Question

Which of the following is most likely to be an audit objective in the audit of owners' equity?

a) Establish that recorded owners' equity includes all long-term debt and equity balances.
b) Determine that common stock is valued at current market value.
c) Determine that the presentation and disclosure of owners' equity are appropriate.
d) Determine that the existence of recorded owner's equity is in conformity with equity accounting rule valuations.

Answer 1

In the audit of owners' equity, auditors aim to verify that the existence of equity is in line with equity accounting rules and valuations. They inspect if equity transactions are properly authorized, recorded, and disclosed. Auditors ensure equity is accurately valued and presented per relevant accounting standards.

Step-by-step explanation:

In the audit of owners' equity, one of the primary audit objectives is to verify that the existence of recorded owners' equity is in accordance with applicable equity accounting standards and rules. Auditors need to confirm that the equity presented in the financial statements truly exists and that the valuation methods used are appropriate and consistently applied. This involves assessing transactions that affect owners' equity, such as issuance of stock, dividends, and retained earnings, for their proper authorization, recording, and disclosure.

Verification of owners' equity also includes evaluating whether the equity transactions are accurately valued and correctly presented in the financial statements in line with generally accepted accounting principles (GAAP) or other relevant accounting frameworks. It is vital to ensure that all equity-related disclosures in the financials provide a fair and complete picture of the company's financial status, which is crucial for stakeholders who rely on this information for making informed decisions.