Name:____________________________________ Score:____________

1. A client has a large and active investment portfolio that is kept in a bank safe-deposit box. If the auditor is unable to count
the securities at the balance sheet date, the auditor most likely will
a. Request the bank to confirm to the auditor the contents of the safe deposit box at the balance sheet date.
b. Examine supporting evidence for transactions occurring during the year.
c. Count the securities at a subsequent date and confirm with bank whether securities were added or removed since the balance
sheet date.
d. Request the client to have a bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.

2. When an auditor is unable to inspect and count a clients investment securities until after the balance sheet date, the bank
where the securities are held in a safe deposit box should be asked to
a. Verify any differences between the contents of the box and the balances in the clients subsidiary ledger.
b. Provide a list of securities added and removed from the box between the balance sheet date and the security count date.
c. Count the securities in the box so that the auditor will have an independent direct verification.
d. Confirm that there has been no access to the box between the balance- sheet date and the security-count date.

3. Which of the following is not one of the auditors primary objectives in an audit of trading securities?
a. To determine whether securities are authentic.
b. To determine whether securities are the property of the client.
c. To determine whether securities actually exist.
d. To determine whether securities are properly classified on the balance sheet date.

4. Apol Boba, CPA, observes the count of securities on December 31. She records the serial numbers of the securities and
reconciles them and the number of shares with company records. Which fraud should be detected by this procedure?
a. An investee company declared and paid a stock dividend on December 15. The stock certificate for the additional shares was
received directly by the treasurer who made no record of the receipt and embezzled the shares.
b. The treasurer embezzled and sold securities on April 4. She speculated successfully with the proceeds and replaced the
securities on December 29.
c. The treasurer borrowed securities on July 15 to use as collateral for a personal loan. He repaid the loan and returned the
securities on December 2.
d. The treasurer embezzled interest receipts from bonds by having the payments mailed directly to him.

5. Which of the following is the least effective audit procedure regarding the existence assertion for the securities held by the
auditee?
a. Examination of paid checks issued in payment of securities purchased.
b. Vouching all changes during the year to supporting documents.
c. Simultaneous count of liquid assets.
d. Confirmation from the custodian.

6. An auditee is holding equity securities as collateral for a debt. The auditor should
a. Determine from data published in the financial press that the auditee has recorded dividend income from the collateral.
b. Ascertain the value of the securities.
c. Ascertain that the amount recorded for the collateral in the investment account is equal to its fair value at the balance sheet
date.
d. Verify that the client has taken title to the securities.

7. Which of the following is the most effective audit procedure for verification of dividends earned on investments in equity
securities?
a. Tracing deposited dividend checks to the cash receipts book.
b. Reconciling amount received with published dividend records.
c. Comparing the amounts received with preceding year dividends received.
d. Recomputing selected extensions and footings of dividend schedules and comparing totals to the general ledger.

8. In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the
clients name an auditor most likely gathers evidence in support of managements financial statement assertions of existence
and
a. Valuation c. Completeness
b. Rights and obligations d. Presentation and disclosure

9. In establishing the existence and ownership of an investment held by a corporation in the form of publicity traded stock and
auditor should inspect the securities or
a. Obtain written representations from management confirming that the securities are properly classified as trading securities.
b. Inspect the audited financial statements of the investee company.
c. Confirm the number of shares held by an independent custodian.
d. Determine that the investment is carried at the lower of cost or market.

10. An auditor most likely to verify the interest earned on bond investment by
a. Verifying the receipt and deposit of interest checks.
b. Confirming the bond interest rate with the issuer of the bonds.
c. Recomputing the interest earned on the basis of face amount, interest rate, and period held.
d. Testing controls relevant to cash receipts.

11. Which of the following provides the best form of evidence pertaining to the annual valuation of an investment in which the
independent auditors client owns a 30% voting interest?
a. Market quotations of the investee companys stock.
b. Current fair value of the investee companys assets.
c. Historical cost of the investee companys assets.
d. Audited financial statements of the investee company.

12. In verifying the amount of goodwill recorded by a client, the most convincing evidence an auditor can obtain is by
comparing the recorded value of assets acquired with the
a. Assessed value as evidenced by tax bills.
b. Sellers book value as evidenced by financial statements.
c. Insured value as evidenced by insurance policies.
d. Appraised value as evidenced by independent appraisals.

13. The auditor can best verify a clients bond sinking-fund transactions and year-end balance by
a. Confirmation with individual holders of retired bonds.
b. Confirmation with the bond trustee.
c. Recomputation of interest expense, interest payable, and amortization of bond discount or premium.
d. Examination and count of the bonds retired during the year.
14. An auditor who physically examines securities should insist that a client representative be present in order to
a. Detect fraudulent securities.
b. Lend authority to the auditors directives.
c. Coordinate the return of securities to the proper locations.
d. Acknowledge the receipt of securities returned.

15. In testing long-term investments, an auditor ordinarily would use analytical procedures to ascertain the reasonableness of
the
a. Classification between current and noncurrent portfolios.
b. Valuation of marketable equity securities.
c. Existence of unrealized gains or losses in the portfolio.
d. Completeness of recorded investment income.

16. In performing tests of the carrying value of trading securities, the auditor would usually:
a. Ask management to estimate the market value of the securities.
b. Refer to the quoted market prices of the securities.
c. Value the securities at cost regardless of their market prices.
d. Count the securities.

17. Which of the following statements is the least accepted reason/purpose for acquiring long-term investments:
a. To create specific funds.
b. To yield a relatively permanent other income.
c. To generate cash for operating purposes.
d. To establish business relationships.