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Match the audit step below with its appropriate area.

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Match the audit step below with its appropriate area. Each audit step has two areas and you may use an area more than once.

A. Cash
B. Investments
C. Current liabilities
D. Deferred tax asset/liability
E. Pension liability
F. Bonds payable
G. Dividend payable
H. Taxes payable
I. Common stock
J. Pension expense
K. Compensation expense
L. Interest expense
M. Stock compensation expense

1. Trace amounts per the cash disbursement journal to the appropriate liability account:

2. Trace the stock issued per the transfer agent report to equity:

3. Trace EPS to net income and stockholders' equity: (presumes bonus is based on EPS; otherwise not clear how EPS is used in above amounts)

4. Trace overfunded liability amount to actuary report:

5. Recalculate interest expense using face amount and current terms:

6. Recalculate compensation expense using stock compensation plans approved by the board of directors:

7. Recalculate stock compensation expense using a model such as
Black-Scholes for valuation:

8. Recalculate taxes payable:

9. Review debt covenants:

10. Review cash equivalents for maturity:

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Solution Summary

Your tutorial is attached. The EPS is not obvious without details about how the client is using EPS. I presumed it was for a bonus computation.

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Match the audit step below with its appropriate area. Each audit step has two areas and you may use an area more than once.

A. Cash
B. Investments
C. Current liabilities
D. Deferred tax asset/liability
E. Pension liability
F. Bonds payable
G. Dividend payable
H. Taxes payable
I. Common stock
J. Pension expense
K. ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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