In verifying investing cycle balances, the auditor should recognize that the following errors may occur or exist:

Question:

1. A mathematical error is made in accruing interest earned.

2. A 25 percent common stock investment in an affiliated company is accounted for on the cost basis.

3. Securities held by an outside custodian are in the treasurer's name.

4. Securities on hand at the beginning of the year are diverted to personal use in July and are replaced in December.

5. An authorized purchase is recorded at cost and the broker's fee is expensed.

6. Ten shares of stock reported to be on hand are missing.

7. Marketable equitable securities are reported at cost which is above market.

8. The schedule of marketable securities does not reconcile to the general ledger acccunt.

9. Gain on a sale of securities is reported net of taxes.

10. Securities pledged as collateral on a bank loan are not disclosed.

Required:

a. Identify the audit procedure that should enable the auditor to detect each error.

b. Indicate the audit objective to which the audit procedure relates.

c. Identify the type of evidential matter obtained by the audit procedure.

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