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INVESTMENT AND FINANCE CYCLE - Coggle Diagram
INVESTMENT AND FINANCE CYCLE
INVESTMENT CYCLE
Documents
Fixed asset requisition with quote/negotiated prices
Capital budgets
Minutes of BOD (authorisation of purchases and sales)
Invoices (purchases + sales)
Fixed asset register
GL accounts: Fixed assets, depreciation, profit/loss on disposal, acc depreciation
Activities
Additions of fixed assets
Disposal of fixed assets
Maintenance and repairs of assets
FINANCE CYCLE
Documents
Minutes of shareholders/directors
Debentures trust deed
Prospectus
Share certificate
Loan/lease contract
Mortgage bond
Journal voucher
2 External Sources of funding
Owner's Equity
Borrowings
CONTROL OBJECTIVES: Certain objectives that the organisation wants to achieve with regards to every transaction
Occurence/Validity
Authorisation
Completeness
Accuracy
Recording
Cut-Off
Classification
General controls
INTERNAL CONTROLS: The control activities that the organisation should implement to ensure they achieve the desired objectives
Occurrence/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
Adequately insure assets
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
SUBSTANTIVE TESTING: An audit procedure that examines financial statements and supporting docs to see if they contain errors
Existence
Rights and obligations
Completeness
Accuracy and Valuation
Presentation and Disclosure
Weakness vs. Risk
An organisation will be faced with risks when the organisation has a weak internal control environment (weaknesses)
Internal control processes can be implemented to mitigate risks
Example: An organisation decides to purchase a new asset, but they do not have a proper authorisation process
WEAKNESS
There is no authorisation process to authorise the purchase of a new asset.
RISK
The organisation will be purchasing assets that they do not need
RECOMMENDATION
Implement proper processes to ensure that all purchases are authorised.