Auditing Principles & Procedures Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Principles & Procedures flashcards as text
When auditing an equity plan, which document serves as the primary authoritative source for verifying share reserve limits?
Answer: The plan document approved by shareholders
The shareholder-approved plan document establishes the legally binding share reserve and its terms govern all grants made under the plan.
An equity auditor discovers that option grants were backdated to a date with a lower stock price. Which regulatory body's rules are most directly violated?
Answer: SEC and IRS
Backdating violates SEC disclosure rules (material misstatement) and IRS rules regarding the strike price requirement for ISOs and Section 409A compliance.
During an audit, you find that an employee received an RSU grant but no related 83(b) election was filed. What is the correct audit conclusion?
Answer: No error exists because 83(b) elections do not apply to RSUs
Section 83(b) elections apply to restricted stock with a substantial risk of forfeiture, not to RSUs, which are taxed upon settlement.
A dual-trigger RSA accelerates vesting only upon both a change in control AND termination without cause. When auditing this feature, what document must be reviewed?
Answer: The individual award agreement and the plan document
Both the individual award agreement and the plan document must be reviewed to confirm the dual-trigger language is consistently defined and enforceable.
Which audit procedure best detects errors in the calculation of shares available for future grants?
Answer: Recalculating the share reserve rollforward from inception or last audit date
A reserve rollforward recalculation traces all grants, cancellations, forfeitures, and exercises to independently verify the remaining share balance.
Under Sarbanes-Oxley Section 302, which equity-related assertion must the CEO and CFO certify in each quarterly and annual filing?
Answer: That disclosures related to equity compensation are accurate and complete
SOX 302 requires executives to certify that all disclosures, including equity-related disclosures in financial statements and footnotes, are accurate and complete.
During an ISO audit, which test confirms that the aggregate FMV limit of $100,000 per year was not exceeded for a particular employee?
Answer: Calculate the FMV at grant date multiplied by shares becoming exercisable in each calendar year
The ISO $100,000 annual cap is measured by multiplying the FMV at grant date by shares first exercisable in each calendar year, and any excess is treated as an NQSO.