FINANCE AND INVESTMENT CYCLE

1
FINANCE AND INVESTMENT CYCLE

• Chapter 11

2
Understand the Cycle
3
Activities and Documents

• Finance Cycle
• Cash budgets and forecasts
• Debt financing, bank, bonds, etc.
• Equity financing, stocks
• Investment Cycle
• CDs, stocks, bonds
• statements of account
• broker advice

4
Financial Planning

• Capital budget
• Cash flow forecast
• Determine need for financial resources
• Develop relationship with financial institutions
  and markets

5
Obtaining Financing

• Sale of stock
• Sale of bonds
• Borrow from financial institutions

6
Investing Cash

• Fixed assets
• Long-term investments
• Marketable securities
• stocks
• bonds
• money market accts
• Dividends

7
Assess Risk

• Modify audit program as appropriate.

8
Understand Internal Controls

• Test the specific internal controls which will be
  relied upon.

9
Internal Controls

• Finance Cycle
• Cash budgets and forecasts
• Board approval
• Proper accounting
• Investment Cycle
• Custody of CDs, stocks, bonds
• reconciliations of accounts

10
Assess Risk

• Modify audit program as appropriate.

11
Test Recorded Dollar Balances

• Determine whether the representations made by the
  client are materially correct.

12
Auditing Debt

• Recalculation of interest expense
• Confirmation w/bank
• Examination of Loan or Bond Docs
• Analytical Procedure

13
Auditing Investments

• Recalculation of interest, gain, loss
• Physical observation
• Confirmation with broker
• Examination of Docs
• Analytical Procedure

14
Draw Conclusions

• Review work performed.
• Documentation (working papers)
• Levels of review.
• Evaluate types and causes of misstatements.
• Prepare
• Adjusting journal entries (AJEs).
• Reclassification journal entries (RJEs).
• Present adjustments to the client.

15
Miscellaneous Items

• Minutes of meetings of the BOD
• Use of Confirmations (receivables payables)
• Inventory in public warehouses
• Maintaining records of paid obligations
• Registrars, transfer agents, investment bankers
• Direction of testing