When independent stock transfer agents are not employed and the corporation issues its own stock and maintains stock records, canceled stock certificates should a. Be defaced to prevent reissuance and attached to their corresponding stubs. b. Not be defaced but be segregated from other stock certificates and retained in a canceled certificates file. c. Be destroyed to prevent fraudulent reissuance. d. Be defaced and sent to the secretary of state.
> a. Identify three potential users and design a subschema for each. Justify your design by explaining why each user needs access to the subschema data elements. b. Use Microsoft Access or some other relational database product to create the schema tables.
> Required: Download the spreadsheet for this problem from the course website and perform the following tasks: 1. Explore Excel’s AutoFilter function. a. At the bottom of the table, in cell C79 enter the words “Total (sum)” and in cell D79 enter the SUM fu
> Answer all of the following multiple-choice questions. 1. Which of the following pairs of duties combines the functions of custody and authorization in a manner that would allow an employee to conceal the theft of a customer’s payment? a. Handling cash r
> Clint Grace has been business over 30 years and has definite ideas about how his ten retail stores should be run. He is financially conservative and is reluctant to make expenditures that do not have a clear financial payoff. Store profitability has decl
> Match the following terms with their definitions: 1. business continuity plan (BCP) a. A file used to store information for long periods of time. 2. completeness check b. A plan that describes how to resume IT functionality after a disaster. 3.
> Under what conditions (if any) should a company install a forced-distribution rating system for PFP?
> What would you say to those who argue that establishing attractive career programs for employees will only enhance their own marketability and enable them to leave the firm faster?
> Suppose you observe the following continuously compounded zero-coupon bond yields: 0.06766 (1-year), 0.05827 (2-year), 0.04879 (3-year), 0.04402 (4-year), 0.03922 (5-year). For each maturity year compute the zero-coupon bond prices, effective annual zero
> Suppose you observe the following 1-year implied forward rates: 0.050000 (1- year), 0.034061 (2-year), 0.036012 (3-year), 0.024092 (4-year), 0.001470 (5-year). For each maturity year compute the zero-coupon bond prices, effective annual and continuously
> Consider the expression in equation (26.6). What is the exact probability that, over a 1-day horizon, stock A will have a loss? V = $3m x e0.15-0.5x0.3)+0.3,z (26.6)
> Using the same assumptions as in Example 26.3, compute VaR with and without the mean, assuming correlations of −1, −0.5, 0, 0.5, and 1. Is risk eliminated with a correlation of −1? If not, why not?
> Assuming a $10m investment in one stock, compute the 95% and 99% VaR for stocks A and B over 1-day, 10-day, and 20-day horizons.
> Let S = $100, K = $105, r = 8%, T = 0.5, and δ = 0. Let u = 1.3, d = 0.8, and n =1. a. What are the premium, ∆, and B for a European call? b. What are the premium, ∆, and B for a European put?
> Suppose the exchange rate is 0.95 $/=C, the euro-denominated continuously compounded interest rate is 4%, the dollar-denominated continuously compounded interest rate is 6%, and the price of a 1-year 0.93-strike European call on the euro is $0.0571. What
> A stock currently sells for $32.00. A 6-month call option with a strike of $30.00 has a premium of $4.29, and a 6-month put with the same strike has a premium of $2.64. Assume a 4% continuously compounded risk-free rate. What is the present value of divi
> What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate? For the first three problems, use the following information: Bond maturity (years) 1 2 3 4. Bond price 0.9259 0.8495 0.7722 0.7020 1-year forward price volatil
> This problem builds on the previous problem using the same parameters, only valuing a call option instead of a bond. Using Monte Carlo, simulate the Vasicek process for 3 years. For each simulation trial, at the end of 3 years, use the Vasicek formula to
> Verify that the 1-year yield volatility of the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is 0.14. FIGURE 25.5 Year O Year 1 Year 2 Year 3 20.03% Black-Derman-Toy interest rate tree constructed using the data in Table 25.1. Ea
> Suppose that 1- and 2-year oil forward prices are $22/barrel and $23/barrel. The 1-and 2-year interest rates are 6% and 6.5%. Show that the new 2-year swap price is $22.483.
