[TheAccountant]

Can someone please explain further why the answer is ‘A’?

An auditor testing long-term investments would ordinarily use analytical review as the primary audit procedure to ascertain the reasonableness of the:

a. Completeness of recorded investment income.

b. Valuation of marketable equity securities.

c. Existence and ownership of investments.

d. Classification of gains and losses on the disposal of securities.

Choice “a” is correct. Analytical review is generally used to ascertain the reasonableness of investment income in relationship to the amount invested.

Choice “b” is incorrect. Valuation would be verified using listed prices (NYSE, etc.).

Choice “d” is incorrect. Classification of gains or losses would be evaluated based upon appropriate accounting principles.

Choice “c” is incorrect. Existence and ownership is generally evaluated by inspection of securities, review of brokerage statements, or confirmation with an outside independent custodian.