In an audit of the financial statements of Belasco Chemicals, Inc., Karen Mack is deciding whether to inspect marketable securities on the balance sheet date. May 31, 1999, or at some other date. The marketable securities held by Belasco include negotiable bearer bonds, which are kept in a safe in the treasurer's office, and miscellaneous stocks and bonds, which are kept in a safe-deposit box at The Merchants Bank. Both the negotiable bearer bonds and the miscellaneous stocks and bonds are material to Belasco's financial statements.

Required:

1. What are the factors that Mack should consider when deciding whether to inspect securities on May 31, 1999, as opposed to other dates?

2. Assume that Mack plans to have a member of her staff inspect securities at Belasco's offices and at The Merchants Bank on May 31, 1999. What instructions should she give to the staff member about inspecting and including evidence in the working papers?

3. Assume Mack believes that sending a staff member to Belasco's offices and to The Merchants Bank on May 31, 1999 is impractical. What alternative procedures might she use to assure herself that the company physically possesses marketable securities on May 31, 1999, if the securities are inspected:

(a) May 28, 1999?

(b) June 5, 1999?