The following audit procedures are commonly performed
by 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 any
recorded 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 approvals
related 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 audit
The following audit procedures are included in the audit
program because of heightened risks of material misstatements due to fraud.
1. Use audit software to search cash disbursement master files for missing check numbers.
2. Search the accounts receivable master file for account balances with missing or
unusual customer numbers (e.g., “99999”).
3. Use audit software to create a list of all credits to the repair and maintenance
expense account for follow-up testing.
4. Engage an actuarial specialist to examine management’s assumptions about average
length of employment and average life expectancy of retirees used in pension accounting decisions.
5. Send confirmations to customers for large sales transactions made in the fourth quarter
of the year to obtain customer responses about terms related to the transfer of title
and ability to return merchandise.
6. Use audit software to search purchase transactions to identify any with nonstandard vendor numbers or with vendor names reflecting related parties.
7. Search sales databases for missing bill of lading numbers.
8. Use audit software to search for journal entries posted to the sales revenue account
from a non-standard source (other than the daily sales journal).
For each audit procedure:
a. Describe the type of fraud risk that is likely associated with the need for this audit
b. Identify the related accounts likely affected by the potential fraud misstatement.
c. Identify the related audit objective(s) that this procedure addresses.
The following audit procedures are included in the audit program
for the audit of the financial statements of Golden State Overnight Express:
1. Select a sample of acquisitions from the acquisitions journal and perform the following:
a. Vouch the transaction to the voucher package that includes the matched receiving
report, purchase order, and vendor invoice.
b. Verify that the purchase order was approved by an authorized purchasing agent.
c. Verify that the initials of accounts payable clerk are present, indicating that the
documents have been appropriately matched and that amounts on the vendor
invoice were verified.
d. Recalculate the invoice amount and compare the dollar amounts per the invoice
to the amount recorded in the acquisitions journal.
e. Examine whether the transaction was recorded to the correct vendor in the
accounts payable master file.
f. Determine if the transaction was recorded in the correct month, based on when
the goods were received and the terms of the transaction.
g. Review the chart of accounts to determine if the transaction was charged to the
appropriate general ledger account.
2. Discuss with the accounts payable personnel the nature of procedures they perform
when matching acquisitions documentation and discuss the types of discrepancies
they typically find and how those are resolved.
3. Scan the acquisitions journal for any unusual entries and investigate those noted.
4. Foot the acquisitions journal for two months of the year and determine that
amounts were correctly recorded in the general ledger accounts.
5. Trace a sample of voucher packages to the acquisitions journal throughout the year
to determine that the transaction is included in the acquisitions journal.
For each of the above procedures (consider 1.a. through 1.g. as separate procedures),
perform the following:
a. Identify the type of audit evidence used for each procedure.
b. Identify the transaction-related audit objective(s) satisfied by each procedure.
c. Identify whether the procedure is a test of control or substantive test of transaction
The following audit procedures are commonly performed by auditors in the verification of owners’ equity:
1.Review articles of incorporation and bylaws for provisions about owners’ equity.
2.Analyze all owners’ equity accounts for the year and document the nature of any recorded change in each account.
3.Confirm capital stock transactions with the stock registrar and transfer agent.
4.Confirm shares issued and outstanding with the stock registrar and transfer agent.
5.Review the minutes of the board of directors’ meetings for the year for approvals related 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.
State the purpose of each of these seven audit procedures.
List the type of misstatements the auditors can uncover by the use of each audit procedure.
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