【正文】 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。 and directors39。 meetings―to determine authorization for appointments of the registrar and the transfer agent。 to determine authorization for the issuance or reacquisition of shares. 3. Examine provisions regarding capital stock in the corporation law of the state of incorporation—to determine any special provisions, such as those for the issuance of no par stock. 4. Analyze the capital stock accounts to obtain an orderly picture of stock transactions for use as a guide to other auditing procedures and as a permanent record. 5. Trace the consideration received for capital stock into the records—to determine what consideration has been received and how it has been recorded. 6. Examine and schedule treasury stock and review entries for treasury stock—to determine the existence of treasury stock as authorized and to determine that a proper record has been made. 7. Review registrar39。s invoices and cash disbursements—to determine that original issue taxes have been paid. 8. Compare dividends with stock outstanding at dividend dates—to determine that dividends have been properly paid and also to substantiate the stock outstanding. 9. Review subscription and option contracts, etc.—to determine the facts in regard to subscriptions and options and to determine that these facts have been properly recorded and that they are adequately disclosed.2231 a. The audit program for the audit of Pate Corporation39。s capital stock account would include the following procedures: 1. Examine the articles of incorporation, the bylaws, and the minutes of the board of directors from the inception of the corporation to determine the provisions or decisions regarding the capital stock, such as classes of stock, par value or stated value, authorized number of shares, authorization for the sale of new issues or additional sales of unissued stock, declarations of stock splits and dividends in the form of cash or stock, and granting of stock options or stock rights. Determine that the accounting records are in accordance with these provisions or decisions and that appropriate disclosure is made by footnote if necessary. Extract pertinent data for the auditor39。s permanent file. 2. Examine the stock certificate stub book and determine whether the total of the open stubs agrees with the Capital Stock account in the general ledger. Examine cancelled stock certificates, which are generally attached to the corresponding stub. 2231 (continued) Information on the stubs regarding the number of shares, date, etc. for both outstanding and cancelled stock certificates should be pared with the Capital Stock account. All certificate numbers should be accounted for and, if the CPA deems it necessary, confirmation of the number of certificates printed should be obtained from the printer. A test check should be made to determine that the proper amounts of original issue and capital stock transfer taxes have been affixed to the stubs and the cancelled certificates. The stockholders shown in the stock certificate stub book should be pared with the stockholders39。 master file if one is maintained. 3. Analyze the Capital Stock account from the corporation39。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。s attention should be directed to the matter. Should the analysis of the Capital Stock account disclose that the corporation has engaged in treasury stock transactions, determine that the increase or decrease in net assets resulting from these transactions has not been placed in the Retained Earnings account. The audit procedures to be applied to the audit of the Capital Contributed in Excess of Par Value account are usually applied at the same time that the Capital Stock account is being audited because the two accounts are interrelated. The accounts should be analyzed and the entries verified when the related entries in the Capital Stock account are verified. If an entry is not related to Capital Stock account entries, as in the case of a writeoff of a deficit as the result of a quasi reorganization, authorization for the entry and the supporting material should be examined. 2231 (continued)4. The following audit procedures