Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
1. Valuation is a relevant assertion when auditing premiums or discounts on bonds.
a.
True
b.
False
True
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
2. The potential dilutive effect of convertible debt or preferred stock, stock options, and warrants should be
disclosed in accordance with relevant accounting guidance in computing primary and fully diluted earnings per
share.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
3. Relevant accounts when auditing stockholders’ equity include leasehold improvements.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
4. Bonds are issued to finance major expansions or to refinance existing debt.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
5. The auditor is primarily concerned with overstatement when auditing bonds.
a.
True
b.
False
False
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
6. An organization typically has many debt transactions during the year, with each individual transaction being
material.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
7. A bond premium/discount amortization spreadsheet can be used to help assure that the bond is appropriately
valued and disclosed in the financial statements.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
8. Typically, the most relevant assertion related to debt obligations is existence.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
9. Inherent risks related to debt obligations primarily concern the authorization of debt, receipt of funds,
recording debt transactions, and compliance with any debt covenants.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
10. Existence is the most relevant assertion associated with an inherent risk for treasury stock transactions
recorded in the wrong period.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
11. Valuation is the most relevant assertion associated with an inherent risk for the cost of treasury stock that is
subsequently retired and not properly allocated among the appropriate accounts.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
12. When an auditor is investigating the inherent risk associated with stock issuances/sales that are recorded in
the wrong period, the auditor is most likely assessing the risks of material misstatements associated with the
existence assertion.
a.
True
b.
False
True
13. Presentation and disclosure is the most relevant audit assertion associated with the inherent risk of using
inaccurate periods of service for stock options.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
14. Completeness is the most relevant assertion associated with an inherent risk for dividends that are recorded
and paid before being declared.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
15. Rights/obligations is the most relevant audit assertion associated with an inherent risk for finding stock
options or warrants being granted without being properly approved.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
16. A potential fraud risk associated with debt obligations is the intentional misclassification of short-term debt
as long-term debt.
a.
True
b.
False
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
17. If an auditor discovers that a company intentionally applied loan payments to interest rather than principal,
this would result in fraudulent overstatement of income.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Fraud Risk Associated with Debt and Equity
18. As part of brainstorming activities, the auditor might identify possible fraudulent transactions related to
stockholders’ equity accounts that are the result of charging expenses directly to retained earnings rather than to
the appropriate expense accounts.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Fraud Risk Associated with Debt and Equity
19. Auditing standards require the auditor to identify and assess the risks of material misstatement due to fraud
at the financial statement level only.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Fraud Risk Associated with Debt and Equity
20. Once the auditor has obtained an understanding of the inherent and fraud risks of material misstatement
associated with debt obligations and stockholders’ equity transactions, the auditor needs to understand the
controls that the client has designed and implemented to address those risks.
a.
True
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Fraud Risk Associated with Debt and Equity
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
b.
False
True
1
AUDT.JOHN.16.13-04 – LO: 13-04
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Control Risks Associated with Debt and Equity
21. A typical control for stockholders’ equity transactions is for the board of directors to approve all stock
transactions (including options and warrants).
a.
True
b.
False
True
1
AUDT.JOHN.16.13-04 – LO: 13-04
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Control Risks Associated with Debt and Equity
22. When identifying and assessing control risks of material misstatement associated with debt obligations and
stockholders’ equity transactions, documentation is only required for integrated audits, not financial statement
only audits.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-04 – LO: 13-04
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Control Risks Associated with Debt and Equity
23. Normally, an auditor can gain an understanding of internal controls by means of a walkthrough of the
process, inquiry, observation, and review of the client’s documentation.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-04 – LO: 13-04
United States – BUSPORG: Analytic
24. When documenting controls, the auditor can provide this documentation in various formats including a
control matrix, a control risk assessment questionnaire, and/or a memo.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-04 – LO: 13-04
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Control Risks Associated with Debt and Equity
25. When planning the audit related to stockholders’ equity transactions, the auditor is not required to perform
preliminary analytical procedures.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-05 – LO: 13-05
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Preliminary Analytical Procedures for Debt and Equity
26. Trend analyses are typically used as preliminary analytical procedures related to debt obligations.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-05 – LO: 13-05
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Preliminary Analytical Procedures for Debt and Equity
27. If preliminary analytical procedures do not identify any unexpected relationships related to debt obligations,
the auditor would conclude that there is not a heightened risk of material misstatements in these accounts.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-05 – LO: 13-05
28. If there were unusual or unexpected relationships, the planned audit procedures (tests of controls,
substantive procedures) would be adjusted to address the potential material misstatements.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-05 – LO: 13-05
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Preliminary Analytical Procedures for Debt and Equity
29. When planning the audit related to debt obligations, the auditor should not have expectations as to the nature
and magnitude of any account balance changes because they might bias the outcome of the audit.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-05 – LO: 13-05
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Preliminary Analytical Procedures for Debt and Equity
30. Typically, when determining the appropriate audit procedures to perform for debt accounts, the auditor will
usually decide to test debt obligations, including interest, using only substantive procedures.
a.
