Chapter $16$ Investments, Debt, and Equity

$1.$ Assuming that one of management's control objectives is to restrict access to securities$,$ which of the following would not be appropriate to satisfy the objective?

a$.$ Establish physical barriers over forms and records.

b$.$ Establish physical barriers over investment securities$.$

c$.$ Maintain files of authorized signatures.

d$.$ Segregate investment approval from custody of the securities$.$

$2.$ What control objective is served by management's establishing policies for selecting and approving investment transactions?

a$.$ Sources of capital funds should be authorized in accordance with management's criteria.

b$.$ Investment transactions should be made in accordance with management's criteria.

c$.$ Investment transactions should be recorded at the correct amounts and in the proper accounting period.

d$.$ Access to securities should be restricted to authorized personnel.

$3.$ Establishing policies to select and approve investment transactions addresses:

a$.$ Transaction authorization.

b$.$ Transaction execution.

c$.$ Transaction recording.

d$.$ Access to assets.

$4.$ Failure to restrict access to debt records and forms could result in:

a$.$ Loan covenant violations.

b$.$ Misapplied resources.

c$.$ Uneconomical financing.

d$.$ Misappropriated assets.

$5.$ Management could help assure that bond and equity transactions are recorded and classified properly by:

a$.$ Reviewing board minutes.

b$.$ Prenumbering and controlling adjustment documents.

c$.$ Preparing lists of authorized investments.

d$.$ Maintaining files of authorized signatures.

$6.$ Management could help assure that subsidiary investment records agree to the general ledger by:

a$.$ Establishing physical barriers over investment securities$.$

b$.$ Accounting for unissued, issued, and retired securities$.$

c$.$ Requiring specific authorization for investment decisions.

d$.$ Establishing processing and recording procedures.

$7.$ Why is it less common for auditors to perform extensive tests of controls over investments, debt, and equity?

a$.$ It is customary to assess control risk at the maximum for these accounts.

b$.$ Physical custody of securities is often vested in outside trustees.

c$.$ The volume of transactions is not often large enough to justify the cost of tests of controls.

d$.$ These transactions are not supported by extensive documentation.