Chapter 22 – Audit of the Capital Acquisition and Repayment Cycle

Audit of the CapitalAcquisition andRepayment CycleChapter 22©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 1Learning Objective 1Identify the accounts and theunique characteristics of thecapital acquisition andrepayment cycle.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 2Characteristics of the CapitalAcquisition and Repayment Cycle1. Relatively few transactions affect theaccount balances, but each one isoften highly material in amount.2. The exclusion of a single transactioncould be material in itself.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 3Characteristics of the CapitalAcquisition and Repayment Cycle3. A legal relationship exists between theclient entity and the holder of the stock,bond, or similar ownership document.4. A direct relationship exists between theinterest and dividends accounts anddebt and equity.©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 4Accounts in the Cycle Notes payable Contracts payable Mortgages payable Bonds payable Interest expense Accrued interest Appropriations of retained earnings Treasury stock Dividends declared©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 22 - 5Accounts in the Cycle Cash in the bank Capital stock – common Capital stock – preferred  Paid-in capital in excess of par Donated capital Retained ...