Chapter 22 – Audit of the Capital Acquisition and Repayment Cycle

Olga Quintana

Informations

• Publié par: Phuwyir
• Nombre de lectures: 452
• Langue: English

Extrait

Audit of the Capital
Acquisition and
Repayment Cycle
Chapter 22
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 1Learning Objective 1
Identify the accounts and the
unique characteristics of the
capital acquisition and
repayment cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 2Characteristics of the Capital
Acquisition and Repayment Cycle
1. Relatively few transactions affect the
account balances, but each one is
often highly material in amount.
2. The exclusion of a single transaction
could be material in itself.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 3Characteristics of the Capital
Acquisition and Repayment Cycle
3. A legal relationship exists between the
client entity and the holder of the stock,
bond, or similar ownership document.
4. A direct relationship exists between the
interest and dividends accounts and
debt and equity.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 4Accounts in the Cycle
 Notes payable
 Contracts payable
 Mortgages payable
 Bonds payable
 Interest expense
 Accrued interest
 Appropriations of retained earnings
 Treasury stock
 Dividends declared
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 5Accounts in the Cycle
 Cash in the bank
 Capital stock – common
 Capital stock – preferred
 Paid-in capital in excess of par
 Donated capital
 Retained earnings
 Dividends payable
 Proprietorship – capital account
 Partnership – capital account
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 6Methodology for Designing Tests
of Balances for Notes Payable
Identify client
business risks Phase I
affecting notes payable
Set tolerable misstatement
and assess inherent Phase I
risk for notes payable
Assess control
risk for Phase I
notes payable
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 7Methodology for Designing Tests
of Balances for Notes Payable
Design and perform
tests of controls and
substantive tests of
Phase IItransactions for
capital acquisition and
repayment cycle
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 8Methodology for Designing Tests
of Balances for Notes Payable
Design and perform
analytical procedures Phase III
for notes payable
Audit proceduresDesign tests of
details of notes Sample size
Phase IIIpayable to satisfy
Items to selectbalance-related
audit objectives Timing
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 9Learning Objective 2
Design and perform audit tests
of notes payable and related
accounts and transactions.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 10