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eFishie eFishie
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5 years ago
Describe the audit procedures and related audit assertions for the audit of dividends.
Textbook 

Auditing: The Art and Science of Assurance Engagements, Canadian Edition


Edition: 12th
Authors:
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charleshardtcharleshardt
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• Recorded dividends occurred (occurrence).
• Existing dividends are recorded (completeness).
• Dividends are accurately recorded (accuracy).
• Dividends that exist are paid to shareholders (existence).
• Dividends payable are recorded (completeness).
• Dividends payable are accurately recorded (accuracy).
Existence of recorded dividends can be checked by examining the minutes of board of directors' meetings for the amount of the dividend per share and the dividend date. When the auditor examines the board of directors' minutes for dividends declared, the auditor should be alert to the possibility of unrecorded dividends declared, particularly shortly before the balance sheet date. A closely related audit procedure is reviewing the permanent audit working-paper file to determine if there are restrictions on the payment of dividends in bond indenture agreements or preferred share provisions.
The accuracy of a dividend declaration can be audited by recomputing the amount on the basis of the dividend per share and the number of shares outstanding. If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed.
When a client keeps its own dividend records and pays the dividend itself, the auditor can verify the total amount of the dividend by recalculation and reference to cash disbursed. In addition, it is necessary to verify whether the payment was made to the shareholders who owned the stock at the dividend record date. The auditor can test this by selecting a sample of recorded dividend payments and tracing the payee's name on the cancelled cheque to the dividend records to ensure the payee was entitled to the dividend. At the same time, the amount and the authenticity of the dividend cheque can be verified.
Tests of dividends payable should be done in conjunction with declared dividends. Any unpaid dividend should be included as a liability.
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