Final answer:
When auditing an investment, an auditor often reviews the investee company's financial statements and assesses the valuation techniques and models. Other procedures might involve evaluating fair value measurements and comparing them with the market prices to satisfy the valuation assertion.
Step-by-step explanation:
When auditing an investment in another company, an auditor would likely perform procedures to verify the valuation assertion. This typically involves obtaining and reviewing external evidence to support the value of the investment recorded in the financial statements. One key audit procedure would be to examine the most recent financial statements of the investee company that are audited by another independent auditor, if available, or any other relevant evidence that support the investment's value. Comparing this information with the valuation used by the company can provide reasonable assurance about the accuracy of the investment's reported value.
Another procedure could include assessing the techniques and models used for valuation, especially for investments that are not publicly traded and where market value is not readily available. The auditor may also consider the appropriateness of any adjustments made to the investment's carrying amount, and whether these adjustments are consistent with the company's accounting policies and are fairly presented in accordance with the applicable financial reporting framework.
In situations where the investment is in the form of complex financial instruments, the auditor might engage a specialist to assist in evaluating the fair value measurements. For publicly traded investments, the auditor could confirm the valuation by comparing it to current market prices. All these steps are in the service of ensuring the investment is properly valued on the balance sheet, thereby satisfying the valuation assertion.