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Finance and Investment Cycle - Coggle Diagram
Finance and Investment Cycle
Deals with
Raising of finance (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
Material transactions
Frequently governed by legal and regulatory requirements
Investment Activities
Main Activities
Additions of fixed assets
Disposal of fixed assets
Repair and Maintenance of assets
Documentation
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
GL Accounts: Fixed assets, Depreciation, Profit/Loss on disposal, Accumulated Depreciation
Financing Activities
Sources of Funding
Owner's Equity
Borrowings
Documentation
Minutes of
shareholders/directors
Debenture trust deed
Prospectus
Share certificate
Loan/lease contract
Mortgage bond
Journal voucher
Control Objectives
-
Internal Controls
Occurence/Validity
-
Supporting documentation, compare physical and recorded assets (independent senior official)
Authorisation
-
Purchases/Sales Authorised by senior management, recorded in minutes
Completeness
-
Numerically accounted for, missing numbers followed up, record in fixed asset register and compare with fixed assets
Accuracy
-
Record @ invoice amount, Depreciation done by tested computer program / independently review manual calculation
Recording
-
All sales/purchases recorded in fixed asset register and ledger account from source document, regularly reconcile with control accounts
Classification
-
Classified into respective categories according to company policy, capitilise improvements and distinguish from maintenance
Cut off
-
Record purchase @ date of receipt per GRN, record sale when risk and rewards of ownership pass
General Controls
Fixed assets are, as far as possible, stored in permanent form (bolted)
Safeguard assets by limiting access to authorised personnel and protecting assets against physical elements
Adequately insure assets
Weaknesses vs. Risks
An organisation will be faced with risks when the organisation has a weak internal control environment (weaknesses)
Example: Leaving your valuables in your office, then not locking your office when going out for lunch
Risk
: Valuables being stolen
Weakness
: The internal control of safeguarding was not implemented
Internal control processes can be implemented to mitigate risks