Chap010 - Chapter 10 Finance and Investment Cycle CHAPTER...

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Chapter 10 - Finance and Investment Cycle CHAPTER 10 Finance and Investment Cycle LEARNING OBJECTIVES Review Checkpoints Exercises, Problems, and Simulations 1. Describe the finance and investment cycle, including typical source documents and controls. 1, 2, 3, 4 2. Give examples of tests of controls over debt and owners’ equity transactions and investment transactions. 5, 6, 7, 8 47 3. Describe substantive procedures for finance and investment accounts. 9, 10, 11, 12, 13, 14, 15, 16, 17 4. Describe common errors and frauds in the accounting for capital transactions and investments, and design audit and investigation procedures for detecting them. 18, 19, 20, 21 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62 SOLUTIONS FOR REVIEW CHECKPOINTS 10.1 The authorization for investments usually takes place at the highest levels of the organization. An investment philosophy may be stated or endorsed by the board of directors and specific authorization for each transaction my come from the CEO or CFO. Such investments may involve millions of dollars and may be instrumental to the strategic objectives of the organization, commanding the authorization of senior management 10.2 Actions by the board of directors or finance committee are usually required as authorization for notes payable. Auditors would want to read all minutes of the board and executive committees, extracting copies of all financial matters, including notes payable authorizations. 10.3 To obtain relevant audit data about investment securities, auditors’ procedures include: 1. Inspecting the securities in the presence of a responsible client officer. 2. Personally examining the securities while other negotiable fund sources are sealed off or are being examined simultaneously. 3. Obtaining a written statement from the client’s representative that the securities were returned intact. 10-1
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Chapter 10 - Finance and Investment Cycle 4. Obtaining the information by confirmation from an independent party (e.g., trustee) who holds the securities. 10.4 A controlled count of the client’s investment securities consists of the audit team gaining access to the securities in the presence of a responsible client officer. The count is first controlled by simultaneously counting or sealing off other negotiable funds (such as securities held as collateral) and second by the auditors personally conducting the count. When the count is completed, the auditors should obtain a written statement from the client’s officer that the securities were returned intact. A securities count working paper should include a record of the name of the company represented by the certificate, the interest rate for bonds, the dividend rate for preferred stocks, the due date for bonds, the serial numbers on the certificates, the face value of bonds, the number or face amount of bonds and stock shares, and notes on the name of the owner shown on the face of the certificate or on the endorsements on the back (should be the client company).
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