Ch17 - CHAPTER 17 AUDIT ING THE INVESTING AND FINANCING...

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C HAPTER 17 A UDIT ING THE I NVESTING AND F INANCING C YCLE Learning Check 17-1. Investing activities represent the purchase and sale of land, buildings, equipment, and other assets not generally held for resale. In addition, investing activities include the purchase and sale of financial instruments not intended for trading purposes (discussed in chapter 18). Financing activities include transactions and events whereby cash is obtained from or repaid to creditors (debt financing) or owners (equity financing). Financing activities would include, for example, acquiring debt, capital leases, issuing bonds, or issuing preferred or common stock. Financing activities would also include payments to retire debt, reacquiring stock (treasury stock), and the payment of dividends. 17-2. When auditing the investing and financing cycles auditors typically address the following issues: What assets are necessary to support the operations of the entity, and what are management’s long- range plans for growing the entity’s asset base? Answering this question assists the auditor in developing expectations of long-term assets needed to support operations. What assets were acquired, or disposed of, during the period? Answering this question confirms the auditor’s expectations regarding assets needed to operate effectively. It also assists the auditor in developing expectations of regarding financing activities. How were newly acquired assets financed? Answering this question completes the audit of the investing and financing cycles. These cycles are often audited together due to the strong connection between asset acquisition and the financing of those assets. 17-3. Investing activities are critical to a company in the hotel industry as facilities are the primary productive asset. The location and quality of hotel facilities are directly related to revenues and represent a substantial proportion of the asset side of the balance sheet. Due to the long-term nature of these assets they are usually financed with long-term mortgages. Alternatively, buildings are only necessary to house the process of computer assembly and often these facilities may be leased rather than purchased. A computer assembler may even consider an operating lease rather than a capital lease. The core processes for the computer assembler are marketing and purchasing and long-term assets are primarily a support function. 17-4. a. Audit objectives for plant assets can be summarized as follows: Specific Audit Objectives Transaction Objectives Occurrence. Recorded acquisitions of plant assets ( EO1 ), disposals of plant assets ( EO2 ), and repair and maintenance transactions ( EO3 ) represent transactions that occurred during the year. Completeness.
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Ch17 - CHAPTER 17 AUDIT ING THE INVESTING AND FINANCING...

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