AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS

Chapter 14: Audit of Investments

Exercise 1

1. • Confirmation with the issuer of the security.

• Confirmation with the holder of the security, including securities in electronic

form, or with the counterparty to the derivative.

• Confirmation of settled transactions with the broker-dealer or counterparty.

• Confirmation of unsettled transactions with the broker-dealer or counterparty.

• Physical inspection of the security or derivative contract.

• Reading executed partnership or similar agreements.

2. •The auditor should use the assessed levels of inherent risk and control risk for

assertions about derivatives and securities to determine the nature, timing, and

extent of the substantive procedures to be performed to detect material

misstatements of the financial statement assertions.

•The auditor should consider the impact of any such identified matters on

management's assertions about derivatives and securities.

Exercise 2

a.

1. To make sure that no one can falsify the records that they have.

2. This is to make sure that the custody of the securities is in the company’s

name so employee can’t use it for personal purposes.

 3. To assess that the reports may show unrecorded sales and purchase of

securities.

b.

1. Perform tests by making sure there is segregation or assigning of duties

properly that no one will be handling two things at a time.

2. Make surprise audits on the registration of marketable securities in company’s

name and policies that are being followed.

3. Make sure to record all sales and purchase of securities.

c. The auditors should make 2 copies for each document that they are doing to

make sure that all transactions are recorded properly and can be traced well if

something uncertain happen. If it is inadequate they can adjust the tests that they

are doing for it to reach the standards that should be used for each control that

they have.

Exercise 3

a. The beginning balance on the cut-off bank statement is the same with the

balance per bank on the bank reconciliation made in December 31.

b. To know what audit procedures they should do in future purposes.