are not enough employees to permit an extensive separation of duties . The company is one of the smaller units in its industry , but it has realized net income of about $ 500,000 in each of the last three years .
Near the end of your fieldwork , you overhear a telephone call received by the president of the company while you are discussing the audit with him . The telephone conversation indicates that on May 15 of the current year the Columbia Corporation made an accommodation endorsement of a 60-day $ 430,000 note issued by a major customer , Brill Corporation , to its bank . The purpose of the telephone call from Brill was to inform your client that the note had been paid at the maturity date . You had not been aware of the existence of the note before overhearing the telephone call .
Questions Requiring Analysis 15-31
Valley Corporation established a stock option plan for its officers and key employees this year . Because the options granted have a higher option price than the stock ’ s current market price , the company has not recognized any cost for the options in the financial statements . However , a note to the financial statements includes all required disclosures .
a . Do you believe that Valley ’ s management has appropriately accounted for the stock option plan ? Explain your answer .
b . What responsibility do the auditors have for the information in the notes to the financial statements ?
c . List the audit procedures , if any , which you believe should be applied to the stock option plan .