Chapter 10 - Finance and Investment Cycle
Finance and Investment Cycle
Describe the finance and investment cycle,
including typical source documents and controls.
1, 2, 3, 4
Give examples of tests of controls over debt and
owners’ equity transactions and investment
5, 6, 7, 8
Describe substantive procedures for finance and
9, 10, 11, 12, 13, 14,
15, 16, 17
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
The authorization for investments usually takes place at the highest levels of the organization.
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
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.
To obtain relevant audit data about investment securities, auditors’ procedures include:
Inspecting the securities in the presence of a responsible client officer.
Personally examining the securities while other negotiable fund sources are sealed off or are being
Obtaining a written statement from the client’s representative that the securities were returned