True
b.
False
31. Using substantive procedures to test debt obligations is most appropriate because there are a relatively large
number of transactions involving immaterial dollar amounts.
a.
True
b.
False
32. A substantive approach using only tests of controls is most commonly used to audit equity accounts.
a.
True
b.
False
33. For both debt accounts and stockholders’ equity accounts, the boxes of evidence would typically be filled
only with evidence obtained through substantive procedures.
a.
True
b.
False
34. When obtaining evidence about internal control operating effectiveness, the auditor will select only entity-
wide controls for testing.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-07 – LO: 13-07
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Tests of Controls for Debt and Equity
35. For integrated audits, a typical test of controls may include an inquiry of personnel performing the control.
a.
True
b.
False
True
United States – AK – AICPA BB-Critical thinking
Responding to Material Misstatement Risks for Debt and Equity
36. For financial statement audit purposes, when auditing debt obligations and stockholders’ equity transactions,
the auditor will most likely perform a substantive audit, and therefore will not perform tests of controls for the
debt and equity accounts.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-07 – LO: 13-07
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Tests of Controls for Debt and Equity
37. If the auditor identifies control deficiencies, the auditor will not need to judge the severity of the
deficiencies but instead would consult management about the need for a fraud audit.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-07 – LO: 13-07
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Tests of Controls for Debt and Equity
38. Confirmations are not substantive procedure designed to obtain evidence on the completeness of debt
obligations.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
39. Stockholders’ equity accounts will be tested with only substantive analytical procedures.
a.
True
b.
False
United States – AK – AICPA BB-Critical thinking
Tests of Controls for Debt and Equity
40. The transactions in the stockholders’ equity accounts are typically tested using a statistical sampling
approach.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
41. If interest expense recorded by the client is significantly lower than the auditor’s expectation, it may mean
that interest payments have not been properly recorded, possibly having been charged to principal.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
42. When performing a substantive analytical procedure related to interest expense, the auditor will likely not
test the client’s internal controls.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
43. A starting point for substantive tests of details on debt obligations is to have the client provide a cash flow
statement.
a.
True
b.
False
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
False
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
44. For additions to debt, the auditor traces the proceeds into the cash receipts records and the bank statement.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
45. To determine whether notes have been paid in full, the auditor would obtain the most appropriate evidence
by examining the board of directors meeting minutes.
a.
True
b.
False
False
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
46. As a starting point for testing capital stock and equity transactions, the auditor should review a copy of the
client’s articles of incorporation.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
47. When auditing debt and equity transactions, the auditor should be skeptical, and therefore alert to the
possibility, that management is managing earnings by not appropriately recording expenses, such as charging
expenses directly to retained earnings or under-recording interest expense.
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
48. If the auditor identifies a risk of material misstatement due to fraud related to debt obligations or
stockholders’ equity accounts, the auditor needs to determine the appropriate responses, potentially including
changing the nature, timing, and extent of audit procedures.
a.
True
b.
False
True
1
AUDT.JOHN.16.13-08 – LO: 13-08
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Substantive Audit Procedures for Debt and Equity
49. Which of the following is the auditor’s primary objective when auditing debt obligations?
a.
Understatement of the debt obligation focusing on the completeness assertion.
b.
Proper valuation of bond premiums or bond discounts, including amortization valuation.
c.
Valuation of gains or losses on refinancing debt.
d.
Proper presentation and disclosure, including important restrictions contained in the debt obligations.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
50. Which of the following is not typically included in the audit of debt obligations?
a.
Interest expense.
b.
Interest income.
c.
Notes payable.
d.
Bonds payable.
b
51. How are most bonds marketed?
a.
Through the board of directors.
b.
Through an underwriter.
c.
Through auditors.
d.
Through employees.
b
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
52. Which of the following statements about bonds is false?
a.
They may be issued to finance major expansions.
b.
They may be issued to refinance existing debt.
c.
They account for many of the organization’s transactions.
d.
They are generally highly material to the financial statements.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
53. Which assertion is generally the most relevant when auditing the restrictions contained in debt obligations?
a.
Completeness.
b.
Valuation.
c.
Proper presentation and disclosure.
d.
Existence.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
54. Which of the following is not a common debt covenant restriction?
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
a.
Maintenance of a minimum level of retained earnings before dividends can be paid.
b.
Maintenance of a minimum working-capital ratio.
c.
Specification of a maximum debt-equity ratio.
d.
Specification of a minimum earnings per share.
d
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
55. Which of the following is not a relevant account when auditing stockholders’ equity?
a.
Treasury stock.
b.
Dividends.
c.
Sinking fund for plant expansion.
d.
Retained earnings.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
56. Which of the following is not a common transaction affecting stockholders’ equity?
a.
The purchase of treasury stock.
b.
The declaration and payment of dividends.
c.
