CPA Auditing and Attestation (AUD) › Investment Cycle
In confirming with an outside agent such as a financial institution that the agent is holding securities in the client's name, the auditor most likely gathers evidence in support of management's financial statement assertions of existence and:
Rights and obligations
Valuation and allocation
Completeness
Understandability and classification
A confirmation from an outside agent indicating that securities are being held in the client's name provides evidence with respect to both the existence assertion and the rights and obligations assertion.
The investment cycle requires strong segregation of duties over all of the following except:
Authorization of purchases and sales
Custody of investments
Record keeping
These are all critical for proper segregation of duties
In any business process or environment, record keeping should be separate from authorization which should be separate from custody.
The investment financing cycle refers to:
Firms operating fund
Cash and cash equivalents
Firms portfolio of investment assets both current and long term
Fixed asset section of the balance sheet
The investment financing cycle covers the firm’s portfolio of assets on both a long term and short-term basis. This cycle covers the management of excess assets to create a return.
An important review procedure for investments is to
Review detail records and compare to actual investment-related asset
Read the Wall Street Journal
Make sure the investment return is reasonable
None of the answer choices are correct.
The purpose of the review procedures is to ensure that the transaction recorded follows policies and has an audit trail. The auditor will ensure that the underlying detail supports the asset being recorded.
In auditing intangible assets, an auditor would most likely review or recompute and determine whether the amortization period is reasonable in support of management's financial statement assertion of:
Rights and obligations
Valuation and allocation
Completeness
Existence
Assertions about valuation and allocation deal with whether assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts. Recalculation of the amortization and review of the amortization period would test the valuation and allocation assertion.
In auditing the investment cycle the auditor would most likely
ensure that the accounts were properly recorded
ensure that the investments were reasonably secure from loss
ensure that the investments were properly disclosed in the financial statements
All of the answer choices are correct.
All of the above are necessary when auditing the investment cycle. Every cycle needs controls to determine transactions are properly recorded, measured, and disclosed.