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

Exercise 20

Phung, CPA, has been engaged to audit the financial statements of Vernon Distributors, Inc., a continuing audit client, for the year ended September 30. After obtaining an understanding of Vernon's internal control system, Phung set control risk at the maximum level for all financial statement assertions concerning investments. Phung determined that Vernon is unable to exercise significant influence over any investee and none are related parties. Phung obtained from Vernon detailed analyses of its investments in domestic securities showing
• The classification among held-to-maturity, trading, and available-for-sale securities.
• A description of each security, including the interest rate and maturity date of bonds and the par value and dividend rate of stocks.
• A notation of the location of each security, either in the treasurer's safe or held by an independent custodian.
• The number of shares of stock or face value of bonds held at the beginning and end of the year.
• The beginning and ending balances at cost and at market, and the unamortized premium or discount on bonds.
• Additions to and sales from the portfolios for the year, including date, number of shares, face value of bonds, cost, proceeds, and realized gain or loss.
• Valuation allowances at the beginning and end of the year and changes therein.
• Accrued investment income for each investment at the beginning and end of the year, and income earned and collected during the year.

Required:
a. For the last 4 procedures listed, identify the primary financial statement assertion relative to investments that would be addressed by each procedure.
b. Describe three additional substantive auditing procedures Phung should consider in auditing Vernon's investments.
(AICPA, adapted)