$16-9$ Drafting Tests of Controls from an Internal

Control Questionnaire: Debt and Equity Transactions

Following are selected questions from an internal control questionnaire relating to a company$$s debt and equity transactions. A Yes response to any question indicates a potential strength of the system, and a No response indicates a potential weakness.

a$.$ Are all long$-$term debt and other borrowings authorized by the board of directors?

b$.$ Is an officer responsible for determining whether all debt covenants are complied with?

c$.$ Are unissued bonds and notes prenumbered consecutively and controlled by an official independent of recording?

d$.$ Are interest payments and accruals recalculated periodically?

e$.$ Are unissued stock certificates prenumbered consecutively and safeguarded?

f$.$ Are treasury shares adequately controlled and accounted for?

g$.$ Are dividend payments and accruals recalculated periodically?

Required: Assume that inquiries indicate no apparent deficiencies in internal control. Draft tests of controls that you believe would provide persuasive evidence that no deficiencies exist.