In establishing the existence and ownership of a long-term investment in the form of publicly-traded stock, an auditor should inspect the securities or:
a. Inspect the audited financial statements of the investee company.
b. Correspond with the investee company to verify the number of shares owned.
c. Determine that the investment is carried at the lower of cost or market.
d. Confirm the number of shares owned that are held by an independent custodian.
Answer:D
Choice "d" is correct. The auditor would confirm the number of shares held by an independent custodian to establish the existence and ownership of a long-term investment in publicly traded securities.
Choice "b" is incorrect. The investee company may not have timely information regarding the ownership of its stock.
Choice "a" is incorrect. Inspection of the audited financial statements of the investee company does not provide evidence about ownership of the securities.
Choice "c" is incorrect. Determination that the investment is carried at the proper market value provides assurance about valuation and about appropriate presentation and disclosure in the financial statements.