Exam AUD topic 1 question 660 discussion

Actual exam question from AICPA's AUD

Question #: 660
Topic #: 1

Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

A. The investment committee of the board of directors periodically reviews the investment decisions delegated to the treasurer.
B. Two company officials have joint control of marketable securities, which are kept in a bank safedeposit box.
C. The internal auditor and the controller independently trace all purchases and sales of marketable securities from the subsidiary ledgers to the general ledger.
D. The chairman of the board verifies the marketable securities, which are kept in a bank safe-deposit box, each year on the balance sheet date.

Show Suggested Answer

Suggested Answer: B 🗳️
Choice "B" is correct. Joint custody by two company officials over assets like cash and marketable securities helps safeguard the assets. Under joint custody, collusion is required for a defalcation to occur.
Choice "A" is incorrect. Review of investment decisions made by the treasurer might reduce the probability of poor investment policies, but would not be likely to safeguard marketable securities after purchase.
Choice "C" is incorrect. Tracing purchases and sales from the subsidiary ledger to the general ledger would help ensure that all existing securities are recorded in the financial statements, but would not help safeguard marketable securities.
Choice "D" is incorrect. An annual count by the chairman of the board might provide a small safeguard, but the infrequent performance of the control makes it a fairly weak one.

by gemazyni at April 5, 2025, 4:57 p.m.

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