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AT - INVESTMENTS

Problem

1. In establishing the existence and ownership of a long-term investment in the form of publicly-traded
shares, an auditor should inspect the securities or
a. Inspect the audited financial statements of the investee company.
b. Confirm the number of shares owned that are held by an independent custodian.
c. Determine that the investment is carried at the lower of cost or market.
d. Correspond with the investee company to verify the number of shares owned.
2. In confirming with an outside agent, such as a financial institutions, 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 assertion of existence and
a. Valuation or allocation
b. Completeness
c. Rights and obligations
d. Presentation and disclosure
3. The auditor should insist that a representative of the client be present during the physical examination
of securities in order to
a. Lend authority to the auditor's directives.
b. Acknowledge the receipt of securities returned.
c. Detect forged securities.
d. Mississaugardinate the return of all securities to proper locations.
4. The audit procedure that will give the least assurance of the validity of the general ledger balance of
investment in stocks and bonds at the audit date is
a. Inspection and count of stocks and bonds.
b. Confirmation from the broker.
c. Vouching all charges during the year to the broker’s advices and statements.
d. Examination of paid checks issued in payment of securities purchased.
5. In auditing investments for proper valuation, the auditor should do all but the following:
a. Vouch purchases and sales of securities by tracing to brokers' advices and canceled checks.
b. Compare cost and market by reference to year end market values for selected securities.
c. Confirm securities held in safekeeping off the client's premises.
d. Recalculate gain or loss on disposals.
6. An audit procedure that provides evidence about proper valuation of trading securities arising from a
short-term investment of excess cash is
a. Recalculation of investment carrying value by applying the equity method.
b. Comparison of carrying value with current market quotations.
c. Confirmation of securities held by broker.
d. Calculation of premium or discount amortization.
7. To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an
auditor most likely would
a. Review the broker’s advice or canceled check for the investment’s acquisition.
b. Obtain market quotations from financial newspapers or periodicals.
c. Examine the audited financial statements of the investee company.
d. Inspect the stock certificates evidencing the investment.
8. The auditee has acquired another company by purchase. Which of the following would be the best audit
procedure to test the appropriateness of the allocation of cost to tangible assets?
a. Evaluate procedures used to estimate and record fair market values for purchased assets.
b. Determine whether assets have been recorded at their book value at the date of purchase.
c. Evaluate the reasonableness of recorded values by discussion with operating personnel.
d. Evaluate the reasonableness of recorded values by use of replacement cost data.
9. The auditee has just acquired another company by purchasing all its assets. As a result of the purchase,
"Goodwill" has been recorded on the auditee's books. Which of the following comparisons would be the
most appropriate audit test for the amount of recorded Goodwill?
a. The purchase price and the fair market value of assets purchased.
b. The purchase price and the book value of assets purchased.
c. The figure for Goodwill specified in the contract for purchase.
d. Earnings in excess of 15% of net assets for the past five years.
10. Which of the following is ordinarily the best evidence of fair value?
a. Published price quotations in an active market.
b. Discounted cash flow analysis.
c. Comparative transaction model.
d. None of the above.
AT - INVESTMENTS
Answer Section

PROBLEM

1. B
2. C
3. B
4. D
5. C
6. B
7. C
8. A
9. A
10. A