GAMBOL Ericka p.

PRIMARY SUBSTANSIVE
TEST\OR AUDIT
PROCEDURES FOR
INVESTMENT
AUDIT PROCEDURES FOR INVESTMENT

1.VERIFYING THE EXISTENSE AND OWNERSHIP OF

SECURITIES.
2.PERFORMING VALUATION PROCEDURES IN
ACCORDANCE WITH ACCOUNTING POLICIES;
3.INVESTIGATING CURRENT AND POTENTIAL
IMPAIRMENTS OF INVESTMENTS;
4.REVIEWING THE BOARD OF DIRECTOR’S (BOD)
MINUTES OF MEETING , SHAREHOLDERS; AND
5.REVIEWING THE APPROPRIATENESS OF
PRESENTATION AND ADEQUACY OF DISCLOSURE.
V E R I F I C AT I O N O F E X I S T E N C E A N D O W N E R S H I P

• Primarily addresses the following

assertion:Existence & Rights
• To verify the existence / ownership,
procedures will depend whether the
securities or evidenveof ownership are:
a. Held by the client
b. Held by the third party
V E R I F I C AT I O N O F E X I S T E N C E A N D O W N E R S H I P

Stock certificates (evidence of ownership)

are held by the client
• Count the securities or instruments on
hand and examine the evidence of
ownership.
• Ideally, do the counting at the
reporting date and;
• Simultaneous with the surprise cash
count to prevent substitution.
V E R I F I C AT I O N O F E X I S T E N C E A N D O W N E R S H I P

When inspecting the securities, auditor should

note the following:
1. The name(s) of the indicated owner(s) of the
securities.
2. The names of the issuers of security.
3. Whether the security is debt or equity.
4. The certificate numbers on the documents
5. Any evidence of pledging or restrictions on
disposal shown on the certificates.
6. The number of shares of stock or the face value
of debt securities.
V E R I F I C AT I O N O F E X I S T E N C E A N D O W N E R S H I P

Stock certificates (evidence of ownership)

are held by a third party (brokerage firm
or banks for safekeeping)
• Sending of confirmation letter to the
brokerage firm/custodian.
• Same procedure in confirm cash in bank
and receivables.
E v a l u a t e t h e a c c o u n t i n g m e t h o d s u s e d a n d t e s t o f v a l u a t i o n

• Primarily addreses the following assertion: Occurence,

Accuracy, Valuation and Allocation.
Always Remember that the method of valuation depends on the
Investment classification. It can be
1. Investment in associate and joint venture (pas 28/ PFRS 11)
2. Investment in subsidiary (PAS 27)
3. Financial asset at amortized cost (PFRS 9)
4. Financial Asset at Fair Value (PFRS 9)
E v a l u a t e t h e a c c o u n t i n g m e t h o d s u s e d a n d t e s t o f v a l u a t i o n

INVESTMENT IN ASSOCIATE & JOINT VENTURE

• Should be accounted under equity method
 Initially at cost
 Subsequently cost plus (minus) any share of investees net
income (net loss) plus (less) any change in investees OCI
and less any dividends received.
Loss do?
What to
 Share in Net Income / Net loss can be verified by examining
the FS of the investee and make independent calculation.
 For dividends received, the auditor can examine published
dividend record of the investee.
E v a l u a t e t h e a c c o u n t i n g m e t h o d s u s e d a n d t e s t o f v a l u a t i o n

FINANCIAL ASSET @ AMORTIZED COST (FA-AC)

• Should be measured @
 Initially at Fair Value
 Subsequently, Amortized cost using effective
interest method

What to do?
To verify the CA, obtain evidence regarding the
original issuance price an amortization table using
appropriate rate and compare with the amount
reported by the client.
E v a l u a t e t h e a c c o u n t i n g m e t h o d s u s e d a n d t e s t o f v a l u a t i o n

FINANCIAL ASSET @ FAIR VALUE

• Should be measured at
 Initially at Fair Value
 Subsequently, Fair Value

What to Do?
1. Examine the qouted market price if there is an
active market. For example Shares of stock qouted
in the philippines Stock exchange (PSE)
2. Determine the qouted price then multiplied it by
number of shares.
Test of impairments of investments
Te s t o f i m p a i r m e n t s o f i n v e s t m e n t

• Primarily addresses the following

assertion: Valuation and Allocation.
• Accounting for Impairment depends on the
type of investment.
Example
 Investment affiliates (Associate, Joint
Venture, Subsidiary) – PAS 36. Impairment
of Assets.
 Impairment of Financial assets (@
Amortized Cost) – PFRS 9
Te s t o f i m p a i r m e n t s o f i n v e s t m e n t

How to do it?
1. Inquire with the management their approach in identifying
indicators of impairment.
2. How they deal with the actions taken as a result of any
potential impairment noted.
3. If there is a noted impairment or the auditor consider the
recognition, the auditor should:
a. Evaluate the appropriateness of the valuation model and
assumptions used.
b. Assets the reasonableness of management’s estimates; and
c. Evaluate the accuracy, completeness, and the relevance of
the important data on which the estimates or measurements
are based.
Indicators of impairment pas 36

External Users: Internal Sources:

• Market value • Obsolescence or physical damage
declines • Assets is idle, part of a
• Negative changes in restructing or held for
technology, markets, disposal
• Worse economic performance than
economy or laws.
expected
• Increases in market r
• For investment in subsidiaries,
interest rates joint ventures or associates,
• Net assets of the the carrying amount is higher
company higher than than the carrying amount of the
market investee’s assets or a dividend
capitalization. exceeds the total comprehensive
income of the investee.
Review of minutes of meeting
Review of minutes of meeting

• Primarily address of the following

assertion:Completeness, presentation and
Disclosure.
• How to do it?
1. Obtain and review minutes (shareholders, board,
executive committee, etc) and agreements.
2. Review confirmation replies for evidence of
existence, liens, pledges or other security
interest in investment; and
3. Review commitments to acquire or dispose
investments.
Review fs presentation and disclosure
of investments including related
account
Review fs presentation and disclosure of investment including
related account

• Primarily addreses the following assertion:

Classification, Presentation and Disclosure.
• How to do it?
1. Determine the proper presentation and
classification of investments in the statement
of financial position.
2. Short – term investments are included in the
current asset section while long-term
investments are presented in the non current
portion.
Review fs presentation and disclosure of investment including
related account

3. Determine that the related income statement

accounts should be reported approprietly in the
P/l or as a component of OCI (other Comprehensive
Income)
Review fs presentation and disclosure of investment including
related account

Reported in: Items

Profit or Loss (P/L) • Dividend Income
• Interest income
• Share in net Income/net loss of an associate or joint
venture
• Unrealized holding gain or loss on FA @FPVL
• Disposal gain or loss on all types of investment
• Impairment loss on investment

Other comprehensive • Unrealized gain or loss on available for sale (ASF) or FA

income (OCI) @FVOCI investments

• Share in change of OCI component of an associate or

joint venture.
Audit procedures classified per assertion
summary of audit procedures classified per assertion

Assertion Category Primary Audit Procedures for Investments

EXISTENCE • Inspection of securities held by the client.

• Confirmation of securities held by third parties.
OCCURRENCE • Evaluating the accounting methods used and test valuation.

COMPLETENESS • Detailed minutes of meeting review

VALUATION AND • Evaluating the accounting methods used and test valuation.
ALLOCATION

ACCURACY • Evaluating the accounting methods used and test valuation.

CLASSIFICATION • Review financial statement presentation and disclosure of investments

including related account.
Thank you for listening!