A4 M5 Investment Cycle

Authorization of Purchase or Sale of Investments

Requires board of directors authorization for buying or selling investments.

Custody of Investments

Requires independent third-party custodian or joint control by two company officials with safe-deposit box storage and periodic independent physical counts.

Record Keeping - Investments

Maintained by a separate party independent from authorization and custody functions.

Auditing Investment Balance Completeness

Includes searching for unrecorded purchases after year-end and confirming or counting securities on hand.

Auditing Investment Balance Valuation and Allocation

Includes footing listing by category agreeing totals to general ledger checking additions and subtractions comparing fair values to published prices recalculating non-fair-value investments evaluating permanent impairments and assessing assumptions.

Auditing Investment Balance Existence

Involves requesting third-party custodian confirmations performing liquid asset physical counts and executing interest income analytical procedures.

Auditing Investment Balance Rights and Obligations

Verified through custodian confirmations physical counts and inspecting broker's advices for purchased securities.

Auditing Investment Transactions Completeness

Requires analytical procedures testing dividend and interest income reasonableness to ensure all investment income is recorded.

Auditing Investment Transactions Cutoff

Involves reviewing cutoff dates to ensure purchases sales and investment income are recorded in proper periods.

Auditing Investment Transactions Valuation Allocation and Accuracy

Requires independent recalculation of gains losses discount or premium amortizations and dividend or interest income.

Auditing Investment Transactions Existence and Occurrence

Tested through analytical procedures verifying the reasonableness of dividend and interest income.

Auditing Investment Transactions Understandability of Presentation and Classification

Examines investment transaction samples to ensure proper accounting such as recording unrealized available-for-sale gains in other comprehensive income.

Auditing Presentation and Disclosure Completeness Investments

Ensures all required investment disclosures are included in the financial statement notes.

Auditing Presentation and Disclosure Valuation Allocation and Accuracy Investments

Reads footnotes and related investment information to confirm accuracy and appropriate valuation amounts.

Auditing Presentation and Disclosure Rights Obligations and Occurrence Investments

Inquires of management and reviews loan agreements and minutes to confirm if investments are pledged as collateral.

Auditing Presentation and Disclosure Understandability of Presentation and Classification Investments

Evaluates methods used to account for classify and value securities and reads disclosures for clarity.

Marketable Securities Valuation Rules

Carries trading and available-for-sale debt and equity securities at fair value and held-to-maturity debt securities at amortized cost.

Investments Based on Investee Results

Requires obtaining investee financial statements requesting audits if unverified evaluating unrecognized carrying factors and checking reporting period differences.

Fair Value Measurement Level 1

Uses observable quoted prices in active markets for identical assets or liabilities.

Fair Value Measurement Level 2

Uses observable inputs other than Level 1 quoted prices such as quoted prices for similar assets or active market inputs.

Fair Value Measurement Level 3

Uses unobservable inputs valuation models and management estimates like discounted cash flow calculations.

Management Responsibilities for Fair Value

Responsible for making fair value measurements and disclosures in accordance with GAAP incorporating market participant assumptions.

Auditor Responsibilities for Fair Value

Obtains evidence of GAAP conformity assesses inherent and control risks evaluates assumptions and models checks for bias and gets management representations.

Testing Fair Value Measurements

Verifies quoted prices evaluates assumptions considers management intent tests data reliability develops point estimates and reviews subsequent events.

Pricing Services Evidence

Reliability and relevance depend on experience methodology independence and whether measurements use identical or non-recent transaction assumptions.

Broker-Dealer Quotes Evidence

Relevance and reliability depend on whether the broker is an active market maker independent timely binding and without restrictions.

Impairment Indications

Includes fair value below cost for extended periods specific adverse industry conditions security downgrades issuer deterioration missed dividend or interest payments and post-period losses.