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    Internal Controls Relevant To Financing Cycle

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    Ell V
    The document outlines internal controls relevant to the financing and investing cycles. For financing cycle transactions, controls include proper authorization of long-term note and share capital issuances, accurate payment of bond interest and dividends, and verification of recorded balances. For investing cycle transactions, controls include authorization of purchases/sales, timely deposit of dividend/interest checks, and comparison of recorded balances to physical assets. Initial audit procedures for investments and financing include analytical procedures such as analyzing the statement of cash flows, calculating returns and expenses, and assessing financial ratios.

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    Internal Controls Relevant To Financing Cycle

    Uploaded by

    Ell V
    43 views3 pages
    The document outlines internal controls relevant to the financing and investing cycles. For financing cycle transactions, controls include proper authorization of long-term note and share capital issuances, accurate payment of bond interest and dividends, and verification of recorded balances. For investing cycle transactions, controls include authorization of purchases/sales, timely deposit of dividend/interest checks, and comparison of recorded balances to physical assets. Initial audit procedures for investments and financing include analytical procedures such as analyzing the statement of cash flows, calculating returns and expenses, and assessing financial ratios.

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    Internal Controls relevant to Financing Cycle

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    The document outlines internal controls relevant to the financing and investing cycles. For financing cycle transactions, controls include proper authorization of long-term note and share capital issuances, accurate payment of bond interest and dividends, and verification of recorded balances. For investing cycle transactions, controls include authorization of purchases/sales, timely deposit of dividend/interest checks, and comparison of recorded balances to physical assets. Initial audit procedures for investments and financing include analytical procedures such as analyzing the statement of cash flows, calculating returns and expenses, and assessing financial ratios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    43 views3 pages

    Internal Controls Relevant To Financing Cycle

    Uploaded by

    Ell V
    The document outlines internal controls relevant to the financing and investing cycles. For financing cycle transactions, controls include proper authorization of long-term note and share capital issuances, accurate payment of bond interest and dividends, and verification of recorded balances. For investing cycle transactions, controls include authorization of purchases/sales, timely deposit of dividend/interest checks, and comparison of recorded balances to physical assets. Initial audit procedures for investments and financing include analytical procedures such as analyzing the statement of cash flows, calculating returns and expenses, and assessing financial ratios.

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    © All Rights Reserved
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    of 3

    Lary Lou Ventura

    Internal Controls relevant to Financing Cycle


    Existence or Occurrence / Rights 1. Issuance of long-term notes, bonds, and share capitals
    and Obligations are made in accordance w/ BOD’s authorizations and
    legal requirements and proceeds are promptly
    Financing cycle transactions actually deposited intact.
    occurred 2. Payments of bond interest and cash dividends are
    made to proper payees in accordance w/ BOD’s
    authorization
    3. Redemption and reacquisition of bonds and share
    capital transactions are executed in accordance w/
    BOD’s authorizations
    4. Cancellation of notes when they are paid to avoid
    double payment
    5. Recorded balances are periodically verified w/
    bondholders and shareholders
    Valuation / Completeness / 1. Transactions and events are correctly recorded as to
    Classification amount, classification, and accounting period
    2. Transactions are promptly recorded and correctly
    Financing cycle transactions are posted to individual accounts
    properly valued and recorded.

    Evaluation of Internal Controls relevant to Financing Cycle


    1. Current Liabilities (other than those from trade credit and operating expenses)
    a. A system authorization on both original transaction resulting in a liability and payment of
    the liability should be well-defined and established.
    b. A satisfactory system of record keeping w/ adequate forms and documentation should be
    instituted
    c. A plan of organization w/ appropriate division of duties, provision for fixing responsibility
    and requiring authorization and approval, periodic review of computations and entries in
    the records should be established and implemented.

