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Applied Auditing Assignment 3

1. The document discusses investing activities and related frauds. Investing activities include investing in other entities through debt/equity securities or property/equipment. These transactions are often recorded during expenditure cycles but require additional controls due to their significance. 2. Major frauds in investing can include kickbacks, acquiring goods for personal use, stealing or diverting securities, appropriating assets, and processing fake transactions. Related party transactions involving investments or property/equipment can result in improper valuation. 3. Critical controls for investments include separating the authorization of transactions from keeping records and holding the assets. Board approval is typically required for investments, with execution done by treasurers. High-value investment certificates are often held by brokers or

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Leny Joy Dupo
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290 views

Applied Auditing Assignment 3

1. The document discusses investing activities and related frauds. Investing activities include investing in other entities through debt/equity securities or property/equipment. These transactions are often recorded during expenditure cycles but require additional controls due to their significance. 2. Major frauds in investing can include kickbacks, acquiring goods for personal use, stealing or diverting securities, appropriating assets, and processing fake transactions. Related party transactions involving investments or property/equipment can result in improper valuation. 3. Critical controls for investments include separating the authorization of transactions from keeping records and holding the assets. Board approval is typically required for investments, with execution done by treasurers. High-value investment certificates are often held by brokers or

Uploaded by

Leny Joy Dupo
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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+MODULE 6

POSTTEST

1. Identify the transactions involved in investing and explain their relationship to other cycles.

Investing activities include an entity’s activities to invest in debt or equity securities of other
entities and investments in property, plant, and equipment. These transactions are often recorded
during the expenditure cycle but are so significant that additional controls are applied to them.

2. Identify major frauds that occur in investing activities.

Kickbacks, acquisitions of goods for personal use, appropriation of assets, and processing of
fictitious transactions can occur in the acquisition of property, plant, and equipment, just as they do in
the acquisition of goods. Related-party transactions to acquire investments or property, plant, and
equipment may result in improper valuation of the accounts. Securities may be stolen or diverted.

- Historically, business entities have manipulated the accounting values at which assets
were recorded by acquiring assets from a related party or selling assets to a related party. Acquiring
assets at inflated values may result in draining cash from the acquiring entity. Selling assets at inflated
values to related parties results in increased revenue and assets to the selling entity, and these may
never be realized. All transactions conducted with related parties must be examined carefully.

Some major frauds that usually occurs in investing activities includes stolen or diverted
securities which might result to misapplied resources and misstated accounts. Next is the appropriation
of assets, as wells as processing of fictitious transaction which are also common frauds related to PPE
and goods acquisition. Another one, is the occurrence of related party-transactions in acquiring
investments or PPE which may result in improper valuation of the accounts. Kickback is also a fraud
related to investments.

3. Describe the important investment-related duties that must be separated if controls are to
be effective.

Critical controls include separating the responsibilities for authorizing transactions, keeping
records, and having custody of the asset.

Generally, the board, or sometimes an investment committee of the board, must approve
individual investments. After obtaining board approval, the treasurer or vice president for finance has
authority to execute the purchase or sale of an investment transaction.
Due to their large peso value and susceptibility to misappropriation, investment certificates
(stocks or bonds) are often left in the custody of a broker or bank. When the entity takes custody of
investment certificates should be stored in a safe deposit box.

Typically the general ledger clerk maintains investment records unless the entity has a large
volume of investment transactions.

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