10.51 Investment Securities. You are engaged in the audit of the financial statements of Bass Corporation for the year ended December 31 and you are about to begin an audit of the investment securities. Bass's records indicate that the company owns various bearer bonds as well as 25 percent of the outstanding common stock of Commercial Industrial Inc. All securities in Bass's portfolio are actively traded in a broad market. You are satisfied with evidence that supports the presumption of significant influence over Commercial Industrial Inc. The various securities are at two locations as follows: 1. Recently acquired securities are in the company's safe in the custody of the treasurer. 2. All other securities are in the company's bank safe deposit box. Required: a. Assuming that the internal controls over securities are satisfactory, what are the objectives (specific assertions) for the audit of the held-to-maturity securities? b. What audit procedures should you undertake with respect to obtaining audit evidence for the existence and cost valuation of Bass's securities in the held-to-maturity classification? c. What audit procedures should you undertake with respect to obtaining audit evidence against Bass's investment in Commercial Industrial Inc.? d. What audit procedures should you undertake with respect to obtaining audit evidence about the classification of held-to- maturity securities in the Bass portfolio? (Hint: Review the audit plan in Appendix Exhibit 10B.1.) e. Suppose that the held-to-maturity portfolio (excluding the investment in Commercial Industrial Inc.) is carried at cost in the amount of $3,450,000. What audit procedures should you undertake with respect to obtaining audit evidence about the fair market value of this portfolio? f. Suppose that the auditors determine that the held-to-maturity portfolio (excluding the investment in Commercial Industrial Inc.) has an aggregate fair market value of $2,970,000. What audit procedures should they undertake with respect to obtaining audit evidence regarding a value impairment that might be "other than temporary"? (Hint: Review the audit plan in Appendix Exhibit 10B.1.) EXHIBIT 10B.1 DUNDER-MIFFLIN INC. Audit Plan for Fair Market Value of Assets and Liabilities December 31, 2020 A. Review Details of Management's Valuation Approach 1. Assess the completeness of management assumptions (i.e., whether management has considered all relevant issues). 2. Determine the reasonableness of significant assumptions, including whether these assumptions reflect a. The general economic environment. b. The specific industry's economic and regulatory environment. c. Other market information. d. Assumptions made in prior periods. e. Past experience with the entity. f. The potential variability in the amount and timing of cash flows and related effect on the discount rate. g. Results of other audit procedures. 3. Obtain data used in reaching these assumptions including a. Recency of data. b. Source of data. c. Consistency of data (i.e., assumptions used in one calculation are consistent with assumptions used in other calculations). 4. Reperform computations. 5. Trace data to source documents for accuracy. 6. Identify possible bias or misapplication of assumptions. B. Reperform the Valuation Process to Provide an Auditor's Estimate of the Value Estimate and Compare That Value to Management's Estimate C. Review Transactions That Have Occurred since Year-End That Provide Evidence 1. Determine whether the assumptions underlying management's valuation supports (or refutes) that valuation. 2. Review the valuation itself. D. Document All Management Assumptions and Audit Procedures Used to Substantiate Those Assumptions Performed By Ref.