ExpertMedium1 markMultiple Choice
CPA · Question 30 · Area III: Performing Procedures
An auditor is testing the completeness of the dividend income account for a nonissuer investor. Which of the following audit procedures is MOST effective?
An auditor is testing the completeness of the dividend income account for a nonissuer investor. Which of the following audit procedures is MOST effective?
Answer options:
A.
Vouching recorded dividend receipts to the bank statement.
B.
Reviewing dividend record books produced by investment advisory services (e.g., electronic databases) to identify dividends declared on securities held.
C.
Recalculating the mathematical accuracy of the dividend income ledger.
D.
Confirming the dividend income with the investee company.
How to approach this question
Completeness direction: Outside World -> Client Books. Find a list of all dividends that *should* exist (Standard & Poor's, etc.) and check if they are in the books.
Full Answer
B.Reviewing dividend record books produced by investment advisory services (e.g., electronic databases) to identify dividends declared on securities held.✓ Correct
Reviewing dividend record books produced by investment advisory services (e.g., electronic databases) to identify dividends declared on securities held.
To test completeness of dividend income, the auditor needs to identify what *should* have been recorded. Using an independent source (like a dividend database) to determine declared dividends and tracing them to the client's books is the best procedure.
Common mistakes
Vouching (Books -> Source) instead of Tracing (Source -> Books) for completeness.
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