Audit Program. A normal procedure in the audit of a corporate client consists of a careful reading of the minutes of meetings of the board of directors. One of the auditors' objectives in reading the minutes is to determine whether the transactions recorded in the accounting records are in agreement with actions approved by the board of directors.
Required:
A. What is the reasoning underlying this objective of reconciling transactions in the corporate accounting records with actions approved by the board of directors? Describe fully how the auditors achieve the stated objective after they have read the minutes of directors' meetings.
B. Discuss the effect that each of the following situations would have on specific audit steps in the auditors' examination and on the auditors' opinion:
1 The minutes book does not show approval for the sale of an important manufacturing division that was consummated during the year.
2 Some details of a contract negotiated during the year with the labor union are different from the outline of the contract included in the minutes of the board of directors.
3 The minutes of a meeting of directors held after the balance sheet date have not yet been written, but the corporation's secretary shows the auditors notes from which the minutes are to be prepared when the secretary has time.
C. What corporate actions should be approved by stockholders and recorded in the minutes of the stockholders' meetings?