Professional Documents
Culture Documents
Chapter Fifteen
Auditing Financing Process: Long-Term Liabilities, Stockholders Equity and Income Statement Accounts
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When the entity has proper controls for issuing debt transactions, it is generally easy for the auditor to test those transactions for validity and authorization at the end of the period.
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Completeness
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Authorization Verify that stock and dividend transactions have been properly approved.
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Valuation Verify that stock and dividend transactions have been properly valued.
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Segregation of Duties
The following duties should be segregated:
1. The individuals responsible for issuing, transferring and canceling stock certificates should not have any accounting responsibilities. 2. The individual responsible for maintaining the detailed stockholders records should be independent of the maintenance of the general ledger control accounts. 3. The individual responsible for maintaining the detailed stockholders records should not also process cash receipts or disbursements. 4. Appropriate segregation of duties should be established among the payment and recording of dividend payments.
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o Foot the shares outstanding in the stock register and/or stock certificate book and agree them to total shares outstanding in the general ledger. o Examine any canceled stock certificates.
o Account for and inspect any unissued stock certificates in the stock certificate book.
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Auditing Dividends
All dividends declared and paid will be audited because of concerns of violations of corporate bylaws or debt covenants.
When an outside agent for dividend-disbursing is used, the auditor can confirm the amount disbursed with the agent. This amount is agreed with the amount authorized by the board of directors. When an outside agent is not used, the auditor can recompute the amount of the dividend authorized by the board of directors and trace the amount to cash disbursements or dividends payable.
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If a reliance strategy is followed the auditor determines if controls may be relied upon.
If controls are operating effectively the auditor may reduce control risk below the maximum.
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End of Chapter 15
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