An investment audit program is crucial for auditors to verify the existence, ownership, valuation and disclosure of investments. By performing audit procedures like inspection, confirmation, recalculation and analytical review, auditors obtain sufficient audit evidence. The key aspects of an investment audit include checking investment authorization, ownership documents, valuations, accounting treatment and disclosures in financial statements. A well-designed investment audit program improves audit quality and prevents issues like unauthorized investments, overstatement of values and inadequate disclosures.
Inspecting authorization for investment purchases
The auditor should inspect minutes of board meetings, investment committee meetings and internal memos to verify that investments like equity shares, bonds and real estate were properly authorized by management. Lack of authorization may indicate unauthorized or fraudulent investments.
Examining legal and custody documents
By examining legal contracts, share certificates, bond certificates and title deeds, the auditor confirms investment existence and ownership. Missing documents may point to nonexistent or improperly recorded investments.
Checking valuation of investments
The auditor recalculates bond premium/discount amortization, investment income like dividends and interest, and investment carrying amounts using market prices and valuation models to ensure investment values are not materially misstated.
Reviewing investment accounting treatment
The auditor verifies the appropriate accounting treatment by checking classification of investments as current or non-current, classification under ASC 320, 321, 323 and consolidation procedures for subsidiaries. Incorrect accounting can distort financial results.
Assessing investment disclosures
The auditor reviews investment notes in financial statements to check accuracy and adequacy of disclosures like fair value hierarchy, realized/unrealized gains/losses, ownership percentage, related parties and segment details. Insufficient disclosures reduce transparency for stakeholders.
A robust investment audit program enables auditors to thoroughly verify existence, ownership, valuation and presentation of investments. By performing procedures to inspect documents, confirm details, recalculate amounts and analytically review trends, auditors obtain persuasive audit evidence to issue an unmodified opinion and instill stakeholder confidence.