> Using the assumptions in Tables 8.5 and 8.6, verify that equation (8.13) equals 6%. Equation (8.13) TABLE 8.5 Unhedged and hedged cash flows for a dollar-based firm with euro-denominated debt. Unhedged Euro Cash Flow Hedged Exchange Rate Dollar Cash
> Using the zero-coupon bond prices and oil forward prices in Table 8.9, what is the price of an 8-period swap for which two barrels of oil are delivered in even-numbered quarters and one barrel of oil in odd-numbered quarters? TABLE 8.9 Quarter 2 3 4
> Using the information in Table 8.9, what is the swap price of a 4-quarter oil swap with the first settlement occurring in the third quarter? TABLE 8.9 Quarter 1 2 3 4 5 7 8 Oil forward price 21 21.1 20.8 20.5 20.2 20 19.9 19.8 Gas swap price Zero-cou
> Suppose the stock price is $35 and the continuously compounded interest rate is 5%. a. What is the 6-month forward price, assuming dividends are zero? b. If the 6-month forward price is $35.50, what is the annualized forward premium? c. If the forward pr
> Suppose you observe the following effective annual zero-coupon bond yields: 0.030 (1-year), 0.035 (2-year), 0.040 (3-year), 0.045 (4-year), 0.050 (5-year). For each maturity year compute the zero-coupon bond prices, continuously compounded zero-coupon bo
> A stock currently sells for $32.00. A 6-month call option with a strike of $35.00 has a premium of $2.27. Assuming a 4% continuously compounded risk-free rate and a 6% continuous dividend yield, what is the price of the associated put option?
> What are comparative financial statements? What issue is introduced when entities present information in comparative format?
> What are auditors’ reporting options when going-concern uncertainties are noted?
> Is the reference in the auditors’ report to work performed by component auditors a scope limitation? Explain.
> If a scope limitation exists but auditors are able to perform alternative procedures, how is the standard (unmodified) report modified to reflect the scope limitation?
> For what reasons do auditors obtain an understanding of a client’s internal control?
> What date should be used on the auditors’ report?
> What is a management letter? Are management letters required by generally accepted auditing standards?
> What are subsequently discovered facts?
> What is a subsequent event?
> Why are adjusting entries and note disclosures labeled “proposed”?
> What responsibility do auditors have for evaluating a client’s ability to continue as a going concern?
> How should auditors respond if the client refuses to furnish written representations?
> Why are written representation and attorney letters obtained near the end of the evidence gathering process and dated on the date of the auditor’s report?
> What are auditors’ responsibilities with respect to accounting estimates made by management?
> What additional issues are involved with miscellaneous, other, and clearing accounts?
> What is a control activity?
> What are roll-forward procedures? Provide some examples.
> What effect can related-party transactions have in some cases of asset valuation? (Refer to the Go for the Gold case.)
> You have been instructed to create an aging schedule for ELM’s accounts receivable using IDEA. For the purposes of this exercise, assume the aging begins on the date that the customer is invoiced and should only include valid accounts receivable (e.g., a
> Use the information related to ELM’s payment and discount policy (referenced earlier) to analyze the company’s discount program and late payments. All dates for payments are based off the date the customer is invoiced. Required: a. Are there any compani
> What constitutes the authorization for notes payable? What documentary evidence could auditors examine to confirm this authorization?
> Loan covenants are used for which of the following reasons? a. To protect the lender from the borrower’s substantially weakening of the latter’s financial position. b. To protect the borrower from the lender’s calling the loan early. c. To protect the au
> Which of the following audit procedures would not likely be performed for audits of shareholders’ equity? a. Read board of directors’ minutes for authorization of equity transactions. b. Confirm outstanding common and preferred stock with stock registrar
> An audit plan for the examination of the retained earnings account should include a step that requires verification of the (choose two steps) a. Market value used to charge retained earnings to account for a 2-for-1 stock split. b. Approval of the adjust
> A related party is a person or entity that a. Has a family tie to a management member. b. Does business with the company. c. Can exert significant influence over or be influenced by the company. d. Is a member of the company’s management team or board of
> Why is the timing of the auditors’ appointment an important matter in the conduct of a financial statement audit?
> What analytical procedures might reveal obsolete or slow-moving inventory?
> What could be happening when a client’s managers take notes of auditors’ test counts while an inventory is being counted?
> What inventory costing methods does GAAP recognize?
> Which of the following is an internal control weakness for a company whose inventory of supplies consists of a large number of individual items? a. Supplies of relatively little value are expensed when purchased. b. The cycle basis is used for physical c
> In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. They then design specific substantive procedures to obtain evidence about each of these assertions. Here is a selection of accounts receivable ass
> When tracing using the cutoff information from the December 31 inventory count of Thermo-Tempur Mattresses, you note the following information: The purchases list shows that the following items were recorded in December. The documentation indicates t
> How would a policy of mandatory vacations have helped discover the Beta fraud?
> If Lee had not been seen taking employees out in a limousine, how else could she have been caught?
> Your long-time client, Central Office Supply, has been rapidly expanding, and the board of directors is considering taking the company public. CEO Terry Puckett has heard that costs of operating a public company have increased significantly as a result o
> What evidence could the verbal inquiry audit procedure provide in “Printing (Copying) Money”?
> What is an audit plan? During which stage of the audit is an audit plan prepared?
> What key control concept was missing at Argus Productions?
> What methods are used to audit other expense accounts?
