When the Client Holds a Large Amount of Negotiable Securities

question 79

Multiple Choice

When the client holds a large amount of negotiable securities, auditors need to plan to guard against:

• A)unauthorized negotiation of the securities before they are counted.
• B)unrecorded sales of securities after they are counted.
• C)substitution of securities already counted for other securities that should be on hand but are not.
• D)substitution of authentic securities with counterfeit securities.

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Definitions:

Net Operating Income

The profit from a company's operations after subtracting operating expenses from gross income.

Operating Assets

Assets utilized in the day-to-day operations of a business to generate revenue, including machinery, buildings, and equipment.

Residual Income

The income that remains after subtracting all required costs of capital from operating income, a measure of profitability.

Minimum Required Rate

The lowest rate of return that an investment must yield to be considered acceptable, often tied to the cost of capital or inflation.