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Sunday, May 1, 2016

Audit of Investments: Internal Control Measures and Substantive Audit Procedures

Internal Control Measures for Investments

1. Purchases and sales of investments should be properly authorized (normally by the board of directors or investment committee of the board of directors).

2. Access to securities should not be vested in one person only.

3. Custodianship of investment securities and the accounting for them should be segregated.

4. Securities must be physically controlled in order to prevent unauthorized usage and they must be registered in the name of the entity.

5. Income received from investments should be reconciled periodically with amounts that should be received.

Substantive Audit Procedures for Investments

Existence or Occurrence: Recorded investments and investment exist

1. Inspect securities on hand and trace to list.

2. Confirm securities held by others.

Completeness: All investments and investment income are recorded

3. Apply analytical procedures.

Rights and obligations: Investments and investment income are owned by the entity

4. Examine supporting broker's advises and paid checks for investments acquired during the period.

5. Examine remittance advises for dividends, interest and disposals of investments.

Valuation and allocation: Investments are valued in accordance with GAAP and investments and investment income are mathematically accurate

6. Reconcile the investment list to the subsidiary ledger and general ledger account.

7. Recalculate interest income and verify dividend income by reference to published reports of dividends.

Presentation and disclosure: Investments and investment income are presented and disclosed in accordance with GAAP

8. Review financial statements and perform analytical procedures to whether accounts are classified and disclosed in the financial statements in accordance with GAAP.


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