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Lecture Auditing and assurance services (6/e) - Chapter 10: Finance and investment cycle

After you have mastered the material in this chapter, you will be able to: Describe the finance and investment cycle, including typical source documents and controls, give examples of tests of controls over debt and stockholders’ equity transactions and investment transactions, describe substantive procedures for finance and investment accounts,. | Auditing & Assurance Services, 6e Chapter 10 Finance and Investment Cycle “Credit has done a thousand times more to enrich mankind than all the goldmines in the world. It has exalted labor, stimulated manufacture and pushed commerce over every sea.” --Daniel Webster 10- Learning Objectives 1. Describe the finance and investment cycle, including typical source documents and controls. Give examples of tests of controls over debt and stockholders’ equity transactions and investment transactions. Describe substantive procedures for finance and investment accounts. 4. Describe common errors and frauds in the accounting for capital transactions and investments, and design audit and investigation procedures for detecting them. 10- Inherent Risks Lease Accounting Loan covenants Related-party transactions Complex transactions Impairments 10- Investment and Finance Activities Financial Plan Capital budget Raise capital Operate business (all other cycles) Mergers and acquisitions Investment of excess funds 10- Control Considerations Transactions authorized by BOARD OF DIRECTORS Documentation: Investments in securities Broker advice for all transactions Property, plant and equipment Vendor’s invoice for purchased PPE Internal cost records for company-built PPE Bonds and notes payable Documentation from debtholders Stockholders' Equity: Documentation from registar Show me the money!! trace transactions to cash receipts and disbursements journals 10- Finance and Investment Cycle: Control Procedures Physical Controls Securities CUSIP numbers recorded Securities recorded in the client's name Securities held by an independent custodian i.e. by the broker or in a secure location e.g. safe deposit box Access to safe-deposit box requires more than one employee (dual control) Physical items periodically compared to detail records Cash receipts from transactions deposited intact and daily (electronic transfer preferred) 10- Finance and . | Auditing & Assurance Services, 6e Chapter 10 Finance and Investment Cycle “Credit has done a thousand times more to enrich mankind than all the goldmines in the world. It has exalted labor, stimulated manufacture and pushed commerce over every sea.” --Daniel Webster 10- Learning Objectives 1. Describe the finance and investment cycle, including typical source documents and controls. Give examples of tests of controls over debt and stockholders’ equity transactions and investment transactions. Describe substantive procedures for finance and investment accounts. 4. Describe common errors and frauds in the accounting for capital transactions and investments, and design audit and investigation procedures for detecting them. 10- Inherent Risks Lease Accounting Loan covenants Related-party transactions Complex transactions Impairments 10- Investment and Finance Activities Financial Plan Capital budget Raise capital Operate business (all other cycles) Mergers and .