Auditing and Assurance Services 9th Edition by Alvin Arens,Mark Beasley,Randy Elder

Exercise 1

When auditing prepaid insurance, an auditor discovers that the original insurance policy on a key piece of manufacturing equipment is not available for inspection. The policy's absence most likely indicates the possibility of a(n)
A) Insurance premium due but not recorded.
B) Fictitious piece of equipment.
C) Third-party lien holder with a secured interest in the equipment.
D) Understatement of insurance expense.