To determine whether facts support management's intent to hold securities to maturity,an auditor might
A) Study the entity's cash flow forecasts.
B) Obtain published market quotations.
C) Compare fair value of the securities to cost.
D) Confirm that the securities are held by a broker.

Question

Quizplus · Accepted Answer

Studying the entity's cash flow forecasts would provide insight into whether the securities are being held for a short-term or long-term purpose. If the cash flow forecasts indicate a need for short-term liquidity, it would be unlikely that management intends to hold the securities to maturity.

Answer: C 
 Comparing the fair value of the securities to cost would determine whether the securities have decreased in value, which would indicate that management does not intend to hold them to maturity.

Answer: D is incorrect as it does not provide any relevance in determining management's intention to hold securities to maturity, and B is not as useful as fair value as the market quotations may not reflect the entity's intention to hold the securities to maturity.

To Determine Whether Facts Support Management's Intent to Hold Securities