Question

The table below is an excerpt from Apple Inc.’s Statement of Shareholders’ Equity for its fiscal year ended September 27, 2014:

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In millions, except number of shares, which are reflected in thousands) Common Stock and Additional Pald-In CapitalRetained Co Accumulated Other Retained Comprehensive Total Shareholders' Earnings Shares Amount Income/(Loss) Equity Balance as of September 28, 2013 6,294,494 $19,764 $104,256 $(471) $123,549 39,510 1,553 Net income 39,510 Other comprehensive income (loss) Dividends and dividend equivalents declared Repurchase of common stock (488,677) Share-based compensation Common stock issued, net of shares held for employee taxes Tax benefit from equity awards, including transfer price adjustment Balance as of September 27, 5,866161 $23,313 1,553 (11,215) (45,000) (399) (11,215) 2,863 (49) (45,000) 2,863 (448) 60,344 735 735 $87,152 $1,082 $111,547 2014

a. How would the auditor verify the balances as of September 28, 2013?

b. What would the auditor do to evaluate the amount shown as Net Income?

c. What sources of evidence might the auditor use to satisfy the occurrence objective for each of the following?

(1) Repurchase of common stock

(2) Share-based compensation

(3) Common shares issued

d. How should the amounts shown as of September 27, 2014, relate to the amounts shown in Apple’s balance sheet as of the same date?

Answer 1

Ans for

A. As the financial data is accumulated in the balance sheet the auditor in case he did not do the previous year audit he/she must confirm the opening balances or refer to the predecessor auditor, or if he/she could not then a disclaimer of an opinion might be necessary in the auditors report, other wise he is carrying out responsibility about the fairness of the financial statements including the opening balances, from previous year, as the auditor is responsible up to the issuance of the audit report.

B.  Financial statement audits are a routine part of closing your financial books. Audits help to ensure the accuracy of the accounting data used to compile the statements as well as the overall calculations. An income statement audit can help you isolate mathematical errors and ledger discrepancies or give you peace of mind before you file the income statement during closing.

Statement Calculations

The first step in auditing financial statements is to verify the summary calculations. Start with the income section, confirming that the total revenue amount is equal to the sum of the income lines. Repeat this process for the expense category. Manually calculate the difference between the revenue and expense numbers to verify the equity section, as owner's equity is simply the difference between the revenue and expenses.

Income Details

Once you determine that the calculations on the income statement itself are accurate, you need to review the detail that contributes to the figures. Pull summary transaction reports from the general ledger for each revenue account. Review the overall data on the summary reports for accuracy. Run transaction-level reports for the accounts so that you can view the details to confirm that the summary report figures are accurate. Each transaction-level report shows you what has posted to the account. Compare the transactions in the ledger to the hard copy files, such as invoices or check stubs that support the journal entries, to confirm that they were posted correctly.

C. 1.  The repurchase of common or preferred shares, the timing of the repurchase, and the amount to pay for the shares should all be approved by the board of directors.

Proper Record Keeping and Segregation of Duties

When a company maintains its own records of stock transactions and outstanding stock, the internal controls must be adequate to ensure that:

• Actual owners of the stock are recognized in the corporate records

• The correct amount of dividends is paid to the stockholders owning the stock as of the dividend record date

• The potential for misappropriation of assets is minimized

2. r share-based compensation transactions, documentation of such understanding might include (but is not limited to) the following inquiries of management and its board of directors. The auditor should document:

* The terms and conditions of the existing policies granting employee stock options, paying close attention to terms allowing exercise prices that are not equal to the market price on the grant date (as well as terms that delegate option award issuance authority to management).

* The extent the company uses third-party specialists in determining its fair value measurements and disclosures.

* The process for approving and communicating option awards to employees, ensuring that the company determines that the grant date used is consistent with FAS 123(R). Their understanding of the general terms of the stock compensation plan, reviewing contractual terms, settlement alternatives, number of options available, and other relevant terms must be examined.

* The process for tracking stock option awards granted, exercises, forfeitures, cancellations, and option expirations, along with the company's process used to review plan documents and the accounting for each individual grant.

* The process the company uses to measure and record the stock compensation expense, including those personnel authorized to record such entry.

* The process for identifying and effectuating modifications to existing award terms or conditions, including those authorized personnel.

3.  

The equity accounts used depend upon the type of entity and what occurs within and outside the organization. Examples include:

• Has an incorporated company purchased treasury stock?
• Does a commercial entity have unrealized gains or losses on available-for-sale securities?
• Does a nonprofit organization have donor-restricted contributions?
• Does a government have restricted net position?

d. These balance are calculated by veryifing all above transactions