CPA Auditing and Attestation (AUD) : Investment Cycle

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

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Example Questions

Example Question #7 : Performing Further Procedures

The investment financing cycle refers to:

Possible Answers:

Firms operating fund

Firms portfolio of investment assets both current and long term

Fixed asset section of the balance sheet

Cash and cash equivalents

Correct answer:

Firms portfolio of investment assets both current and long term

Explanation:

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.

Example Question #8 : Performing Further Procedures

In auditing the investment cycle the auditor would most likely

Possible Answers:

ensure that the accounts were properly recorded

ensure that the investments were properly disclosed in the financial statements

All of the answer choices are correct.

ensure that the investments were reasonably secure from loss

Correct answer:

All of the answer choices are correct.

Explanation:

All of the above are necessary when auditing the investment cycle. Every cycle needs controls to determine transactions are properly recorded, measured, and disclosed.

Example Question #9 : Performing Further Procedures

An important review procedure for investments is to

Possible Answers:

Read the Wall Street Journal

Review detail records and compare to actual investment-related asset

None of the answer choices are correct.

Make sure the investment return is reasonable

Correct answer:

Review detail records and compare to actual investment-related asset

Explanation:

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.

Example Question #10 : Performing Further Procedures

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:

Possible Answers:

Completeness

Valuation and allocation

Existence

Rights and obligations

Correct answer:

Valuation and allocation

Explanation:

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.

Example Question #1 : 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:

Possible Answers:

Valuation and allocation

Completeness

Understandability and classification

Rights and obligations

Correct answer:

Rights and obligations

Explanation:

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.

Example Question #2 : Investment Cycle

The investment cycle requires strong segregation of duties over all of the following except:

Possible Answers:

Record keeping

Authorization of purchases and sales

Custody of investments

These are all critical for proper segregation of duties

Correct answer:

These are all critical for proper segregation of duties

Explanation:

In any business process or environment, record keeping should be separate from authorization which should be separate from custody.

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