When Auditing Financial Instruments

question 13

Multiple Choice

When auditing financial instruments,

• A) the auditor usually performs more extensive substantive testing to reduce reliance on controls.
• B) analytical procedures are critical in assessing the year-end balances for financial instruments.
• C) the auditor relies on statements and broker's advices from investment managers to test purchases and sales as long as controls were deemed effective.
• D) tests of transactions are generally not performed.

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Definitions:

Days Payable Outstanding

A financial ratio that measures the average number of days a company takes to pay its suppliers; an indicator of how efficiently a company manages its payables.

Cash Receipts

The collection of money, including coins, currency, checks, and electronic transfers, received by a business or organization.

Default Risk

The possibility that a debtor will fail to fulfill their financial liabilities as agreed upon.

Financial Ratios

Financial ratios are quantitative measures derived from financial statement analysis to evaluate the financial performance, condition, and valuation of a company.