Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

1. Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 17 – Auditing the Investing and Financing Cycles

2. Chapter Overview

3. Nature of the Investing and Financing Cycles • Overview of the Cycles • Investing Activities • Financing Activities • Understanding the Entity and Environment

4. Understanding the Entity and Environment

5. Investing Cycle – Audit Objectives

6. Investing Cycle – Analytical Procedures

7. Investing Cycle • Inherent Risk • Consideration of Internal Controls • Preliminary Audit Strategies

8. Substantive Tests for Plant Assets • Initial Procedures • Analytical Procedures • Tests of Details of Transactions • Vouch Plant Asset Additions • Vouch Plant Asset Disposals • Review Entries to Repairs and Maintenance Expense

9. Substantive Tests for Plant Assets • Tests of Details of Balances • Inspect Plant Assets • Examine Title Documents and Contracts • Tests of Details of Accounting Estimates • Review Provisions for Depreciation • Impairment of Plant Assets • Tests of Details of Presentation and Disclosure

10. Study Break • This cycle involves activities such as the purchase and sale of land, buildings, and equipment not generally held for resale. • Investing Cycle • Financing Cycle • Cash Disbursements Cycle • Cash Receipts Cycle A. Investing Cycle

11. Study Break • All of the following are classes of transactions associated with the audit of plant assets, except: • Depreciation Expense • Disposal of Fixed Assets • Payroll Expense • Acquiring of Fixed Assets C. Payroll Expense

12. Study Break • While auditing the investing cycle, this test of details of balances allows the auditor to obtain direct personal knowledge of the existence of the plant assets. • Inspect plant assets • Examine title documents and contracts • Impairment of plant assets • Review provisions for depreciation A. Inspect plant assets

13. Financing Cycle

14. Financing Cycle – Audit Objectives

15. Financing Cycle – Analytical Procedures

16. Financing Cycle • Inherent Risk • Consideration of Internal Control • Common Documents and Records

17. Financing Cycle – Functions and Related Controls • Authorizing bonds and capital stock • Issuing bonds and capital stock • Paying bond interest and cash dividends • Redeeming and reacquiring bonds and capital stock • Recording financing transactions

18. Preliminary Audit Strategies for Long-Term Debt

19. Substantive Tests of Long-Term Debt • Initial Procedures • Analytical Procedures • Tests of Details of Transactions

20. Substantive Tests of Long-Term Debt • Tests of Details of Balances • Review Authorizations and Contracts • Confirm Debt • Recalculate Interest Expense • Tests of Details of Presentation and Disclosure

21. Study Break 4. This cycle involves activities such as acquiring debt, issuing bonds, and issuing common stock. • Investing Cycle • Financing Cycle • Cash Disbursements Cycle • Cash Receipts Cycle B. Financing Cycle

22. Study Break • This financing function involves making payments to the proper payees in according with board of director or management authorizations. • Authorizing bonds • Authorizing capital stock • Paying bond interest and cash dividends • Recording financing transactions C. Paying bond interest and cash dividends

23. Study Break • All of the following are tests of details of balances for the financing cycle, except: • Confirmation of accounts payable • Confirmation of long-term debt • Review authorization and contracts • Recalculate interest expense A. Confirmation of accounts payable

24. Preliminary Audit Strategies for Shareholders’ Equity

25. Substantive Tests of Stockholders’ Equity • Initial Procedures • Analytical Procedures • Tests of Details of Transactions • Vouch Entries to Paid-in Capital Accounts • Vouch Entries to Retained Earnings

26. Analytical Procedures

27. Substantive Tests of Stockholders’ Equity • Tests of Details of Balances • Review Articles of Incorporation and Bylaws • Review Authorization and Terms of Stock Issues • Confirm Shares Outstanding with Registrar and Transfer Agent • Inspect Stock Certificate Book • Inspect Certificates of Shares Held in Treasury • Tests of Details of Presentation and Disclosure