Investment Cycle

Question 1

What are the investment category

Answer 1

Trading, Available for sale, Held to maturity, derivatives, equity method.

Question 2

Held to maturity investment should be valued at

Answer 2

Amortized cost at year end

Question 3

Investments to another entity (ownership 20-50 %) sb accounted for

Answer 3

Using the equity method

Question 4

Performing a count of negotiable securities auditor records on worksheet

Answer 4

Acknowledgement securities returned infact

Question 5

Testing reasonableness of dividend income auditor will compute the amount

Answer 5

by electronically assessing dividend records in the internet

Question 6

Auditor tests reasonableness of dividend income by referring to

Answer 6

Dividend record books produced by investment advisory services

Question 7

What control company would use to safeguard marketable securities when NO trust agent

Answer 7

Two company officials have joint control of marketable securities in bank safe deposit box

Question 8

What is the audit procedure for rights and obligations assertion related to inventories

Answer 8

Inspect agreements to determine if inventory pledged as a collateral or liens

Question 9

Existence and ownership of long-term investments. Auditor most likely would inspect the securities or

Answer 9

confirm the number of shares owned that are held by independent custodian.

Question 10

Confirming with outside agent that he is holding securities in the client’s name auditor gathering evidences of existence and

Answer 10

Rights and obligations

Question 11

When entity uses a trust company as a custodian of marketable securities fraud would be reduced if

Answer 11

Trust company has no direct contact with entities employees who records securities

Question 12

Auditor will LEAST LIKELY consider with respect to fair value

Answer 12

The effect on fair value measurement of info available subsequent to the audit

Question 13

Correct statement of using broker’s quotation

Answer 13

If the quotation is from the same broker the evidence is less objective

Question 14

Auditor inquires disclosure entities invested to energy derivatives. Auditor should

Answer 14

Examine the contracts for possible risk exposure and need to recognize loss

Question 15

Establish the existence and ownership of long term investments Auditor performs a security count or

Answer 15

Confirms the number of shares owned and held by independent custodian

Question 16

Auditor testing long term investments uses analytical review to ascertain the reasonableness of

Answer 16

Completeness of recorded investment income

Question 17

Auditor verifies the interest earned on bond investments by

Answer 17

Recomputing interest earned

Question 18

Which control is effective in assuring that the proper custody is maintained

Answer 18

Balance of investment sub ledger is compared with safety deposit box

Question 19

How to verify valuation of marketable securities at balance sheet date

Answer 19

Compare the prices of the securities to published closing prices at BS ate

Question 20

Testing long term investments Auditor uses analytical procedures to ascertain the reasonableness

Answer 20

Completeness

Question 21

Internal control to satisfy completeness assertion

Answer 21

Compare securities in safe box with recorded investments

Question 22

If large investment portfolio in bank safe box that Auditor is unable to count

Answer 22

Request to have bank seal on box and count later

Question 23

When client have derivatives, auditor should

Answer 23

Understand the economic substance of each derivative

Question 24

Which procedure will be the most appropriate to test the valuation of collateral of delinquent note recevable

Answer 24

Obtain current value appraisal of collateral

Question 25

Auditor’s analytical procedures indicates lower than expected return on equity mthod investment

Answer 25

It is because of the error in recording amortization

Question 26

Audition intangible assets auditor reviews amortization period reasonable to support assertion of

Answer 26

Valuation and allocation

Question 27

In testing long term investments auditor would use analytical procedures to ascertain the reasonabless of the

Answer 27

Completness of recorded investment income

Question 28

In testing long term investments auditor would use analytical procedures to ascertain the reasonabless of the

Answer 28

Completeness of recorded investment income

Question 29

Which control would entity use in safeguarding against the loss of marketable securities?

Answer 29

Independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possesstion of the securities.

Question 30

Which internal control entity most likely would use to assist in satisfying the completeness assertion to L term debt?

Answer 30

The internal auditor compares the securities in the bank safe deposit box with recorded investments.

Question 31

To satisfy valuation assertion when auditing an investment accounted for by equity method auditor would

Answer 31

Examine the audited FS of the investee company

Question 32

Which control is most effective in assuring that the proper custody of assets in the investing cycle is maintained?

Answer 32

The recorded balances in the investment sub ledger are periodically compared with the components of the safety deposit box by independent personnel

Question 33

Reasonabless of dividend income from investments in publicly held companies compute by

Answer 33

Electronically assessing the details of dividend records on the Internet

Question 34

Auditor usually tests the reasonabless of dividend income from investments by referring to

Answer 34

Dividend record books produced by investment advisory services

Question 35

Auditor’s inquires of management disclosed that the entity recently invested in energy derivatives to hedge fluctuation oil price..Auditor should

Answer 35

Examine the contracts for possible risk exposure and need to recognize losses

Question 36

Auditor s analytical procedures indicate lower than expected return on equity method investment. The situation could be caused by

Answer 36

An error in recording amortization of the excess of investors cost over the investments underlying book vue

Question 37

Auditor performing substantive procedures on clients ending investment balances. To test valuation and allocation assertion the auditor would

Answer 37

Assess the reasonabless and appropriateness of market variables and assumptions used in the clients valuation models.