The exercises and expirations of stock options and warrants.
d.
Bond amortization.
d
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
57. Which of the following results in a situation where an auditor has the least amount of difficulty in
determining stock valuation?
a.
When stock is issued for land.
b.
When stock is exchanged for another business.
c.
When stock options are issued and exercises occur.
d.
When stock is issued for cash.
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
d
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
58. How would an auditor generally measure the value of a stock option expense?
a.
Fair value.
b.
Appraised value
c.
By computing a weighted average value of all classes of stock authorized.
d.
All of these methods can be used.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
59. In auditing equity accounts, the auditor primarily focuses on which of the following two assertions?
a.
Valuation and completeness.
b.
Valuation and existence.
c.
Presentation and disclosure and valuation.
d.
Presentation and disclosure and completeness.
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
60. When auditing the gains or losses on refinancing debt, the auditor primarily focuses on which assertion?
a.
Completeness.
b.
Existence.
c.
Valuation.
d.
Presentation and disclosure.
1
61. When auditing the premium or discount on bonds (including amortization), the auditor primarily focuses on
which assertion?
a.
Existence.
b.
Completeness.
c.
Presentation and disclosure
d.
Valuation.
d
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
62. Which of the following would a bond indenture not provide information about?
a.
The time period before repayment.
b.
Whether the bond is convertible.
c.
Whether the bond is callable.
d.
The date the bond will be called.
d
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
63. Which of the following would not typically be included as part of the balance sheet disclosures related to
stockholders’ equity?
a.
Accumulated other comprehensive income
b.
Details on stock repurchases
c.
Price/earnings ratios for stock
d.
Prior period adjustments to retained earnings
1
AUDT.JOHN.16.13-01 – LO: 13-01
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Auditing Debt and Equity Transactions
64. Which of the following is not an inherent risk typically associated with the existence of dividends?
a.
Dividends are recorded in the wrong period.
Auditing Debt and Equity Transactions
Chapter 13 – Auditing Debt Obligations and Stockholders‘ Equity Transactions
b.
Dividends are recorded before declared.
c.
Dividends are not properly amortized.
d.
Dividends have not been approved before being declared.
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
65. Which of the following is not an inherent risk typically associated with debt covenant compliance issues?
a.
Whether debt covenants are calculated accurately.
b.
Whether debt payment transactions are properly initiated.
c.
Whether compliance with debt covenants is appropriately disclosed.
d.
Whether compliance with debt covenants is appropriately reviewed.
b
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
66. Which of the following is not an inherent risk typically associated with recording debt transactions?
a.
Interest expense not being properly recorded.
b.
Failure to accrue interest expense.
c.
Debt not being properly classified.
d.
Debt not being properly authorized.
d
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
67. The inherent risk of proceeds from stock sales not being received is most likely related to which of the
following management assertions?
a.
Completeness.
b.
Presentation and disclosure.
c.
Valuation.
d.
Existence.
d
68. An auditor determines that there is an inherent risk that all stock repurchased is not recorded as treasury
stock. This determination is most likely tied to which of the following management assertions?
a.
Completeness.
b.
Presentation and disclosure.
c.
Valuation.
d.
Existence.
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
69. An auditor determines that there is an inherent risk that dividends may be recorded and paid before being
declared. This determination is most likely tied to which of the following management assertions?
a.
Completeness.
b.
Presentation and disclosure.
c.
Valuation.
d.
Existence.
d
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
70. An auditor determines that there is an inherent risk that a company has not included both the basic earnings
per share and diluted earnings per share amounts in financial statements even though significant dilutive
securities are part of the company’s complex capital structure. This determination is most likely tied to which of
the following management assertions?
a.
Valuation.
b.
Presentation and disclosure.
c.
Rights and obligations.
d.
Existence.
b
1
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
71. An auditor determines that there is an inherent risk that stock options exercised or expired remain on the
organization’s books. This determination is most likely tied to which of the following management assertions?
a.
Valuation.
b.
Presentation and disclosure.
c.
Rights and obligations.
d.
Existence.
1
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity
72. Which of the following is not a potential fraud related to debt obligations?
a.
Long-term or short-term debt is misclassified.
b.
Entire loan payments are charged to either principal or interest.
c.
Dividends are paid in violation of restrictive covenants.
d.
Debt obligations are not properly authorized.
1
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Fraud Risk Associated with Debt and Equity
73. Which of the following is not a potential fraud related to stockholders’ equity accounts?
a.
Stock sales or issuances are not authorized.
b.
Entire loan payments are charged to either principal or interest.
c.
Dividends are paid in violation of restrictive covenants.
d.
Stock options are back-dated.
b
1
AUDT.JOHN.16.13-03 – LO: 13-03
United States – BUSPORG: Analytic
AUDT.JOHN.16.13-02 – LO: 13-02
United States – BUSPORG: Analytic
United States – AK – AICPA BB-Critical thinking
Inherent Risks Associated with Debt and Equity