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Audit of the Financing andInvesting Cycle

Group 10

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Financing and Investing Cycle

The following activities should beundertaken:

Identify the activities and types of transaction

Relate internal accounting objectives tofinancing and investing activities

Determine essential features of internalcontrol

Perform compliance tests of controls

Perform substantive audit procedures

Design tests of details of account balancesand analytical procedure.

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Nature

Financing and investing cycles includethe responsibility of:

Planning the cash needs

Raising capital

Investing funds

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Financing Cycle Transactions

1. Borrowing from others excluding opentrade accounts with creditors.

2. Principal transactions involving

shareholders equity.

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Investing Cycle Transactions

1. Acquisition and disposal of financialassets

2. Lending to others, excluding open

trade accounts with customers.

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Documents and Records

Share Certificate

Bond Certificate

Bond Indenture

Brokers Advice

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Auditing the Financing Cycle

I. Basic Consideration Possible errors relating to Financing activities

Failing to make interest accruals

Accruing interest in the wrong period

Making incorrect estimates of allowances forobligations

Failing to recognize that the entity violated a

debt agreement

Failing to record dividends that were declared

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II. Internal Control Over FinancingCycle Transactions

Existence or Occurrence/ Rights andObligations

Valuation/ Completeness/ Classification

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III. Study and Evaluation of Internal ControlOver Financing Cycle Transactions

1. Current Liabilities (other than those arising fromtrade credit and operating expenses)

a. A system of authorization on both as to

original transaction resulting in a liabilityand as to payment should be well-definedand established.b. A satisfactory system of record keepingwith adequate forms and documentationshould be instituted.c. There should be a plan of organizationwith appropriate division of duties.

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2. Long-term Liabilities

a. Long-term obligations should be properly authorized.

b. There should be proper control over issued andunissued obligations as in bonds.

c. Redeemed bonds should be canceled, properlymutilated and retained in order to prevent unauthorizedissuance.

d. Bond ledger should be used in which details of

bonds issued, canceled and outstanding are shown.e. Proper control should be exercised over thepayment of interest on long-term liabilities.

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3. Share Capital

a. Internal control measures regarding theissuance of share certificates and registration

of shares should be established.b. Share certificates should be seriallyprenumbered by the printer.

c. As individual certificates are issued,

corresponding records of the certificatesshould be prepared containing the name andaddress of the shareholders.

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d. Canceled certificate should be mutilatedand any necessary documentary stampsshould be attached to the canceled

certificates.e. Entries for share issuances and transfers

should be made by a person who does nothave authority to sign and issue certificates