Describe common audit procedures to audit dividends and retained earnings
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total answers (1)
total answers (1)
Accounting
- When the entity uses an independent dividend-disbursing agent, the auditor can confirm the amount disbursed to the agent by the entity. This amount is agreed with the amount authorized by the board of directors. The auditor can recompute the dividend amount by multiplying the number of shares outstanding on the record date by the amount of the per share dividend approved by the board of directors. This amount should agree to the amount disbursed to shareholders and accrued at year-end.
- The auditor begins the audit of retained earnings by obtaining a schedule of the activity in the account for the period. The beginning balance is agreed to the prior year's working papers and financial statements. Net income or loss can be traced to the income statement. The amounts for any cash or stock dividends can be verified as in the previous paragraph. If there are any prior-period adjustments, the auditor must be certain that the transactions satisfy the requirements of the relevant accounting standards. Any new appropriations or changes in existing appropriations should be traced to the contractual agreement that required the appropriation.
- Last, the auditor must make sure that all necessary disclosures related to retained earnings are made in the footnotes.
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