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Finance and Investment Cycle - Coggle Diagram
Finance and Investment Cycle
Key activities:
-raising finance
-obligations related to finance
-applying funds for asset acquisition
Characteristics:
Few transactions in a reporting period, transactions are usually material, and governed by legal and regulatory requirements.
Fraud risks include manipulating accounts such as omitting long-term liabilities or overstating assets
Investment Activities
acquiring, disposing, and managing tangible and intangible assets
Additions of fixed assets, disposals of fixed assets, repair, and maintenance of assets
FINANCING ACTIVITIES
Financing activities are the means by which the entity obtains it’s funding for business operations and capital investments
Owner’s Equity:• Issue of shares;
Share buy backs
Borrowings: Loan repayments. Dividends . Interest on bowrrowings
Internal Controls and Control Objectives
Control objectives are goals related to transaction. Internal controls are activities implemented to achieve these objectives
Internal Controls and Test Of Controls
Occurrence/Validity: All recorded assets are valid and are supported by proper documentation
Authorization: All purchases and sales are authorised according to company’s policy.
Completeness: All valid fixed assets are recorded and nothing is omitted.
Accuracy: All fixed assets are recorded at the correct amount and are arithmetically correct.
Recording: All transactions i.r.o. fixed assets and depreciation are correctly recorded.
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.
Documents used in the investment and finance cycle:
Capital budgets.
Fixed Asset requisition with quote/negotiated prices.
Minutes of Board of Directors (authorisation of purchases and sales).
Invoices (purchases and sales).
Fixed Asset register.
General Ledger accounts:
• Fixed Assets;
• Depreciation;
• Profit/Loss on disposal;
• Accumulated depreciation
Electronic Fund Transfers (EFT):
monthly bank account reconciliation with the cashbook, conducted by an independent person and reviewed by a senior official.
EFT payment controls include multilevel passwords, limited access, controls over the terminal, shutdown after unsuccessful attempts, specific payment days, completeness tests, and audit trail.
Reconciliation after payments, audit trail, bank statement reflection, and an independent reconciliation are emphasized
example of possible weaknesses and risks
Assets are under insured.-Safegaurding
This could lead to major loses for the company should they not have adequate finance to replace or repair the assets
Asset adequately insured
DETAIL SUBSTANTIVE PROCEDURES OF ALL ASSERTIONS:
Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These tests are needed as evidence to support the assertion that the financial records of an entity are complete, valid, and accurate.
Existence: Additions of fixed assets, Disposal of fixed assets, Repairs and improvements
Rights and Obligation: Inspect the underlying documents of title deeds/contracts/lease agreements for terms and conditions, parties involved etc
Valuation: Depreciation, Amortization of intangible assets, Impairment, Accounting estimates
Completeness: Scrutinize minutes/contracts/lease agreements/invoices to identify any material purchase transactions and follow through to entry in fixed asset register
Presentation and disclosure: Inspect the financial statements to ensure that amounts are classified and disclosed correctly in terms of IFRS