Kế toán, kiểm toán - Chapter 10: Finance and investment cycle learning objectives

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 10 Finance and Investment Cycle Learning Objectives1. Describe the finance and investment cycle, including typical source documents and controls.Give examples of tests of controls over debt and stockholders’ equity transactions and investment transactions.Describe substantive procedures for finance and investment accounts.4. Describe common errors and frauds in the accounting for capital transactions and investments, and design audit and investigation procedures for detecting them. 10-2INVESTING AND FINANCING CYCLEConcerned with transactions related to the use of the organization's funds (investing) and sources of those funds (financing) other than operations. Accounts affected by investing and financial cycle transactions include investments in securities; notes and bonds payable; and, stockholders' equity accounts.10-3Inherent RisksLease AccountingLoan covenantsRelated party transactionsComplex transactionsImpairments10-4Investment and Finance ActivitiesFinancial PlanCapital budgetRaise capitalOperate business (all other cycles)Mergers and acquisitionsInvestment of excess funds10-5Control ConsiderationsTransactions authorized by BOARD OF DIRECTORSDocumentation:Investments in securities: BROKER'S ADVICEProperty, plant and equipment: VENDOR'S INVOICE (for purchased PPE) or INTERNAL COST RECORDS (for manufactured PPE)Bonds and notes payable: Documentation from DEBTHOLDERSStockholders' Equity: Documentation from REGISTRARCASH RECEIPTS/DISBURSEMENTS JOURNALS10-6Finance and Investment Cycle:Control ProceduresPhysical ControlsSecurities CUSIP numbers recordedSecurities recorded in the client's nameSecurities held by an independent custodian or in a secure locationAccess to safe-deposit box requires more than one employeePhysical items periodically compared to detail recordsCash receipts from Investing and Financing cycle transactions deposited intact and daily (electronic transfer preferred)10-7Finance and Investment Cycle:Control Procedures (cont.)Separation of DutiesTransactions AUTHORIZED by the Board of DirectorsGeneral Accounting RECORDS transactions A separate function or external custodian has CUSTODY of stock and bond certificatesPerformance ReviewsCompare current investing and cycle transaction data against prior-year data or expected dataCompare revenue and expenses against organization standards or expectations.Compare transactions on monthly statement to cash receipts/disbursements10-8CONTROL OVER ACCOUNTING ESTIMATESCommunication of need for estimateAccumulate dataQualified personnelReview and approvalComparison to resultsCompare with plans10-9SUBSTANTIVE TESTS–INTEREST-BEARING LIABILITIESAgree to BEGINNING BALANCE and CONFIRM with holders or makers.LOAN PROCEEDSVOUCH to cash receiptsRecalculate Discount/PremiumConfirm IBL, examine noteLOAN PAYOFFRecalculate Interest ExpenseRecalculate Gain/Loss on RetirementVerify cash disbursements10-10INTEREST-BEARING LIABILITIESINTEREST PAYMENTSRecalculate Interest ExpenseSearch for UNRECORDED liabilitiesInquiry of managementBank confirmationsUnusual amounts of interest expenseLarge receipts of cash during the yearEnsure DEBT COVENANTS are met.Inspect loan agreements.Consider GOING CONCERN implications if not met.Ensure proper presentation and disclosure.10-11AUDITING STOCKHOLDER'S EQUITYOverview of audit approachEXTERNAL PARTIES involved in record keepingTransactions must be authorized by the BOARD OF DIRECTORSTransactions must be consistent with the client's ARTICLES OF INCORPORATIONPAID-IN CAPITALAgree balances to prior year documentationExamine issuances and repurchases of capital stockVerify distribution of proceeds between CAPITAL STOCK and ADDITIONAL PAID-IN CAPITALExamine CASH RECEIPTS and CASH DISBURSEMENTS recordsDetermine that all transactions are RECORDED (TRACE from BOD minutes)Verify that all transactions are PROPERLY AUTHORIZEDRETAINED EARNINGSAgree beginning balance with prior year documentationVerify the appropriateness of prior-period adjustment treatmentTrace net income/loss to INCOME STATEMENTEnsure that DIVIDENDS are properly authorized by BOARD OF DIRECTORS10-12Auditing Investments:Substantive ProceduresAgree beginning balances to Prior Year DocumentationReview client’s policies and proceduresIdentify those individuals authorized to execute trades with brokersIdentify individuals who reconcile brokerage accounts with company records and ensure they are independent.Purchases of investmentsVOUCH to BROKER'S ADVICE (Statement) Examine BOARD MINUTES for authorizationSales of investmentsVOUCH to BROKER'S ADVICE, CASH RECEIPTS RECORDS, and BOARD MINUTES Recalculate gain or loss on sale Read minutes for sales of Investments and trace to recordingTrace cash receipts to cash receipts journal and bank statement10-13Auditing Investments:Substantive Procedures (cont.)Determine MARKET VALUEObtain 12/31 market price from Wall Street Journal or other sourcesEvaluate for possible PERMANENT DECLINESPHYSICALLY INSPECT or CONFIRM securities Verify CUSIP Numbers to ensure that there were no unrecorded sales and subsequent repurchases Recorded in company name Can inspect at interim, if safe-deposit boxVerify DIVIDEND REVENUEReview stocks held by client for dividend payments (e.g. Moody's, Standard & Poor's, CNBC.com).If securities held by broker review monthly statements for dividends.Trace dividend received to CASH RECEIPTS recordsEvaluate presentation in BALANCE SHEET (short-term vs. long-term asset) 10-14Trouble Spots in Audits of Investments Valuation of investments at cost or market value is not always evidentvalue impairment that is other than temporary.Propriety, effectiveness, and risk disclosure of derivative securities used as a hedgesDetermination of the fair value of derivatives and securities, including valuation models and the reasonableness of key assumptions.Determination of significant influence relationship for equity method investments.10-15Derivative Investments, Hedging Activities, and Investments in Securities (SAS 92) Inquiries about the nature of investments and the reasons for holding them, especially hedging activities. Classification affects the accounting treatment of market values and the unrealized gains and losses on investments. Due to the complexity of Accounting for Derivative Securities and Hedging Activities, auditors may need special skills or knowledge to: understand client hedging transactions ensure that effective controls are in placeto audit the transactions. 10-16Auditing Fair Value MeasurementsManagement’s responsibility.Market-based values preferredIf not available—use assumptions market would have used.If not known—management can use their own assumptionsif no contrary data 10-17