Chapter 16, Problem 16.9RQ

To determine

Concept Introduction:

Audit procedure is a method performed by the auditor, to gather the possible document that helps the auditors to make a strong conclusion. The audit procedure helps to determine the nature of the financial information provided by the customers and all kinds of risks that occur in the financial statements. Audit procedure performs different test of controls to avoid the risks.

To discuss:The classification and valuation issues related to investment in debt and equity securities.

The following issues of classification and valuation related to investment in debt and equity securities are:

• The debt and securities face the valuation issue when investing in held-for-trading securities. It is purchased at the fair value (at that time) and later unrealized gain or losses are reported for the difference in current market price and purchase price. Valuation may differ from individual to individual who is responsible for such valuation.Thus, the fair market value keeps on changing and there is no specific method to evaluate the change.
• The classification and valuation issue related to investment in debt and securities include the companies that hold the money till the time of maturity date which creates the classification issues.
• The classification and valuation issue related to investment is available for sale securities that are not evaluated as other securities. They are calculated on the fair value, with the unrealized losses and gains apart from the earnings and reported until it is realized.