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:

GAAP

Generally Accepted Accounting Principles, which are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Asset Approach

A valuation method that estimates a company's value based on the total value of its assets minus its liabilities.

Liability Approach

A method in accounting that emphasizes recording all financial liabilities at their current value to ensure accurate financial reporting.

Deferred Income Tax Asset

A financial statement item that refers to taxes that have been accrued but not yet paid, which is considered a company asset because it indicates future tax payments that are lower than the current tax expense.