> What items in a client’s PP&E and depreciation schedule give auditors points of departure (assertions) for audit procedures?
> In substantive procedures, why is the emphasis on the completeness assertion for liabilities instead of on the existence assertion as in the audit of assets?
> Where could an auditor look to find evidence of (a) losses on purchase commitments or (b) unrecorded liabilities to vendors?
> Where would an auditor find the proper authorization that indicates it is okay to pay a vendor?
> How should an auditor test for proper authorization in the expenditure cycle?
> What feature of the acquisition and expenditure control would be expected to prevent an employee’s embezzling cash through creation of fictitious vouchers?
> If an account payable is left off the end of the period balance, what are the possible other accounts that may be misstated?
> Why is inherent risk for the existence of inventory an issue in the expenditure cycle audit?
> What controls should be implemented to safeguard accounts receivable files?
> Why do auditors focus on completeness of expenditures as a significant account and relevant assertion in the expenditure cycle?
> Which report would not be appropriate for a public accounting firm to provide on financial reporting controls? a. Unqualified—no material weaknesses found. b. Disclaimer of opinion—unable to perform all necessary procedures. c. Disclaimer of opinion—sign
> Which of the following would probably not be considered an indication of a material weakness? a. Evidence of a material misstatement. b. Ineffective oversight by the audit committee. c. Immaterial fraud committed by senior management. d. Overproduction b
> When completing the audit of internal controls for a public company, AS 2201 requires auditors to test a. Operating effectiveness only. b. Design effectiveness only. c. Both operating and design effectiveness. d. Neither operating nor design effectivenes
> Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to a. Evaluate internal control over credit sales. b. Test the accuracy of recorded cha
> When completing the audit of internal controls for a public company, the PCAOB requires auditors to audit internal controls over a. Operations. b. Compliance with regulations. c. Financial reporting. d. All of the above.
> Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. b. Di
> Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern? a. “This amount was paid on December 30.” b. “We received this shipment on January 2.” c. “These goods were returned for cr
> With reference to the case of Thank Goodness It’s Friday, what contribution could an understanding of the business and the management reporting system have made to discovery of the open cash receipts journal cutoff error?
> The revenue cycle of a company generally includes which accounts? a. Inventory, accounts payable, and general expenses. b. Inventory, general expenses, and payroll. c. Cash, accounts receivable, and sales. d. Cash, notes payable, and capital stock.
> What are the five components of management’s internal control?
> An audit team is auditing sales transactions. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. The purpose of this audit procedure is to establish that a. Sales invoices
> Tests of controls in a GAAS audit are required for a. Obtaining evidence about the financial statement assertions. b. Accomplishing control over the occurrence of recorded transactions. c. Applying analytical procedures to financial statement balances. d
> In the case of The Taxman Always Rings Twice, what information could have been obtained from confirmations directed to the real population of delinquent accounts?
> Which of the following accounts is not normally part of the revenue and collection cycle? a. Sales. b. Accounts Receivable. c. Cash. d. Purchases Returns and Allowances.
> Which of the following is a preventive control? a. Reconciliation of a bank account. b. Recalculation of a sample of payroll entries by internal auditors. c. Separation of duties between the payroll and personnel departments. d. Detailed fluctuation anal
> It is acceptable under generally accepted auditing standards for an audit team to a. Assess risk of material misstatement at high and achieve an acceptably low audit risk by performing extensive substantive tests. b. Assess control risk at zero and perfo
> The primary purpose for obtaining an understanding of a nonpublic audit client’s internal control is to a. Provide a basis for making constructive suggestions in a management letter. b. Determine the nature, timing, and extent of further audit tests to b
> Effectiveness of audit procedures would be reduced by a. Selecting larger sample sizes for audit. b. Performing audit procedures at the fiscal year-end date as opposed to the interim period. c. Deciding to obtain external evidence instead of internal evi
> When a company that sells its products with a positive gross profit increases its sales by 15 percent and its cost of goods sold by 7 percent, the cost of goods sold ratio will a. Increase. b. Decrease. c. Remain unchanged. d. Not be able to be determine
> What types of audit procedures are typically performed in testing operating effectiveness of controls over the revenue and collection cycle?
> What is due care? To what standards are auditors held with respect to due care?
> What type of opinion would be issued by the audit team as the result of a scope limitation on the examination of internal control over financial reporting?
> What are the primary control procedures to ensure completeness of recorded revenues?
> Analytical procedures are generally used to produce evidence from a. Confirmations mailed directly to the auditors by client customers. b. Physical observation of inventories. c. Relationships among current financial balances and prior balances, forecast
> What feature(s) could SEI have installed in its cash receipts internal controls that would have been expected to prevent the cash receipts journal and recorded cash sales from reflecting more than the amount shown on the daily deposit slips?
> Why is the audit of revenue recognition riskier for a new company?