    2. Long-term Liabilities
    a. Long-term obligations should be properly authorized by the board or by a required
    majority of SH
    b. There should be proper control over issued and unissued obligations as in bonds, by an
    independent bond trustee or transfer agent
    c. Redeemed bonds should be cancelled, properly mutilated and retained for in order to
    prevent the unauthorized issuance
    d. Bond ledger should be used in w/c details of bonds issued, cancelled and outstanding are
    shown. A subsidiary bondholders’ ledger should also be maintained by the issuing
    corporation or the bond trustee for bonds registered, as to principal and payment
    e. Proper control should be exercised over the payment of interest on long-term liabilities.
    Payment may be done by an independently engaged interest-paying agent

    3. Share capital
    a. Internal control measures w/ regards to issuance of share certificates and proper
    accounting for transfer and registration of shares should be established. One of these
    measures could be the appointment of a share and transfer agent or an independent
    registrar
    b. Share certificates should be serially prenumbered by the printer and authority for signing
    and issuing the certificated should be designated by the board
    Lary Lou Ventura
    c. As individual certificates are issued, corresponding records of certificates should be
    prepared containing the name and address of the SH and the number of shares issued to
    each SH
    d. Canceled certificates should be mutilated and any necessary documentary stamps should
    be attached to those
    e. Entries for share issuances and transfers should be made by a person who does not have
    authority to sign and issue certificates

    Internal Controls relevant to Investing Cycle


    Existence or Occurrence / Rights 6. Purchases and sales of property and equipment,
    and Obligations securities and intangibles are made in accordance with
    management's authorizations
    Investing cycle transactions actually 7. Dividend and interest checks from investments are
    occurred promptly deposited intact
    8. Access to property and equipment securities and
    intangible are restricted to authorized personnel
    9. Recorded balances are compared with existing assets at
    reasonable intervals
    Valuation / Completeness / 3. Transactions and events are correctly recorded as to
    Classification amount, classification, and accounting period
    4. Transactions are promptly recorded and correctly
    Investing cycle transactions are posted to individual accounts
    properly recorded

    Evaluation of Internal Controls relevant to Investing Cycle


    1. Investments (Securities)
    a. purchases and sales should be made only on proper authorization
    b. access to securities should not be vested in one person only
    c. custodianship of investment securities and accounting for the securities should be
    separated
    d. securities must be physically controlled in order to prevent unauthorized usage and they
    must be registered in the name of the owner
    e. revenues received from investments periodically should be reconciled with the amounts
    that should be received

    2. Fixed Assets
    a. additions and dispositions of fixed assets should be properly authorized and approved by
    the board of directors or executive committee or person to whom authority has been
    delegated
    b. a clearly defined and sound policy for differentiation of capital and revenue expenditures
    should be established
    c. cost of constructed fixed assets should be controlled through work orders
    d. fixed assets controlling account should be supported by detailed plant records
    e. physical inspection of fixed assets should be conducted and discrepancies investigated
    f. periodic review of adequacy of insurance for fire, theft, etc. on fixed assets should be
    performed
    g. reasonable depreciation policy should be established and consistently applied
    h. fully depreciated assets still in use should be properly classified
    i. small tools should be properly safeguarded and kept in specific locations

    3. Intangible Assets
    a. Acquisitions, additions, amortization and write-offs of intangible should be properly
    authorized
    Lary Lou Ventura
    b. adequacy and consistency of accounting policies governing intangible assets should be
    reviewed periodically
    c. general ledger account should be supported by adequate detailed records and they
    should be periodically reconciled
    d. schedules of intangible showing their costs and basis of amortization should be prepared
    periodically and reviewed by a responsible official

    Investment and Financing: Initial Audit Procedures


    Analytical Procedures
     General
     Analyze Statement of Cash Flows
     Return on Assets vs. Average Cost of Debt Capital
     Investments
     Return on Total Assets
     Depreciation expense as a % of PPE
     Depreciation reasonableness test
     Repair expense to net sales
     Financing
     Free cash flow
     Debt to Equity
     Return on common equity
     Interest expense to interest bearing debt

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