrow_forwardWhich of the following transactions will not have a direct effect on a company's Retained Earnings account? * Acquisition of Treasury Share at cost Higher than Ordinary Share Capital Fair Value Exchange of Building for an Equipment where the fair value of the building exchanged is lower than the fair value of the equipment acquired Declaration and Issuance of Small Stock Dividend Declaration and Issuance of Large Stock Dividend In auditing the retained earnings, the following items does not concern the auditor even if it was not approved by the Board of Directors. * Issuance of convertible debt secutiries Issuance of redeemable preferred shares Changes in re9tained earnings due to closing of net income Declaration of 20% share dividends Total shareholder's Equity is not affected by the transactions below, except: * Appropriation of Retained Earnings to be used for plant expansion Acquisition of Treasury Shares at cost lower than fair value of Ordinary Share Capital Payment of Cash…arrow_forward
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