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Investment and finance cycle and EFT payment controls - Coggle Diagram
Investment and finance cycle and EFT payment controls
A company can raise funds (share or debenture issue or obtaining loan capital) for the purchase of
fixed assets.
Fixed assets enable company to commence business.
Relatively few transactions during an entity's reporting period. The transactions are usually material.
Cycle mainly deals with:
Raising and repayments of finance
Obligations, such as dividends, that arise out of raised fiance
Application of funds raised for the acquisition of assets
Examples of fraud:
Omitting long term laibilites from financial statements
Understating value of loans
Understating depreciation allowances or impairment to overstate assets
Investment and finance cycle
Investment activities
Additions of fixed assets
Disposals of fixed assets
Repairs and maintenance of fixed assets
Financing activies
By means of which entities obtain funding for business operations and capital investments.
Two main external sources:
Owners' equity
Borrowings
Control
Control objectives
Certain objectives entity wants to achieve with every transaction.
Internal controls
Control activities entities should implement to achieved desired control objectives.
Test of controls
The way in which the effectiveness of the internal controls are tested.
Substantive procedures
Substantive analytical procedures
Comparison of current year information to prior year information. This includes financial and non-financial information.
Detail substantive procedures
Audit procedures that examines both financial statements and supporting documents in order to detect any errors. The different financial statement assertions should be tested where applicable.
Weaknesses and risks differ.
A risk is a result of a weakness within the internal controls.
EFT Payments
Bank account reconciled with cashbook monthly, by person independent from writing up cash book and to be reviewed by senior independent official.
Multilevel passwords, from 2 senior personnel. Passwords to be entered at the same time.
Access limited to one computer
After 3 unsuccessful login attempts terminal must shut down.
EFTs to be scheduled for one particular day and completeness tests to be done.
To release payment - both passwords from senior personnel must be used.
Payments require audit trail, need to reflect on bank statement and bank reconcilation to be performed by independent person.