Items 1 through 6 are common questions found in internal control questionnaires used by auditors to obtain an understanding of internal control for
owners’ equity. In using the questionnaire for a client, a “yes” response indicates a possible internal control, whereas a “no” indicates a potential deficiency.
1. Are all entries in the owners’ equity accounts authorized at the proper level in the
organization?
2. Does the company use the services of an independent registrar or transfer agent?
3. Are board of director meeting minutes periodically reviewed to ensure all owners’
equity transactions are recorded in the general ledger?
4. Are common stock master files and stock certificate books periodically reconciled
with the general ledger by an independent person?
5. Is an independent transfer agent used for disbursing dividends? If not, is an imprest
dividend account maintained?
6. Are financial statement footnotes reviewed for completeness of required disclosures
related to owners’ equity?
a. For each of the preceding questions, state the purpose of the control.
b. For each of the preceding questions, identify the type of potential financial statement misstatements if the control is not in effect.
c. For each of the potential misstatements in part b., list an audit procedure that the auditor can use to determine whether a material misstatement exists.
