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In: Accounting

You are engaged in the audit of Mazel Corporation, whose records have not previously been audited...

You are engaged in the audit of Mazel Corporation, whose records have not previously been audited by your firm. The company has an independent transfer agent, as well as a registrar for its capital stock. The transfer agent maintains the record of stockholders, while the registrar checks that there is no overissue of stock. Both the transfer agent and registrar are required to validate stock certificates. Deanna Long, a senior on the audit proposes that confirmations be obtained from both the transfer agent and registrar regarding the outstanding stock balance at the balance sheet date. If the confirmations agree with the books, then she proposes that no additional work is to be performed on the capital stock account. Do you agree or disagree that this will be sufficient? If yes, give the justification for your position. If no, state specifically all additional steps you would take and why you would take them.

Solutions

Expert Solution

Audit refers to the independent examination and analysis of financial statement and financial position to ensure that reflection of true and fair value in financial statement of the company.

Audit includes various activities and procedures for ensuring accuracy and reliability of data recorded in financial statement. Obtaining third party confirmation is also a step which invoices obtaining confirmation from external parties for verifying accuracy of financial data. However, only obtaining third party confirmation is not sufficient to ensure accuracy and reliability of data. The same can be used only for additional confirmation and reference purpose.

Thus, obtaining confirmation from transfer agent and registrar to validate stock certificates is not only sufficient. The auditor should verify each and every transaction reflected in stock ledger and should ensure that various transactions are in compliance with provision of various acts and regulations.The auditor should ensure that not only the collected balance is matching but each and every transaction should be correct. The auditor should also need to verify the resolutions (if any) required under acts and laws. The auditor should also need to check compliance with related party transaction.

After selecting samples and performing various procedures for verification of supporting along with third party verification, the auditor can ensure that the position of stock is being correctly reflected in financial statement

ekkarill92 answered 1 year ago
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