Question 1

When a dividend is declared by the board, the source for determining who should receive dividend cheques is the

Accepted Answer

The shareholders' capital stock register or master file contains the list of all shareholders and their contact information, which is crucial for determining who should receive dividend cheques. The stock certificate books only contain information on the specific securities issued, not necessarily the current owners. The common stock account in the general ledger may track dividend payments, but it does not necessarily have the most up-to-date information on shareholders. The corporate directory is unlikely to have the specific information needed for dividend distributions.

Question 2

As part of the audit of dividends, the auditor would verify whether the payment was made to the shareholders who owned the stock at the dividend record date. Which of the following audit tests assists with this objective?

Accepted Answer

Selecting a sample of recorded dividend payments and tracing the payee's name on the cancelled cheque to the dividend records is the most direct and reliable way to verify that dividends were paid to the correct shareholders who owned the stock at the dividend record date. Examining the minutes of board of directors' meetings, reviewing the permanent audit working paper file, and recomputing the amount of dividends declared may provide some information, but they do not directly test the objective of verifying ownership at the record date.

Question 3

Describe the audit procedures and related audit assertions for the audit of dividends.

Accepted Answer

The answer of Describe the audit procedures and related audit...

Question 4

A primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is

Accepted Answer

The answer of A primary concern in determining whether retained...

Question 5

The auditor has reconciled the dividend payment amounts disbursed according to the cash disbursements journal to the dividend declared. Which audit assertions is this test associated with?

Accepted Answer

The test of reconciling the dividend payment amounts disbursed according to the cash disbursements journal to the dividend declared is associated with the audit assertions of accuracy and completeness. The accuracy assertion ensures that dividend payments are recorded accurately, both in terms of the amounts paid and the accounts to which they are recorded, while the completeness assertion ensures that all dividends declared are recorded and paid.

Question 6

State the four audit concerns for capital stock and describe how the auditor typically verifies each of these areas.

Accepted Answer

The answer of State the four audit concerns for capital...

Quiz 16: Audit of the Capital Acquisition and Repayment Cycle