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:

Current Ratio

The Current Ratio is a financial metric used to evaluate a company's ability to pay its short-term liabilities with its short-term assets, indicating liquidity.

Prepaid Items

Expenses paid in advance for goods or services to be received in the future.

Statement of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, showing how the company's operations are running, where its money is coming from, and how it is being spent.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing how much of the asset's value has been used.