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Chapter 1 6 Investments, Debt, and Equity ( Make sure to answer each question ) 1 . Assuming that one of management's control objectives is

Chapter 16 Investments, Debt, and Equity (Make sure to answer each question)
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.

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