Investment Cycle Flashcards
What are the investment category
Trading, Available for sale, Held to maturity, derivatives, equity method.
Held to maturity investment should be valued at
Amortized cost at year end
Investments to another entity (ownership 20-50 %) sb accounted for
Using the equity method
Performing a count of negotiable securities auditor records on worksheet
Acknowledgement securities returned infact
Testing reasonableness of dividend income auditor will compute the amount
by electronically assessing dividend records in the internet
Auditor tests reasonableness of dividend income by referring to
Dividend record books produced by investment advisory services
What control company would use to safeguard marketable securities when NO trust agent
Two company officials have joint control of marketable securities in bank safe deposit box
What is the audit procedure for rights and obligations assertion related to inventories
Inspect agreements to determine if inventory pledged as a collateral or liens
Existence and ownership of long-term investments. Auditor most likely would inspect the securities or
confirm the number of shares owned that are held by independent custodian.
Confirming with outside agent that he is holding securities in the client’s name auditor gathering evidences of existence and
Rights and obligations
When entity uses a trust company as a custodian of marketable securities fraud would be reduced if
Trust company has no direct contact with entities employees who records securities
Auditor will LEAST LIKELY consider with respect to fair value
The effect on fair value measurement of info available subsequent to the audit
Correct statement of using broker’s quotation
If the quotation is from the same broker the evidence is less objective
Auditor inquires disclosure entities invested to energy derivatives. Auditor should
Examine the contracts for possible risk exposure and need to recognize loss
Establish the existence and ownership of long term investments Auditor performs a security count or
Confirms the number of shares owned and held by independent custodian
Auditor testing long term investments uses analytical review to ascertain the reasonableness of
Completeness of recorded investment income
Auditor verifies the interest earned on bond investments by
Recomputing interest earned
Which control is effective in assuring that the proper custody is maintained
Balance of investment sub ledger is compared with safety deposit box
How to verify valuation of marketable securities at balance sheet date
Compare the prices of the securities to published closing prices at BS ate
Testing long term investments Auditor uses analytical procedures to ascertain the reasonableness
Completeness
Internal control to satisfy completeness assertion
Compare securities in safe box with recorded investments
If large investment portfolio in bank safe box that Auditor is unable to count
Request to have bank seal on box and count later
When client have derivatives, auditor should
Understand the economic substance of each derivative
Which procedure will be the most appropriate to test the valuation of collateral of delinquent note recevable
Obtain current value appraisal of collateral
Auditor’s analytical procedures indicates lower than expected return on equity mthod investment
It is because of the error in recording amortization
Audition intangible assets auditor reviews amortization period reasonable to support assertion of
Valuation and allocation
In testing long term investments auditor would use analytical procedures to ascertain the reasonabless of the
Completness of recorded investment income
In testing long term investments auditor would use analytical procedures to ascertain the reasonabless of the
Completeness of recorded investment income
Which control would entity use in safeguarding against the loss of marketable securities?
Independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possesstion of the securities.
Which internal control entity most likely would use to assist in satisfying the completeness assertion to L term debt?
The internal auditor compares the securities in the bank safe deposit box with recorded investments.
To satisfy valuation assertion when auditing an investment accounted for by equity method auditor would
Examine the audited FS of the investee company
Which control is most effective in assuring that the proper custody of assets in the investing cycle is maintained?
The recorded balances in the investment sub ledger are periodically compared with the components of the safety deposit box by independent personnel
Reasonabless of dividend income from investments in publicly held companies compute by
Electronically assessing the details of dividend records on the Internet
Auditor usually tests the reasonabless of dividend income from investments by referring to
Dividend record books produced by investment advisory services
Auditor’s inquires of management disclosed that the entity recently invested in energy derivatives to hedge fluctuation oil price..Auditor should
Examine the contracts for possible risk exposure and need to recognize losses
Auditor s analytical procedures indicate lower than expected return on equity method investment. The situation could be caused by
An error in recording amortization of the excess of investors cost over the investments underlying book vue
Auditor performing substantive procedures on clients ending investment balances. To test valuation and allocation assertion the auditor would
Assess the reasonabless and appropriateness of market variables and assumptions used in the clients valuation models.
