Categorize each of the following questions relating to marketable securities as being appropriate for use in (a) an inherent risk questionnaire or a (b) control risk questionnaire.
1. Does the internal audit department conduct regular audits of the controls over marketable securities? If yes, review recent reports.
2. If management has changed the classification of securities during the year from either trading securities or available-for-sale securities to held-to-maturity securities, are the amounts significant? Were they reviewed by the audit committee? Do the audit committee and the board concur with the change?
3. Does the company regularly invest in marketable securities? How material are the balances in marketable securities accounts?
4. Does the company have written policies and guidelines regarding investments in marketable securities? Are the policies approved by the board of directors? What process is used to authorize investments in marketable securities?
5. Does the company have a clear policy as to properly classifying marketable securities as trading securities, available-for-sale securities, or held-to-maturity securities? Is there evidence that the company follows the policy?
6. Has management changed the classification of securities during the year from either trading securities or available-for-sale securities to held-to-maturity securities? If yes, what is the reason for the change?
7. If a liquid market does not exist for marketable securities, how does management estimate the value of the securities that need to be marked to current market value?
8. Does the company provide for effective segregation of duties among individuals responsible for making investment decisions and those responsible for the custody of securities?
9. Is there a ready market for the securities?