Investment Cycle Audit Simulator
An Interactive Guide to Auditing Investments and Fair Value
Key Internal Controls Over Investments
A strong system of internal control over investments relies on proper segregation of duties. The three key functions that must be kept separate are Authorization, Custody, and Record Keeping.
Authorization
Who can approve the purchase or sale of investments?
Ideally: The Board of Directors
Custody
Who holds the physical or electronic securities?
Ideally: An independent third-party custodian.
Record Keeping
Who maintains the detailed investment subsidiary ledger?
A separate accounting employee with no authorization or custody duties.
Substantive Audit Procedures by Assertion
Auditors perform detailed tests to gather evidence about management's assertions for the investment accounts. Click each assertion to see the related audit procedures.
Fair Value Hierarchy Simulator
GAAP uses a three-level hierarchy to measure fair value, prioritizing observable market data. Test your knowledge by classifying the investment scenarios below. Click on the scenario, then select the correct level.
Scenario A:
1,000 shares of a publicly traded company listed on the New York Stock Exchange (NYSE).
Scenario B:
A corporate bond that is not actively traded, valued using quoted prices for similar bonds in active markets.
Scenario C:
An investment in a private equity fund, valued using a discounted cash flow model developed by management.
