INTEGRATED ASSESSMENT AUDITING THEORY & PROBLEMS
Substantive Audit of INVESTMENT IN DEBT AND EQUITY and PPE
Instruction: Shade the letter of the correct answer. Erasures are not allowed.
1. I. The auditor is responsible for determining the fair value of investments.
II. Valuation risk is higher for listed equity securities than for unlisted investments.
III. If an equity security is held in a brokerage account, no further procedures are
needed to confirm existence.
I. The auditor is NOT responsible for determining fair value → management’s job.
II. Valuation risk is higher for unlisted investments (no active market), not listed ones.
III. Even if held in a brokerage account, the auditor still needs confirmation.
a. All statements are true
b. All statements are false
c. c. Only statements I and III are true
d. d. Only statement II and III are true
2. What is a key risk when auditing debt securities classified as held-to-maturity?
a. Misstatement due to market volatility
b. Misstatement of amortized cost due to incorrect effective interest rate
HTM securities are carried at amortized cost, so error risk = wrong interest
method.
c. Overstatement of fair value in footnotes
d. Misclassification affecting income tax expense
3. Which of the following procedures would most effectively identify unrecorded
investment transactions near year-end?
a. Examining dividend declarations
b. Testing management override
c. Recalculating interest income
d. Reviewing subsequent bank statements and
confirmations Detects late settlements,
unrecorded buys/sells.
4. How should an auditor respond if a security's market price is unavailable at year-
end?
a. Evaluate management's valuation inputs and assumptions for
reasonableness If market price is absent, then auditors must assess
the valuation model.
b. Use the issuer's forecasted profits as the valuation basis
c. Request an impairment test from management
d. Only choices A and B are Correct
5. Which substantive test would be the most logical procedure to do for
, accrued interest receivable?
a. Recalculate interest earned and compare it to the amounts received
Substantive Audit of INVESTMENT IN DEBT AND EQUITY and PPE
Instruction: Shade the letter of the correct answer. Erasures are not allowed.
1. I. The auditor is responsible for determining the fair value of investments.
II. Valuation risk is higher for listed equity securities than for unlisted investments.
III. If an equity security is held in a brokerage account, no further procedures are
needed to confirm existence.
I. The auditor is NOT responsible for determining fair value → management’s job.
II. Valuation risk is higher for unlisted investments (no active market), not listed ones.
III. Even if held in a brokerage account, the auditor still needs confirmation.
a. All statements are true
b. All statements are false
c. c. Only statements I and III are true
d. d. Only statement II and III are true
2. What is a key risk when auditing debt securities classified as held-to-maturity?
a. Misstatement due to market volatility
b. Misstatement of amortized cost due to incorrect effective interest rate
HTM securities are carried at amortized cost, so error risk = wrong interest
method.
c. Overstatement of fair value in footnotes
d. Misclassification affecting income tax expense
3. Which of the following procedures would most effectively identify unrecorded
investment transactions near year-end?
a. Examining dividend declarations
b. Testing management override
c. Recalculating interest income
d. Reviewing subsequent bank statements and
confirmations Detects late settlements,
unrecorded buys/sells.
4. How should an auditor respond if a security's market price is unavailable at year-
end?
a. Evaluate management's valuation inputs and assumptions for
reasonableness If market price is absent, then auditors must assess
the valuation model.
b. Use the issuer's forecasted profits as the valuation basis
c. Request an impairment test from management
d. Only choices A and B are Correct
5. Which substantive test would be the most logical procedure to do for
, accrued interest receivable?
a. Recalculate interest earned and compare it to the amounts received
