TRUE-FALSE QUESTIONS

1. An organization typically has many debt transactions during the year, with each individual transaction being immaterial.

2. Typically, the most relevant assertion related to debt obligations is completeness.

3. Recording the purchases of treasury stock is straightforward and therefore does not pose any inherent risk of material misstatement.

4. An inherent risk associated with debt obligations is that management might try to avoid complete and accurate disclosure of debt covenants and potential violations.

5. A potential fraud risk associated with debt obligations is the intentional misclassification of short-term debt as long-term debt.

6. Charging expenses directly to retained earnings rather than to the appropriate expense account is potential fraud risk associated with stockholders' equity accounts.

7. Because the auditor is likely not testing controls related to stockholders' equity transactions, the auditor does not need to have an understanding of controls over stockholders' equity transactions.

8. A reconciliation of debt and interest accounts to the general ledger is a control designed to mitigate the risks of material misstatement associated with debt obligations.