Chapter 10 - Chapter 10 Finance and Investment Cycle Credit...

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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
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Learning Objectives 1. Describe the finance and investment cycle, including typical source documents and controls. 1. Give examples of tests of controls over debt and owner equity transactions and investment transactions. 2. 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. 10-2
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INVESTING AND FINANCING CYCLE Concerned with transactions related to the use of the organization's funds (investing) and sources of those funds (financing) other than operations. Accounts affected by investing and financial cycle transactions include investments in securities; notes and bonds payable; and, stockholders' equity accounts. 10-3
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Inherent Risks Lease Accounting Loan covenants Related party transactions Complex transactions Impairments 10-4
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10-5
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Investment and Finance Activities Financial Planning Raise capital Operate business (all other cycles) Mergers and acquisitions Invest excess funds 10-6
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Exhibit 10.2 Finance and Investment Cycle 10-7
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Control Considerations Transactions authorized by BOARD OF DIRECTORS Documentation: Investments in securities: BROKER'S ADVICE Property, plant and equipment: VENDOR'S INVOICE (for purchased PPE) or INTERNAL COST RECORDS (for manufactured PPE) Bonds and notes payable: Documentation from DEBTHOLDERS Stockholders' Equity: Documentation from REGISTRAR CASH RECEIPTS/DISBURSEMENTS JOURNALS 10-8
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Chapter 10 - Chapter 10 Finance and Investment Cycle Credit...

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