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    Audit of The Capital Acquisition and Repayment Cycle Accounts in The Cycle

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    Georgia Vasantha
    The document summarizes the audit of the capital acquisition and repayment cycle. It discusses key accounts like notes payable and owners' equity. For notes payable, the objectives are to ensure transactions are properly authorized and recorded and the liability is accurately stated. Important controls include authorization of new notes, repayment controls, and independent verification. For owners' equity, verification of capital stock, paid-in capital, and retained earnings accounts is necessary, along with controls over authorization of transactions, record keeping, and the use of an independent registrar.

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    Audit of The Capital Acquisition and Repayment Cycle Accounts in The Cycle

    Uploaded by

    Georgia Vasantha
    113 views3 pages
    The document summarizes the audit of the capital acquisition and repayment cycle. It discusses key accounts like notes payable and owners' equity. For notes payable, the objectives are to ensure transactions are properly authorized and recorded and the liability is accurately stated. Important controls include authorization of new notes, repayment controls, and independent verification. For owners' equity, verification of capital stock, paid-in capital, and retained earnings accounts is necessary, along with controls over authorization of transactions, record keeping, and the use of an independent registrar.

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    Resume Minggu 11

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    The document summarizes the audit of the capital acquisition and repayment cycle. It discusses key accounts like notes payable and owners' equity. For notes payable, the objectives are to ensure transactions are properly authorized and recorded and the liability is accurately stated. Important controls include authorization of new notes, repayment controls, and independent verification. For owners' equity, verification of capital stock, paid-in capital, and retained earnings accounts is necessary, along with controls over authorization of transactions, record keeping, and the use of an independent registrar.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    113 views3 pages

    Audit of The Capital Acquisition and Repayment Cycle Accounts in The Cycle

    Uploaded by

    Georgia Vasantha
    The document summarizes the audit of the capital acquisition and repayment cycle. It discusses key accounts like notes payable and owners' equity. For notes payable, the objectives are to ensure transactions are properly authorized and recorded and the liability is accurately stated. Important controls include authorization of new notes, repayment controls, and independent verification. For owners' equity, verification of capital stock, paid-in capital, and retained earnings accounts is necessary, along with controls over authorization of transactions, record keeping, and the use of an independent registrar.

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    AUDIT OF THE CAPITAL ACQUISITION AND REPAYMENT CYCLE

    Accounts in the cycle

    The capital acquisition and repayment cycle concerns the acquisition of capital resources through
    interest-bearing debt and owners’ equity and the repayment of capital.
    Four characteristics of this cycle influence the audit of these accounts:

     Relatively few transactions affect the account balances, but each transaction is often
    highly material.
     The exclusion or misstatement of a single transaction can be material.
     A legal relationship exists between the client entity and the holder of the stock, bond, or
    similar ownership document.
     A direct relationship exists between the interest and dividends accounts and debt and
    equity.

    The capital acquisition and repayment cycle often includes these accounts:

    Notes payable

    A note payable is a legal obligation to a creditor, which may be unsecured or secured by assets,
    and bears interest.
    The objectives of the audit of notes payable are to determine whether:

     Internal controls over notes payable are adequate.


     Transactions for principal and interest involving notes payable are properly authorized
    and recorded.
     The liability for notes payable and the related interest expense and accrued liability are
    properly stated.
     Disclosures related to notes payable and the related interest expense satisfy the four
    presentation and disclosure audit objectives.

    Internal Controls: There are four important controls over notes payable:

     Proper authorization for the issue of new notes.


     Adequate controls over the repayment of principal and interest.
     Proper documents and records.
     Periodic independent verification.

    Tests of Controls and Substantive Tests of Transactions:

     Tests of controls for notes payable should emphasize the internal control objectives listed
    above.
     Auditors should also verify the accurate recording of receipts from note proceeds and
    payments for principal and interest.

    Substantive Analytical Procedures

    Tests of Details of Balances:


    The normal starting point for the audit of notes payable is a client-prepared schedule of notes
    payable and accrued interest.

    Details of Tests of Balances

    The two most important balance-related audit objectives in notes payable are:

     Existing notes payable are included (Completeness).


     Notes payable in the schedule are accurately recorded (Accuracy).

    Owners’ equity

    There is an important difference in the audit of owners’ equity between a publicly held
    corporation and a closely held corporation.
    Most closely held corporations have few shareholders and only occasional stockholders’ equity
    transactions.
    Publicly held corporations are more complex and verification of the following accounts is
    necessary:
     Capital and common stock
     Paid-in capital in excess of par
     Retained earnings and related dividends

    Internal Controls: Important controls for owners’ equity activities:

     Proper Authorization of Transactions: Because of their materiality, these transactions


    must be approved by the board of directors:
     Issuance of capital stock
     Repurchase of capital stock
     Declaration of dividends
     Proper Record Keeping and Segregation of Duties: Internal controls must ensure that:
     Actual owners of the stock are recognized in the corporate records.
     The correct amount of dividends is paid to the stockholders owning the stock as of the
    dividend record date.
     The potential for misappropriation of assets is minimized.
     Independent Registrar and Stock Transfer Agent:
     Any company with stock listed on a securities exchange is required to engage an
    independent registrar as a control to prevent the improper issue of stock certificates.
     Most large corporations also employ the services of a stock transfer agent to maintain
    the stockholder records, including those documenting the transfers of stock
    ownership.
     Many companies also use the transfer agent to disburse cash dividends, further
    improving internal controls.

    Auditors have four main concerns in auditing capital stock and paid-in capital in excess of par:

     Existing capital stock transactions are recorded (completeness transaction-related objective).


     Recorded capital stock transactions occurred and are accurately recorded (occurrence and
    accuracy transaction-related objective).
     Capital stock is accurately recorded (accuracy balance-related objective).
     Capital stock is properly presented and disclosed (all four presentation and disclosure
    objectives).

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