UNIT 1: Investment and Finance Cycle and EFT payment controls

Finance activities - funding the business operations and capital investments

Finance and investment cycle

Investment activities

Objectives and internal control

This cycle mainly deals with:

  1. The raising for fianance (funds and the repayment thereof
  2. Obligations which arise out of the finance raised ( Interest and dividends
  3. The application of funds raised for the acquisition of assets

Characteristics;

  1. few transactions
  2. transactions are usually material
  3. frequently governed by legal and regulatory requirements

temptation to report fraudulently: 1. omitting long term liabilities ( loans) from financial statements 2. Understating the the value of long term liabilities (loans) 3. Overstating assets by including fictitious assets or assets which the company does not own 4. Overstating assets by understating depreciation allowances or impairment ✅

The Aquisition, disposal and management ( repairs and maintenanc of tangible and intangible assets

Documents used i the investment cycle:

  1. Capital budgets.
  2. Fixed asset requisition with quotations/negotiated prices. 3. Minutes of board meeting ( authorisation of purchases and sales)
  3. Invoices ( purchases and sales)
  4. fixed asset register
  5. General ledger accounts
  • fixed assets
  • depreciation
  • Profit and loss on disposal
  • accumulated depreciation

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Owners equity:

  1. Issue of shares
  2. Share buy backs
  3. statutory requirements
  4. authorisation for issue of shares
  5. declaration of dividends

Borrowing:

  1. Cash inflow from long term borrowing
  2. subsequent repayment of capital sum
  3. interest charged on borrowing
  4. authorisation required for borrowing

Documents in finance cycle:

  1. minutes of shareholders/directors
  2. Debentures trust deed
  3. Prospectus
  4. share certificate
  5. Loan/lease contract
  6. Mortgage bond
  7. Journal voucher

control objectives - what the organisation wants to achieve with every transaction

Internal controls - the control activities that organisations should inplement to ensure they achieve the desired objectives

Occurance / Validity

  1. Does the fixed asset have supporting documents ( fixed asset acquisition and capital budgets) ?
  2. are the recorded assets physically compared by senior official?

Authorisation 1. was the purchase authorised by senior management on a numerical capital requisition/sales document? 2. was the purchase/sale recorded in the minutes

Completeness

  1. Are the capital acquisitions numerically accounted for?
    2.is the list of missing numbers must be followed up?
  2. Are the fixed assets recorded in a fixed assset register and are regularly compared with fixed assets

Accuracy

  1. The fixed assets recorded on the amount on the invoice?
  2. Depreciation and other calculations done by computer with a program that has been tester before hand ( if the calculation was done by hand, perform an independently reviewed on calculation)

Recording
1.purchases and sales of fixed assets are recorded int he fixed assets ledger accounts ( control account) and the fixed asset register from the source documents

  1. The fixed asset register reconciled with the control accounts in the ledger on a regular basis

classification

  1. fixed assets are classified into their respective categories according to company policy
  2. improvements are capitalised as fixed assets and clearly distinguished from maintenance

Cut off 1. fixd assets purchased are recorded at the date of receipt (per GRN and when sold as from the date that the risk and rewards of ownership passes to the purchase in substance

General controls

  1. fixed assets are stored in permanent form (bolted)
  2. Safe gyard assets by
  • limiting access to authorised persons, locked, key control)
  • controls protecting assets against physical elements
  1. assets are adequately insured

Electronic fund transferes

weakness and recommendations

risk what could go wrog

recommendation - what could be improved

weakness - where is the weakness

when making an EFT payment

reconciliation

bank account should be reconciled monthly 1. the reconciliation should be done by a person who is independent of the person that writes up the cash book

  1. the reconciliation should be reviewed by seniorr independent official

multilevel pass works from two senior employees must be entered simultaneously

  1. access to EFT payment must be limited to one computer.
  2. the terminal should shutdowm after three unsuccessful access attempts
  3. to effect the payment 2 passwords of 2 different senior employees should be entered
  4. after a payment has been made there should be an:
    audit trail
    payment shuld reflect on the bank statement
    a bank reconciliation should be performed
  5. the reconciliation should be done by a person independent of the EFT transactions that were made