【正文】 d in last year39。 equity account.2229a.PURPOSE OF AUDIT PROCEDURESb.MISSTATEMENTS THAT MAY BE UNCOVERED1. To determine what type of stock may be issued, under what circumstances, and its description.Unauthorized outstanding stock or improper description of stock.2. To determine the propriety of changes in the accounts and to verify their accuracy.The issuance or retirement of stock without proper authorization, improper valuation, or incorrect dividend calculations.3. To determine if there were any shares issued or retired during year, or if any certificates are missing.Unrecorded or unauthorized transactions, or transactions not handled in a legal manner.4. To determine if all retired stock has been cancelled.Same as 4.5. To determine if any stock issues, retirements, or dividends were authorized.Unauthorized or omitted equity transactions.6. To verify that earnings per share has been correctly puted.Incorrect earnings per share putation.7. To determine that dividends are legal and disclosure in the financial statements is proper.Illegal payments of dividends and improper disclosure of the information in the financial statements.2230 The proposal for the limitation of procedure is not justified by the stated facts. Although the transfer agent and the registrar know the number of shares issued, they do not necessarily know the number of shares outstanding. Furthermore, the audit of capital stock includes more than determining the number of shares outstanding. For example, the auditor must determine what authorizations exist for the issuance of shares, what assets were received in payment of shares, how the transactions were recorded, and what subscription contracts have been entered into. Confirmation from the registrar could not help in determining these things. In addition to confirmation from the registrar, the audit of capital stock might include the following procedures, the purposes of which are briefly indicated: 1. Examine the corporation charter―to determine the number of shares authorized and the special provisions for each class of stock if more than one class is authorized. 2230 (continued)2. Examine minutes of stockholders39。s inception and verify all entries. Trace all transactions involving the transfer of cash either to the cash receipts or the cash disbursements records. If property other than cash was received in exchange for capital stock, trace the recording of the property to the proper asset account and consider the reasonableness of the valuation placed on the property. Transactions showing the sale of stock at a discount or premium should be traced to the Capital Contributed in Excess of Par Value account. If capital stock has been sold at a discount, consideration should be given to the possible violation of state laws and the client39。 meetings―to determine authorization for appointments of the registrar and the transfer agent。s copies of insurance policies or certificates of insurance for pliance with the covenant, preparing a schedule of book value, appraised or estimated value, and coverage for the report. Confirm policies held with trustee. c. Examine vouchers supporting tax payments on all property covered by the indenture. By reference to the local tax laws and the vouchers, determine that all taxes have been paid before the penaltyfree period expired. If the vouchers in any case are inadequate, confirm with the trustee who holds the tax receipts. d. Vouch the payments to the sinking fund. Confirm bond purchases and sinking fund balance with trustee. Observe evidence of destruction of bonds for bonds cancelled. Report the fund as an asset, preferably giving the position as to cash and bonds held alive, if any.2227 a. It is desirable to prepare an audit schedule for the permanent file for the mortgage so that the appropriate information concerning the mortgage will be conveniently available for future years39。 equity in a closely held corporation is usually minimal because of the relatively few transactions for capital stock accounts that occur during the year. For publicly held corporations, the audit of owners39。Chapter 22Audit of the Capital Acquisition and Repayment Cyclen Review Questions221 Four examples of interest bearing liability accounts monly found on balance sheets are: 1. Notes payable 2. Contracts payable 3. Mortgages payable 4. Bonds payableThese liabilities have the following characteristics in mon: 1. Relatively few transactions affect the account balance, but each transaction is often highly material in amount. 2. The exclusion of a single transaction could be material in itself. 3. There is a legal relationship between the client entity and the holder of the stock, bond, or similar ownership document. 4. There is a direct relationship between interest and dividend accounts and debt and equity.These liabilities differ in what they represent and the nature of their respective liabilities.222 The characteristics of the liability accounts in the capital acquisition and repayment cycle that result in a different auditing approach than the approach followed in the audit of accounts payable are: 1. Relatively few transactions affect the account balance, but each transaction is often highly material in amount. 2. The exclusion of a single transaction could be material in itself. 3. There is a legal relationship between the client entity and the holder of the stock, bond, or similar ownership document. 4. There is a direct relationship between interest and dividend accounts and debt and equity.223 It is mon to audit the balance in notes payable in conjunction with the audit of interest expense and interest payable because it minimizes the verification time and reduces the likelihood of overlooking misstatements in the balance. Once the auditor is satisfied with the balance in notes payable and the related intere