The red text are my notes but I am not sure I am on the right track with part c. Help! Thank you, Tami

Following are typical questions that might appear on an internal control questionnaire for investments in marketable securities.

1. Is custody of investment securities maintained by an employee who does not maintain the detailed records of the securities?Is there adequate separation of duties in order to minimize the risk ofone employee falsifying the securities and hiding it.

2. Are securities registered in the company name?Securities should always be registered in the company name to avoid any employee using them for personal purposes.

3. Are investment activities reviewed by an investment committee of the board of directors?The investment committee of the board should always be involved in investment activities to authorize and review the activities for compliance with investment policies.

Required:

a.Describe the purpose of each of the above controls.To minimize the risk of fraud and material misstatement

b.Describe the manner in which each of the above procedures might be tested.Trace several transactions throught the accounting system, review and test reports of investment activity provided to the board investment committee. Inspect the internal auditors reports regarding their inspections and review of securities and derivative instruments. Inspect monthly reports of securities including those owned, purchased and sold as well as the financial transactions associated with them.

c.Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.

C1.If the securities are kept in a safety deposit box, the auditors could advise the bank in writing not to allow anyone access unless they are accompanied by an auditor.