TAILIEUCHUNG - Lecture Auditing & assurance services (8e) - Chapter 15: Auditing the financing/investing process

Chapter 15 - Auditing the financing/investing process: Long-term liabilities, stockholders′ equity, and income statement accounts. After completing this chapter, students will be able to: Understand the types and features of long-term debt, be familiar with assessing control risk for long-term debt, be familiar with key control activities for long-term debt, know how to conduct substantive audit procedures for long-term debt,. | Chapter 15 Auditing the Financing/Investing Process: Long-Term Liabilities, Stockholders′ Equity, and Income Statement Accounts McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Auditing Long-Term Debt The auditor must be assured that the amounts shown on the balance sheet for the various types of long-term debt are not materially misstated. This assurance extends to the recognition of interest expense. For the vast majority of entities, it is more efficient to follow a strategy of conducting substantive testing. LO# 1 15- Inherent Risk Assessment – Long-Term Debt The inherent risk for notes and bonds would normally be assessed as low to moderate because the volume of transactions are low, the accounting is not complex, and the client often receives third-party statements or amortization tables. However, the amounts are usually large and the financial markets have developed sophisticated instruments that have characteristics of both debt and equity. The inherent risk associated with these instruments is normally high. LO# 1 15- Control Risk Assessment – Long-Term Debt When a substantive strategy is followed, the auditor still needs a sufficient understanding of the entity’s internal control system over debt. LO# 2 15- Assertions and Related Control Activities Occurrence and Authorization Completeness Valuation Disclosure - Classification LO# 3 15- Substantive Procedures of Long-Term Debt LO# 4 15- Substantive Procedures of Long-Term Debt LO# 4 15- Auditing Stockholders’ Equity The following three types of transactions are of importance to the auditor: 1. Issuance of stock including transactions such as sale of stock for cash; the exchange of stock for assets, services, or convertible debt; and issuance of stock for stock splits. 2. Repurchase of stock including both the reacquisition of stock and retirement of stock. 3. Payment of dividends including cash and stock dividends. LO# 5

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• Auditing services
• Assurance services
• Financial statement auditing
• Auditing business processes
• Auditing internal control
• Auditing the financing
• Internal auditing services
• Internal auditing
• Auditing the purchasing process
• Auditing demands logic
• Financial statement auditing environment
• Auditing environment
• Audit planning
• Internal control
• Related services