Initial Procedures for Substantive Tests of Investments Would Not Ordinarily

question 22

Multiple Choice

Initial procedures for substantive tests of investments would not ordinarily include:

• A) understanding investment policies regarding the proportion of investments in government securities, corporate bonds, and equity securities.
• B) understanding an entity's policy for investing excess cash, its financing activities, and its ability to generate free cash flow.
• C) checking the mathematical accuracy of client-prepared schedules of investments.
• D) determining that subsidiary investment ledgers agree with related general ledger control account balances.
• E) understanding economic drivers that allow an entity to engage in investing activities.

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Definitions:

Probability Distribution

A function in statistics that enumerates all conceivable values and their associated probabilities for a random variable within a predetermined range.

Variance

A measure of the dispersion or spread of a set of values, indicating how much the numbers in the set differ from the mean.

Diversifiable Risk

A risk that can be reduced or eliminated from a portfolio through diversification, not linked to the market's movements as a whole.

Company-Specific

Company-Specific refers to factors or risks that affect an individual company's performance, distinct from broader market or industry factors.