The following questions concern auditor responsibilities related to the audit of the capital acquisition and repayment cycle. Choose the best response.
a. An auditor is planning the test of details for a client’s debt transactions. In order to test the existence and occurrence assertion, the auditor would most likely perform which of the following tests?
(1) Examine the client’s bond maturity dates to determine whether the debt should
be reflected as a short-term or a long-term liability.
(2) Select a sample of debt payments and compare the interest expense to the re-
ported debt balance for reasonableness.
(3) Review the board minutes to obtain evidence of new agreements and then follow
up by inspecting the new agreements.
(4) Review the interest expense account for possible payments to debt holders not
included in the debt listing.
b. In order to test the valuation assertion related to the client’s stockholders’ equity trans-
actions, the auditor may complete which of the following substantive procedures?
(1) Analyze the retained earnings account by reviewing the propriety of the direct
entries to the retained earnings account, starting with the date of the previous audit.
(2) Perform inquiries of management regarding appropriations of retained earnings.
(3) Vouch stock transactions recorded in the current period to board minutes.
(4) Send third-party confirmations to the stock transfer agent.
c. An auditor is in the process of performing substantive procedures on a client’s stock-
holders’ equity and vouches stock-related transactions recorded during the year to board minutes. Which of the following assertions is the auditor testing with these procedures?
(1) Valuation
(2) Classification
(3) Completeness
(4) Existence and occurrence
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