AUDIT OF INVESTMENT Flashcards
(10 cards)
Which of the following is not one of the auditor’s primary objectives in an audit of trading
securities?
A. To determine whether securities are authentic.
B. To determine whether securities are the property of the client.
C. To determine whether securities actually exist.
D. To determine whether securities are properly classified on the balance sheet date.
A
get expertise from other
Which of the following is the least effective audit procedure regarding the existence
assertion for the securities held by the auditee?
A. Examination of paid checks issued in payment of securities purchased.
B. Vouching all changes during the year to supporting documents.
C. Simultaneous count of liquid assets.
D. Confirmation from the custodian.
AAA
Which of the following is the most effective audit procedure for verification of dividends
earned on investments in equity securities?
A. Tracing deposited dividend checks to the cash receipts book.
B. Reconciling the amounts received with published dividend records.
C. Comparing the amounts received with preceding year dividends received.
D. Recomputing selected extensions and footings of dividend schedules and comparing
totals to the general ledger.
BBB
In confirming with an outside agent, such as a financial institution, that the agent is holding
investment securities in the client’s name, an auditor most likely gathers evidence in support
of management’s financial statement assertions of existence and
A. Valuation
B. Rights and obligations
C. Completeness
D. Presentation and disclosure
BBB
Which of the following provides the best form of evidence pertaining to the annual valuation
of an investment in which the independent auditor’s client owns a 30% voting interest?
A. Market quotations of the investee company’s stock.
B. Current fair value of the investee company’s assets.
C. Historical cost of the investee company’s assets.
D. Audited financial statements of the investee company.
DDD
An auditor is most likely to verify the interest earned on bond investment by
A. Verifying the receipt and deposit of interest checks.
B. Confirming the bond interest rate with the issuer of the bonds.
C. Recomputing the interest earned on the basis of face amount, interest rate, and period
held.
D. Testing controls relevant to cash receipts.
CCC
In establishing the existence and ownership of an investment held by a corporation in the
form of publicly traded stock, an auditor should inspect the securities and
A. Obtain written representations from management confirming that the securities are
properly classified as trading securities.
B. Inspect the audited financial statements of the investee company.
C. Confirm the number of shares held by an independent custodian.
D. Determine that the investment is carried at fair value.
CCC
The auditor can best verify a client’s bond sinking fund transactions and year-end balance
by
A. Confirmation with individual holders of retired bonds.
B. Confirmation with the bond trustee.
C. Recomputation of interest expense, interest payable, and amortization of bond discount
or premium.
D. Examination and count of the bonds retired during the year.
CCC
An auditor who physically examines securities should insist that a client representative be
present in order to
A. Detect fraudulent activities.
B. Lend authority to the auditor’s directives.
C. Coordinate the return of securities to the proper locations.
D. Acknowledge the receipt of securities returned.
DDD
In testing long-term investments, an auditor ordinarily would use analytical procedures to
ascertain the reasonableness of the
A. Classification between current and noncurrent portfolios.
B. Valuation of marketable equity securities.
C. Existence of unrealized gains or losses in the portfolio.
D. Completeness of recorded investment income.
DDD
