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Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities? Correct Answer: A Explanation/Reference: Choice "a" is correct. The control most likely to be used by an entity in safeguarding against the loss of marketable securities is that an independent trust company that has no direct contact with the employees who have recordkeeping responsibilities, has possession of the securities. For good internal control over the safeguarding of any asset, the individual who has the recordkeeping responsibilities over that asset should never have access to it. Choice "b" is incorrect. Verifying the securities held in the entity’s safe would detect that the loss occurred, but it would not prevent the loss. Choice "c" is incorrect. Tracing purchases and sales of marketable securities would verify that the transactions were properly recorded, but would not safeguard against loss. Choice "d" is incorrect. Having one person control the securities in a bank safe-deposit box is a weakness in internal control because that one person can steal the securities. A better system requires that at least two employees have joint control over the securities in a bank safe-deposit box. Try the new Google Books Check out the new look and enjoy easier access to your favorite features Try the new Google Books Check out the new look and enjoy easier access to your favorite features Page 2178. Which of the following controls would an entity most likelyuse in safeguarding against the loss of trading securities?A.The independent auditor traces all purchases and salesoftrading securities through the subsidiary ledgersto generalledger.B.An independent trust company that has no directcontactwith the employees who have record-keepingresponsibilitieshas possession of the securities.C.The internal auditor inspects the trading securities 99.Which of the following controls would an entitymostlikely use in safeguarding against the loss of marketablesecurities?a. An independent trust company that has no directcontact with the employees who have recordkeepingresponsibilities has possession of the securities.Try the new Google Books Check out the new look and enjoy easier access to your favorite features Try the new Google Books Check out the new look and enjoy easier access to your favorite features Page 2Home » Test Prep » CPA Auditing and Attestation » Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities? Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities? Correct Answer: A Explanation/Reference: Choice "a" is correct. The control most likely to be used by an entity in safeguarding against the loss of marketable securities is that an independent trust company that has no direct contact with the employees who have recordkeeping responsibilities, has possession of the securities. For good internal control over the safeguarding of any asset, the individual who has the recordkeeping responsibilities over that asset should never have access to it. Choice "b" is incorrect. Verifying the securities held in the entity’s safe would detect that the loss occurred, but it would not prevent the loss. Choice "c" is incorrect. Tracing purchases and sales of marketable securities would verify that the transactions were properly recorded, but would not safeguard against loss. Choice "d" is incorrect. Having one person control the securities in a bank safe-deposit box is a weakness in internal control because that one person can steal the securities. A better system requires that at least two employees have joint control over the securities in a bank safe-deposit box.Choice "A" 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 "c" 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 "d" 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 "b" 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. Try the new Google Books Check out the new look and enjoy easier access to your favorite features Page 2Try the new Google Books Check out the new look and enjoy easier access to your favorite features 179.Which of the following controls would a company most likelyuse tosafeguard marketable securities when such securitiesare not in the custody ofan independent trust agent?A.The chairman of the board of directors verifies themarketablesecurities, which are kept in a bank safe-deposit box, each year on the balancesheet date.B.The internal auditor and the controller independentlytrace allpurchases and sales of marketable securitiesfrom the subsidiary ledgers to thegeneral ledger.C.Two company officials have joint control of marketablesecurities,which are kept in a bank safe-deposit box.D. The investment committee of theboard of directorsperiodically reviews the instrument decisionsdelegated to the treasurer.A physical control to safeguard an entity’s assets suchas marketablesecurities is to keep them in a bank safe-deposit box requiring twosignatures to gain access.AnswerAis incorrect because verification of marketablesecurities oncea year is unlikely to provide adequatecontrol.AnswerBis incorrect because tracing of marketablesecuritiestransactions to the accounting recordsassures proper recording but does notphysicallysafeguard the asset.AnswerDis incorrect because periodic review of theinvestmentdecisions delegated to the treasurer does notphysically safeguard the asset.Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed *?The correct option is (b).
If an independent trust agent is not employed then the company would most likely use two company officials who have joint control of marketable securities, which are kept in a bank safe-deposit box in order to safeguard marketable securities.
Which of the following controls would an entity most likely use in safeguarding against the loss of investment securities?A trust organization which is independent and has no direct connection with the workforce or employees who have record-keeping responsibilities has possession of the securities are considered as the most likely control which should be used by the companies for safeguarding against the loss of trading securities.
What are the 3 types of marketable securities?Marketable securities can also come in the form of money market instruments, derivatives, and indirect investments.
What factors will you consider while selecting marketable securities?Marketable securities are characterized by:
A maturity period of 1 year or less. The ability to be bought or sold on a public stock exchange or public bond exchange. Having a strong secondary market that makes for liquid buy and sell transactions, as well as rendering an accurate price valuation for investors.
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Which of the following controls would a company most likely use to safeguard marketable securities when an independent?
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