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FINANCE AND INVESTMENT CYCLE - Coggle Diagram
FINANCE AND INVESTMENT CYCLE
FUNCTIONS
Raising funds and the repayment of such funds.
Obligations which arise out of finance raised - interest and dividends.
The application of funds raised for the acquisition of assets.
CHARACTERISTICS
Relatively few transactions occur during an entity’s reporting period.
Transactions within this cycle are usually material.
Transactions in this cycle are frequently governed by legal and regulatory requirements.
DOCUMENTS USED IN THE CYCLES
Investment cycle
Fixed Asset requisition with quote/negotiated prices
Minutes of Board of Directors (authorisation of purchases and sales)
Invoices (purchases and sales)
Capital budgets
Fixed Asset register.
General ledger accounts - Fixed assets; Depreciation; Profit & Loss of disposal; Accumulated depreciation
Finance cycle
Debenture trust deed
Share certificate
Minutes of shareholders/directors
Loan/lease contract
Mortgage bond
Journal voucher
INTERNAL CONTROL
Occurrence/Validity: All recorded assets are valid (really exist) and are supported by proper documentation.
Accuracy: All fixed assets are recorded at the correct amount and are arithmetically correct.
Authorisation: All purchases and sales are authorised according to company’s policy.
Recording: All transactions i.r.o. fixed assets and depreciation are correctly recorded.
Completeness: All valid fixed assets are recorded and nothing is omitted.
Classification: All transactions i.r.o. fixed assets are correctly classified according to its nature.
Cut off: All purchases and sales of fixed assets are recorded in the period to which it relates.
General Controls: Assets are properly safeguarded against theft and physical elements.
WEAKNESS AMD RECOMMODATIONS
Example: A financial manager has confidential data in a cupboard in her office. She leaves the office or lunch without locking it. Weakness - Safeguarding of assets. Risk - The confidential data can be stolen and used in another company. Recommendation: File all confidential data in a safe place (Locked safe) and only top management have access.