Why is the balance-related presentation audit objective so important for stock-based compensation?

Chief executive officer compensation can be a material amount and is often scrutinized by regulators, analysts, competitors, and investors. For CEOs of pub-
licly traded companies, compensation can consist of salary, bonus, stock option grants, or other stock awards that can be restricted in terms of how long the officers and directors are required to hold the stock. Publicly traded companies are required by the Securities and Exchange Commission to provide disclosures about the components of executive compensation in the company’s annual proxy statement.
a. Visit the SEC’s website (www.sec.gov) to locate the annual proxy statement (the “DEF
14A” filing) submitted to the SEC on April 6, 2018, for Yum Brands, Inc., which owns
Kentucky Fried Chicken, Pizza Hut, and Taco Bell restaurants. Locate the section that
summarizes the CEO’s compensation within the annual proxy statement and identify
the total amount and the components of the chairman and chief executive officer’s
total compensation for 2017.
b. Provide at least one audit procedure the auditor would perform to test the chairman
and CEO’s salary. What audit objective is satisfied with this audit procedure?
c. Provide at least one audit procedure the auditor would perform to test the occurrence objective related to the awarding of the chairman and CEO’s stock awards and stock option/stock appreciation rights (SAR).
d. How would the auditor test the fair value of the stock option/stock appreciation rights (SAR)?
e. Why is the balance-related presentation audit objective so important for stock-based compensation?
f. Locate the CEO Pay Ratio section, identify the ratio of CEO pay to median em-
ployee for 2017, and briefly summarize the methodology used to calculate the
ratio.

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