An auditor usually tests the reasonableness of dividend income from investments in publicly-held companies by computing the amounts that should have been received by referring to:

Question

Quizplus · Accepted Answer

Choice "A" is correct. Dividend income from investments is tested by referring to the dividend record books produced by investment advisory services, such as "Moody's Dividend Record." These books state the dividend that was declared and paid by the investee. Choice "B" is incorrect. Stock indentures (initial stock agreements) published by corporate transfer agents discuss intent with respect to dividend declaration, but actual dividend declarations may vary. In addition, it is more efficient to use a single source (such as "Moody's") than to obtain and review stock indentures for each individual investment. Choice "C" is incorrect. Stock ledgers maintained by independent registrars indicate how many shares of stock are issued and outstanding, and identify the shareholders of record, but they do not contain information concerning dividends. Choice "D" is incorrect. Annual audited financial statements of the investee companies give the total dividends paid, but there may not be enough information to determine exactly how much went to each type of stock and hence to each stockholder. In addition, it is more efficient to use a single source (such as "Moody's") than to obtain and review the financial statements of each investee.

An Auditor Usually Tests the Reasonableness of Dividend Income from Investments