Audit and Assurance Practice Exam

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In the audit procedure related to marketable securities, which assertion requires the auditor to examine documents for restrictions?

Completeness
Valuation
Rights and obligations
Existence

The correct answer is: Rights and obligations

The assertion related to examining documents for restrictions in the audit procedure for marketable securities is focused on rights and obligations. This assertion requires auditors to confirm that the entity has the legal rights to the securities it holds and that these securities are free from any obligations or claims by third parties. When auditors examine documents, they look for any restrictions that may limit the use, transfer, or disposal of the securities. Such restrictions could stem from legal agreements, contracts, or regulatory requirements. Understanding these rights is essential in ensuring that the company can exercise its ownership of the securities without encumbrances and that any restrictions are clearly acknowledged and accounted for in the financial statements. This is a critical aspect of the audit process because it ensures that investors and stakeholders receive an accurate picture of the entity's holdings and any potential liabilities associated with those holdings. Validating the rights and obligations supports the overall accuracy and reliability of financial reporting related to marketable securities.