ch15 - Chapter 15 Multiple Choice 1. C 2. B 3. A 4. D 5. B...

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Chapter 15 Multiple Choice 1. C 2. B 3. A 4. D 5. B 6. C 7. B 8. D 9. A 10. C 11. D 12. A 13. B 14. A 15. D 16. A 17. B 18. A 19. A 20. A Discussion Questions 21. In an integrated audit the auditor must issue an opinion on ICFR effectiveness only at management’s report date which is typically at year end. Yet if ICFR is to be relied upon for the financial statement audit, the ICFR effectiveness must be tested for the entire year. Is long term debt an area for which the auditor of a public company might not rely on ICFR for the financial statement audit? Why or why not? How would the audit procedures be different under the different approaches to the audit? [LO 5] Long term debt transactions are typically infrequent, although large in value. As such, the transactions are typically in excess of the auditor’s materiality threshold when they occur. Payment of principal and interest transactions are normally routine transactions and if the assessment of ICFR with respect to long term debt reveal the controls in place are both designed and operating effectively, the auditor may rely on the controls testing as part of the financial statement audit. In a non ICFR audit covering only the financial statements, with no reliance being placed on internal controls, the audit procedures would be slightly different. There would be no dual purpose tests. There would be additional substantive tests of balances including a review of monthly loan statements for tie out of the company’s loan amortization schedule reconciled to the general ledger. 22. Discuss an auditor’s objectives in the audit of long-term liabilities. Describe appropriate analytical procedures an auditor may apply to long-term liabilities. [LO 6]
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The auditor’s main objectives with respect to long term debt include confirmation that debt transactions are authorized, properly valued on the balance sheet and that all obligations are completely recorded. Analytical procedures include a recomputation of interest based on the terms of the debt instrument and a comparison to the stated balance for the current year, and a comparison of the current balance with previous periods. 23. Discuss an auditor’s objectives in the audit of equity accounts. Describe appropriate analytical procedures an auditor may apply to equity accounts. [LO 8] The main control concerns for equity transactions are that they are properly authorized, correctly recorded, and properly presented and disclosed. Board of Directors authorization is generally required for issuing capital stock, repurchasing capital stock (treasury stock) and declaring dividends. The company or outside agents must maintain records on the identity of actual current share owners, and the amounts of dividends paid to stockholders as of the date of record. Analytic procedures may include variance analysis of Common Stock and Additional Paid in
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ch15 - Chapter 15 Multiple Choice 1. C 2. B 3. A 4. D 5. B...

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