Investments

Audit objectives and procedures

 Marketable stocks and bonds Commercial papers issued by corporations, mortgages, and trust deeds Derivatives- financial instruments that derive their value from other financial instruments, underlying assets or indexes

The need for specialized knowledge

Uses:
Identifying controls at service organizations that provide financial services and are part of the clients information system Obtaining an understanding of information systems for securities that are highly dependent on computer technology Understanding the methods used to determine the fair values of financial investments, especially those that must be valued using complex valuation models

Audit objectives
Determine the existence of recorded financial investments and whether the client has rights to the investments Establish the occurrence, accuracy, and cutOff of investment transactions Verify the cutoff of investments Establish the completeness of recorded financial investments

Audit objectives
Determine that the valuation of financial investments is appropriate Determine that the presentation and disclosure of financial investments and realized and unrealized gains and losses are appropriate

Assertion Existence

Procedures A. Inspection of securities on hand comparing it with serial numbers shown in previous years working papers B. Confirmation with Issuer C. Obtain confirmation of securities from third party custodians

Assertion Completeness

Procedures 1. Obtain or prepare an account analysis for the long term investments and related revenue or loss accounts 2. Perform Analytical Procedures 3. Review investment committee minutes and reports

Assertion Rights and Obligations

Procedures 1. Verify purchases and sales of securities during the year and for a short period subsequent to the balance sheet date 2. Confirm securities and derivative instruments with holders and counterparties

Assertion Valuation and Allocation

Procedures
1. Investigate method of accounting for equity securities 2. Determine FMV of Securities on Balance sheet 3. Verify interest Earned on Bonds 4. Examine financial statements of investee companies 5. Test calculations of premium and discount amortization for accuracy. 6. Impairment

ASSERTION Presentation and Disclosure

PROCEDURES 1. Examine financial presentation of investments

A. Schedules of investment in securities -method of valuation, fair market value, number of shares held B. Open option contracts written
Expiration date, exercise price, number of shares subject to call

2. Inquiry

End!

Portfolio Trading Securities Available-for-sale Held to maturity

Valuation

Current Market Value

Current Market Value

At amortized cost

Unrealized Gains and Losses Included in Income Statement

Excluded in income statement but recognized as part of stockholders equity until realized