ExpertHard1 markMultiple Choice
CPA · Question 64 · Area III: Performing Procedures
An auditor is testing the existence of a nonissuer's investments in securities. The securities are held by a custodian. Which of the following procedures provides the MOST reliable evidence?
An auditor is testing the existence of a nonissuer's investments in securities. The securities are held by a custodian. Which of the following procedures provides the MOST reliable evidence?
Answer options:
A.
Inquiry of management regarding the existence of the securities.
B.
Examination of the broker's advice for the purchase of the securities.
C.
Confirmation with the custodian.
D.
Recalculation of dividend income.
How to approach this question
Existence of Assets held by others = Confirmation. Ask the person holding them.
Full Answer
C.Confirmation with the custodian.✓ Correct
AU-C 501/505: When investments are held by a third-party custodian, confirmation with the custodian provides the most reliable evidence of existence.
Common mistakes
Relying on internal documents (broker advice) which only prove the transaction history, not the current status.
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