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Chapter 10 - Finance and Investment Cycle

CHAPTER 10

Finance and Investment Cycle

LEARNING OBJECTIVES

Review Exercises,
Checkpoints Multiple Choice Problems, and
Simulations

1. Describe the finance and investment cycle, 1, 2, 3, 4, 23, 24, 25 54, 60(*), 61(*)
including typical source documents.

2. Identify significant accounts and relevant 9, 10, 13, 14

assertions related to the finance and
investment cycle.

3. Discuss the risk of material misstatement in 17, 18, 21

the finance and investment cycle, with a
specific focus on improper valuation and
disclosure.

4. Identify important internal control activities 5, 6, 7 27, 33, 37, 43 48

present in a properly designed system to
mitigate the risk of material misstatements
for each relevant assertion in the finance
and investment cycle.

5. Give examples of tests of controls to test the

operating effectiveness of internal controls 8
in the finance and investment cycle.

6. Give examples of substantive procedures in

the finance and investment cycle and relate 11, 12, 15, 16, 26, 28, 29, 30, 31, 49(*), 50(*),
them to assertions about significant account 19, 20, 22 32, 34, 35, 36, 38, 51(*), 52(*),
balances at the end of the period. 39, 40, 41, 42, 44, 53(*), 54(*), 55,
45, 46, 47 56, 57, 58, 59,
60(*), 61(*),
62(*)
7. Apply your knowledge to perform audit
procedures in the finance and investment 49(*).50(*),
cycle and evaluate the findings of your tests. 51(*), 52(*),
53(*),60(*),
61(*), 62(*)

(*)Items relates to multiple learning objectives

10-1
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Education.
Chapter 10 - Finance and Investment Cycle

SOLUTIONS FOR REVIEW CHECKPOINTS

10.1 The authorization for investments usually takes place at the highest levels of the organization. An
investment philosophy may be stated or endorsed by the board of directors and specific authorization for
each transaction may come from the CEO or CFO. Such investments may involve millions of dollars and
may be instrumental to the strategic objectives of the organization, commanding the authorization of senior
management

10.2 Actions by the board of directors or finance committee are usually required as authorization for notes
payable. Auditors would want to read all minutes of the board and executive committees, extracting copies
of all financial matters, including notes payable authorizations.

10-2
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Education.
Chapter 10 - Finance and Investment Cycle

10.3 Typically, a company will require information from a broker’s advice to correctly account for the initial
purchase of an investment security. However, maintaining correct accounting depends on the nature of the
investment. For example:
• Held to Maturity debt investments may be amortized, which will require appropriate amortization
tables
• Available for Sale and Trading securities require mark-to-market adjustments, which will require
publicly available market values from either a broker or a publication such as The Wall Street
Journal.
• Equity method investments require obtaining copies of the investees financial statements, as well
as records of any dividends received.
• Even cost basis investments must be analyzed for potential other-than-temporary declines in value.

10.4 The activities a company performs to reconcile recorded marketable securities depends on whether the
client holds the securities. If the securities are held by a brokerage firm, the company may receive periodic
statements from the brokerage documenting the securities currently owned. However, if the company
holds the securities, the company should perform a periodic securities count that reconciles the name of the
company, the interest rate for bonds, the dividend rate for preferred stocks, the due date for bonds, any
known serial numbers, and other identifying information. This reconciliation should be performed on a
regular basis by a company.

10.5 A compensating control for finance and investment cycle accounts is a control feature used when the
company does not specify a standard control procedure (such as strict separation of functional
responsibilities). In the area of finance and investment, the compensating control feature is the involvement
of two or more persons in each kind of important functional responsibility.

