Investment and Finance activities - Coggle Diagram
Investment and Finance activities
Documents within cycles
invoices (purchases and sales)
Fixed Asset register
Minutes of Board of Directors (authorisation of purchases and sales)
Fixed Asset requisition with quote/negotiated prices
General Ledger accounts:
• Fixed Assets
• Profit/Loss on disposal
• Accumulated depreciation
Control objectives are the specific goals an organization wants to achieve for every transaction, such as ensuring authorization for obtaining funding.
Test of controls refers to the process of inspecting, observing, and inquiring about internal controls to determine if they are working as intended
Internal controls are the activities that an organization implements to achieve these objectives
Different types of control
The control ensures that all fixed assets are recorded at the correct amount and that totals are arithmetically correct. Fixed assets are recorded at the amount of the invoice
Recording: The control ensures that all transactions related to fixed assets and depreciation are correctly recorded. All purchases and sales of fixed assets are recorded in the fixed asset ledger accounts
The control ensures that all valid fixed assets are recorded, and nothing is left out. Capital requisitions are numerically accounted for, and the list of missing numbers is regularly followed up
Classification: The control ensures that all transactions related to fixed assets are correctly classified according to their nature. Fixed assets are classified into respective categories according to company policy
Authorisation: The control ensures that all purchases and sales are authorised according to the company's policy. Purchases and sales of fixed assets are authorised by senior management on a numerical capital requisition/sales document.
Cut off: The control ensures that all purchases and sales of fixed assets are recorded in the period to which they relate. Fixed assets purchased are recorded at the date of receipt
Occurrence/Validity: The control ensures that all recorded assets are valid and supported by proper documentation, and fixed asset purchases are supported by a requisition and capital budget.
General Controls: The control ensures that assets are properly safeguarded against theft and physical elements. Fixed assets are stored in permanent form, limited access is given to authorised persons
Substantive testing is an audit procedure that examines the financial statements and
supporting documentation to see if they contain errors
Repairs and improvements:
Scrutinize the repair expense account for unusual items and inspect source documentation for a sample of material expenses.
Rights and obligations:
Inspect documents such as title deeds, contracts, and lease agreements to review terms and conditions and parties involved.
Disposal of fixed assets:
Enquire about disposals, scrapings, and insurance claims from management, and audit insurance claim documentation and correspondence with insurers
Amortization of intangible assets:
Inspect evidence of rights attached to intangible assets and management's projections to determine the reasonableness of amortization method and period applied.
Additions of fixed assets:
Inspect supporting documentation for material purchase transactions and compare details in the fixed asset register to supplier invoices/purchase contracts for a sample of transactions.
Consider ISA 620 for assets valued by an expert, assess assumptions and methods used, and re-perform calculations.
Physically inspect a sample of fixed assets from the register, including new additions, and consider their condition and usage.
Obtain evidence regarding factors indicating impairment and discuss with management the underlying assumptions