Investment and Finance Business Cycle and EFT payments

Finance and investment cycle centred on internal organisational controls

Investments in assets require proper authorisation + validity

EFT payments made to pay for investments in assets

African Designs (Pty) Ltd: Used as a practical eg

Methods of raising funds for expansion or acquisition of assets

Issuing debentures / bonds

Raising loans from financial institutions or external funders

Issuing shares

Legal and regulatory requirements for raising funding

Investment activities include: (a) Additions of fixed assets; (b) Disposal of Fixed assets; and (c) Repair and maintenance of fixed assets

Financing activities include raising funding from external sources

Internal controls and control objectives

Internal controls

Control objectives

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Authorisation

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Objectives that organisations want to achieve for every transaction

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Weaknesses and recommendations

EFT Controls

Risks

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Accounts affected in investment and finance cycle

Documents used in the cycle

Authorisations for additions of fixed assets

Using retained income

Lease of assets

Share buybacks

Dividends

Occurence / Validity

Completeness

Accuracy

Recording

Classification

Cut off

General controls

All recorded assets are valid (really exist) and are supported by proper documentation

Internal control

Recorded assets are periodically compared to physical assets by an independent senior official.

All fixed asset purchases are supported by a fixed asset requisition and capital budgets (Supporting documentation)

Internal controls

All purchases and sales are authorised according to company’s policy

Purchases and sales of fixed assets: (a) Authorised by senior management on a numerical capital requisition/sales document;. and (b) Authorisation/decision recorded in minutes

All valid fixed assets are recorded and nothing is omitted

Capital requisitions numerically accounted for

The list of missing numbers is regularly followed up

Fixed assets recorded in a fixed asset register and are regularly compared with fixed assets

All fixed assets are recorded at the correct amount and are arithmetically correct

Fixed assets are recorded at the amount of the invoice

Depreciation and other calculations are done by computer with a program which has been tested beforehand

All transactions i.r.o. fixed assets and depreciation are correctly recorded

All purchases and sales of fixed assets recorded in the fixed asset ledger accounts (control account) and fixed asset register from the source documents

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

All transactions i.r.o. fixed assets are correctly classified according to its nature

Fixed assets are classified into the respective categories according to company policy.

Improvements are capitalised as fixed assets and clearly distinguished from maintenance

Fixed assets are classified into the respective categories according to company policy

All purchases and sales of fixed assets are recorded in the period to which it relates

Fixed assets purchased are recorded at the date of receipt (per GRN) and when sold as from the date that the risks and rewards of ownership passes to the purchaser in substance

Assets are properly safeguarded against theft and physical elements

Fixed assets stored in permanent form

Safe guard assets

Limiting access to authorised persons (locked, key control)

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Fixed Asset requisition with quote/negotiated prices

Capital budgets.

Minutes of Board of Directors

Fixed Asset register.

General Ledger accounts:

Steps taken before assets acquired

formal written proposal by a Capex Committee

proposal must be supported by quotes and the required source of finance

proposal must then be presented to the Board of Directors

Documentation

Minutes of shareholders/directors

Loan/lease contract

Journal voucher

Share certificate

Repair and maintenance of assets

Disposal of fixed assets