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UNIT 1: Investment and Finance Cycle and EFT payment controls - Coggle…
UNIT 1: Investment and Finance Cycle and EFT payment controls
Finance activities - funding the business operations and capital investments
Owners equity:
Issue of shares
Share buy backs
statutory requirements
authorisation for issue of shares
declaration of dividends
Borrowing:
Cash inflow from long term borrowing
subsequent repayment of capital sum
interest charged on borrowing
authorisation required for borrowing
Documents in finance cycle:
minutes of shareholders/directors
Debentures trust deed
Prospectus
share certificate
Loan/lease contract
Mortgage bond
Journal voucher
Finance and investment cycle
This cycle mainly deals with:
The raising for fianance (funds and the repayment thereof
Obligations which arise out of the finance raised ( Interest and dividends
The application of funds raised for the acquisition of assets
Characteristics;
few transactions
transactions are usually material
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 :check:
Investment activities
The Aquisition, disposal and management ( repairs and maintenanc of tangible and intangible assets
Documents used i the investment cycle:
Capital budgets.
Fixed asset requisition with quotations/negotiated prices. 3. Minutes of board meeting ( authorisation of purchases and sales)
Invoices ( purchases and sales)
fixed asset register
General ledger accounts
fixed assets
depreciation
Profit and loss on disposal
accumulated depreciation
Objectives and internal control
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
Does the fixed asset have supporting documents ( fixed asset acquisition and capital budgets) ?
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
Are the capital acquisitions numerically accounted for?
2.is the list of missing numbers must be followed up?
Are the fixed assets recorded in a fixed assset register and are regularly compared with fixed assets
Accuracy
The fixed assets recorded on the amount on the invoice?
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
The fixed asset register reconciled with the control accounts in the ledger on a regular basis
classification
fixed assets are classified into their respective categories according to company policy
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
fixed assets are stored in permanent form (bolted)
Safe gyard assets by
limiting access to authorised persons, locked, key control)
controls protecting assets against physical elements
assets are adequately insured
Electronic fund transferes
when making an EFT payment
multilevel pass works from two senior employees must be entered simultaneously
access to EFT payment must be limited to one computer.
the terminal should shutdowm after three unsuccessful access attempts
to effect the payment 2 passwords of 2 different senior employees should be entered
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
the reconciliation should be done by a person independent of the EFT transactions that were made
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
the reconciliation should be reviewed by seniorr independent official
weakness and recommendations
risk what could go wrog
recommendation - what could be improved
weakness - where is the weakness