Question

Consider the following substantive procedures. For each substantive procedure, select the assertion(s) for which the substantive procedure is designed to detect mistreatments. You may use an assertion below more than once.

a. Inspect activity in all long-term debt and related income statement accounts and investigate entries that appear unusual in amount or source.

b. Confirm equity transactions with the company's registrar or transfer agent.

c. Inspect authorizations and terms of stock issues.

d. Compare financial statement presentation with GAAP for debt disclosures.

e. Scan cash receipts journal for large, unusual cash receipts.

f. Vouch a sample of entries in the long-term debt and related interest expense accounts

g. Calculate appropriate equity ratios.

h. Confirm interest expense and recalculate as necessary.

Options:

1. All equity assertions.

2. Completeness of long-term debt.

3. Existence and completeness of long-term debt.

4. Existence, completeness, and valuation and allocation of equity

5. Occurrence, accuracy, cutoff, and classification debt.

6. Occurrence, completeness, accuracy, cutoff, and classification of equity

7. Occurrence, accuracy, and cutoff of debt transactions.

8. Occurrence and rights and obligations for debt.

Answer 1

The substantive procedures mentioned are designed to detect mistreatments related to long-term debt and equity transactions. Examples of assertions related to each procedure have been provided.

Step-by-step explanation:

The substantive procedures mentioned in the question are designed to detect mistreatments related to long-term debt and equity transactions. Let's match each substantive procedure with the corresponding assertion(s):

a. Inspect activity in all long-term debt and related income statement accounts and investigate entries that appear unusual in amount or source: This procedure is designed to detect mistreatments related to the completeness of long-term debt.

b. Confirm equity transactions with the company's registrar or transfer agent: This procedure is designed to detect mistreatments related to the existence and completeness of long-term debt.

c. Inspect authorizations and terms of stock issues: This procedure is designed to detect mistreatments related to the existence, completeness, and valuation and allocation of equity.

d. Compare financial statement presentation with GAAP for debt disclosures: This procedure is designed to detect mistreatments related to the occurrence, accuracy, cutoff, and classification of debt.

e. Scan cash receipts journal for large, unusual cash receipts: This procedure is designed to detect mistreatments related to the occurrence, completeness, accuracy, cutoff, and classification of equity.

f. Vouch a sample of entries in the long-term debt and related interest expense accounts: This procedure is designed to detect mistreatments related to the occurrence, accuracy, and cutoff of debt transactions.

g. Calculate appropriate equity ratios: This procedure is designed to detect mistreatments related to the occurrence, completeness, accuracy, cutoff, and classification of equity.

h. Confirm interest expense and recalculate as necessary: This procedure is designed to detect mistreatments related to the occurrence and rights and obligations for debt.