Deck 14: Audit of Long-Term Liabilities, Equity, Acquisitions and Related-Entity Transactions

Question 1

The auditor may rely on management inquiry for all disclosures relating to debentures and the auditor need not read the entire debenture agreement.

Answer 1

False

Question 2

Now that the accounting for business combinations has been refined by the AASB, accountants need not consider further changes.

Answer 2

False

Question 3

AASB 124 requires that personal use of a company's assets by senior management be disclosed in the financial statements.

Answer 3

True

Question 4

The auditors must notify ASIC of any related party transactions discovered during testing.

Question 5

The Corporations Act 2001 requires financial report disclosure of significant customers and disclosure of all relationships in which there is economic dependency due to the inherent risks involved.

Question 6

Debentures are reported on the financial statements net of premium or discount.

Question 7

An example of a restriction in a debenture is the use of a trustee to disburse funds.

Question 8

Most debenture offerings are marketed through:

A) the Securities Exchange Market
B) an underwriter
C) the borrowing company
D) ASIC

Question 9

What is the primary purpose for AASB 124 requirement to disclose all transactions of senior management?

A) to make the public aware that members of management are typically greedy
B) to allow employees the opportunity to see the salaries commanded by management so that they can negotiate proportional increases
C) to hold management accountable for any unacceptable personal use of corporate assets
D) to give shareholders the indication that management is earning compensation through every possible avenue, as deserved

Question 10

Debenture issuers typically engage the services of a debenture trustee for what purpose?

A) issue new shares and to pay dividends
B) give a bond rating to the market
C) hand out certificates and to keep sequence
D) debenture holder registration and to disburse interest payments

Question 11

Which of the following causes valuation issues relative to the issuance of capital shares?

A) ordinary shares issued for cash
B) the company's ordinary shares are publicly traded on a major exchange
C) the company issues ordinary shares to officers and withholds payment from paycheques
D) preference shares are issued for assets or services

Question 12

Bryce Canyon, public accountant, is auditing the financing cycle of Top Hat Ltd. He reviews the constitution of Top Hat in relation to the company's ordinary shares to determine proper disclosure of which of the following?

A) authorised shares and par value
B) issued shares and preference shares outstanding
C) number of shares reserved for retained earnings
D) state of incorporation and officers

Question 13

Pilbara Wilderness Ltd is a public company that does not maintain its own shares books. How will the auditor most likely establish the number of shares outstanding for testing purposes?

A) inquiry of management
B) discussions with the shares trustee
C) confirmation with the transfer agent
D) examination of proceeds from current shares issuance

Question 14

Ordinary shares
What are the transactions affecting shareholders' equity that should be addressed during an audit?

Question 15

Long-term obligations
Debentures are a frequent part of other long-term debt. Discuss what debentures are, why the auditor is concerned about them and some of the audit procedures that would be applied because of them. What are some common types of provisions that are typically included in such agreements?