chapter 22 arens

7/26/2019 Chapter 22 arens

1/12

* Chapter 22

Audit of the CapitalAcquisition and

Repayment Cycle


2/12

Characteristics :

1. Relatively few transactions affect the

account balances, but each one is

often highly material in amount.

2. The exclusion of a single transactioncould be material in itself.


3/12

3. A legal relationship exists between the

client entity and the holder of the stoc,bond, or similar ownership document.

!. A direct relationship exists between theinterest and dividends accounts and

debt and e"uity.


4/12

*Objectives of the audit

of notes payable:1. The internal controls over notes payable

are ade"uate.

2. Transactions for principal and interest are

properly authori#ed and recorded.

3. The liability for notes payable and the

related interest expense and accrued

liability are properly stated


5/12

Internal Controls

1. $roper authori#ation for the issue of

new notes.

Ade"uate controls over the repayment

of principal and interest

$roper documents and records

$eriodic independent verification


6/12

Tests of notes payable transactionsinvolve the issue of notes and therepayment of principal and interest.

Tests of Controls and Substantive

Tests of Transactions


7/12

*Analytical rocedures for

!otes ayable

Analytical procedure Possible misstatement

Recalculate possibleinterest expense on thebasis of average interest

rates and overall monthlynotes payable.

%isstatement of interestexpense and accruedinterest, or omission

of an outstandingnote payable.

&ompare individual notesoutstanding with thoseof the prior year.

'mission ormisstatement ofa note payable.

&ompare total balance innotes payable, interestexpense, and accruedinterest with prior(yearbalances.

%isstatement of interestexpense and accruedinterest or notespayable.


8/12

*"ajor #alance$related Audit

Objectives in !otes ayable

%& Completeness:

)xisting notes payable areincluded

2& Accuracy:

*otes payable in the schedule+ are accurately recorded.


9/12

$roper authori#ation of transactions

$roper record eeping and segregation of duties

ndependent registrar and stoc transfer agent

nternal &ontrols -

*O'ners( )quity


10/12

*Audit of Capital Stoc* and

aid$in Capital1. &ompleteness-

)xisting capital stoc transactionsare recorded.

2. 'ccurrence and accuracy-Recorded capital stoc transactionsexist and are accurately recorded.

3. Accuracy-

&apital stoc is accurately recorded.!. $resentation and disclosure-

&apital stoc is properly presented anddisclosed.


11/12

*Audit of +ividends

1. 'ccurrence-Recorded dividends occurred.

2. &ompleteness-)xisting dividends are recorded.

3. Accuracy-ividends are accurately recorded.

!. 'ccurrence-ividends are paid to stocholdersthat exist.

/. &ompleteness-ividends payable are recorded.

0. Accuracy-ividends payable are accurately recorded.


12/12

*Audit of Retained )arnin,s

Transactions involving retained earnings- *et earnings for the year ividends declared

There may be corrections to- $rior(period earnings $rior(period adustments

Appropriations of retained earnings

chapter 22 arens

Documents