Debt and Equity Capital

1
Chapter 15

• Debt and Equity Capital

2
Internal Control(continued)

• Long-term Debt
• separate functions authorization, independent
  trustee, interest and principal payments
• documents and records loan and bond contracts,
  subsidiary ledgers

3
Internal Control(Continued)

• Stockholders Equity
• separate functions authorization, independent
  trustee or stockholders records, dividends
• documents and records articles of
  incorporation, by laws, stock certificate book,
  stockholders subsidiary ledger, dividend bank
  account, treasury stock

4
Substantive Tests(continued)

• Long-term Debt
• Confirmation
• Vouch transactions
• Review loan agreements
• Review authorizations
• Reconcile interest expense
• Analytical procedures

5
Substantive Tests(continued)

• Long-term Debt
• Existence and Occurrence
• confirmation, vouching, review authorizations
• Rights and Obligations
• examine loan agreements, confirmation, vouching
• Completeness
• reconciling interest expense, reading BOD meeting
  minutes, analytical procedures

6
Substantive Tests(continued)

• Long-term Debt
• Valuation
• vouch transactions, confirmation, review current
  portion
• Presentation and Disclosure
• compare statement presentation to GAAP
• review terms, covenants, commitments, retirement
  provisions

7
Substantive Tests(continued)

• Stockholders Equity
• Confirmation with outside agents
• Reconcile stock certificate book
• Review articles of incorporation and bylaws
• Review authorizations
• Inspect treasury stock certificates
• Vouch transactions
• Analytical procedures

8
Substantive Tests(continued)

• Stockholders Equity
• Existence and Occurrence
• confirmation, reconciling stock records, vouching
  transactions, inspect treasury stock shares
• Rights and Obligations
• confirmation, reconciling stock records, vouching
  transactions
• Completeness
• confirming, inspecting stock certificate book

9
Substantive Tests(continued)

• Stockholders Equity
• Valuation
• vouching transactions
• Presentation and Disclosure
• compare statement presentation to GAAP
• review par or stated values, shares authorized,
  issued and outstanding, dividend and liquidation
  preferences, dividends in arrears, stock
  compensation plans, recompute EPS calculations