If involvement by multiple persons is not specified, then oversight or review can be substituted. For
example, the board of directors can authorize purchase of securities or creation of a partnership. The CFO
or CEO can carry out the transactions, have custody of certificates and agreements, manage the partnership
or the portfolio of securities, oversee the record keeping, and make the decisions about valuations and
accounting (authorizing the journal entries). These are rather normal management activities, and they
combine several responsibilities. The compensating control can exist in the form of periodic reports to the
board of directors, oversight by the investment committee of the board, and internal audit involvement in
making a periodic reconciliation of securities certificates in a portfolio with the amounts and descriptions
recorded in the accounts.

10.6 According to auditing standards (AU-C 540, AS 2501) specific relevant aspects of control over the
production of accounting estimates include:

• Management communication of the need for proper accounting estimates.

• Accumulation of relevant, sufficient, and reliable data for estimates.
• Preparation of estimates by qualified personnel.
• Adequate review and approval by appropriate levels of authority.
• Comparison of prior estimates with subsequent results to assess the reliability of the estimation
outcomes.
• Consideration by management of whether particular accounting estimates are consistent with the
company’s operational plans.

10.7 Because transactions in the investing and financing involve large amounts of cash, authorization at the
highest levels of governance is critical. Often, this goes all the way to the board of directors. Some transactions
which are generally approved by the board include:

• Issuance of capital stock

• Treasury stock repurchases
• Issuance, sale, or purchase of bonds
• Large bank loans

10-3
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Chapter 10 - Finance and Investment Cycle

• Purchase or sale of buildings and other large assets

• Mergers and acquisitions
• Dividends

If there is no evidence of approval of these transactions in the board of directors minutes, the auditor should
make inquiries to ensure that the transactions were approved.

10.8 When bonds and notes are paid off, they are typically returned to the company. The instruments should
then be either marked as paid (canceled), or destroyed. Companies with large bond issuances will often
contract with a third party to destroy the bonds. If the bonds or notes are not properly canceled or
destroyed, an employee or anyone else who gained custody of the instrument could resell the debt to an
unsuspecting investor. Although the note or bond would not be valid, this could still cause a significant
headache for the company. Further, an unscrupulous employee with inadequate segregation of duties could
potentially pay out a bond for a second time.

10.9 Specific assertions typical of investment account balances are that:

• Investment securities are on hand or are held in safekeeping by a trustee.

• The accounting for investment cost and market value is appropriate.
• Controlling investments are accounted for by the equity method.
• Investment income has been received and recorded.
• Investments are adequately classified and described in the balance sheet, including disclosures of
restrictions, pledges, or liens.

10-4
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Education.
Chapter 10 - Finance and Investment Cycle

10.10 Some of the typical areas for concern in the investment accounts are:

• Valuation of investments at cost, market, or value impairment that is other than temporary.

• Determination of significant influence relationship for equity method investments.

• Impairment of goodwill.

• Capitalization and continuing valuation of intangibles and deferred charges.

• Propriety, effectiveness, and risk disclosure of derivative securities used as a hedge of exposure to
changes in fair value (fair value hedge), variability in cash flows (cash flow hedge), or fluctuations in
foreign currency.

• Determination of the fair value of derivatives and securities, including valuation models and the
reasonableness of key assumptions.

• Realistic distinctions of research, feasibility, and production milestones for capitalization of software
development costs.

• Adequate disclosure of restrictions, pledges, or liens related to investment assets.

10.11 Securities held by trustees or brokers should be confirmed, and the confirmation request should seek the
same descriptive information as that obtained in a physical inspection by the auditor. That is, the name of
the company, number and class of shares, and any restrictions on the stock. The broker can also confirm the
market value and the trading activity in the securities for the period.

10.12 As a starting point for auditing fair value estimates, auditors will typically attempt to understand the client’s
process for creating the fair value estimate. To this end, auditors can make these inquiries:

• Who prepares estimates?

• When are they prepared?
• What data is used?
• Who reviews and approves the estimates?
• Have you compared prior estimates with subsequent actual events?

Once an understanding of the estimation process is obtained, auditing fair value measurements is similar to
auditing other accounting estimates. Substantive procedures for auditing accounting estimates include
determining whether (1) the valuation principles are acceptable under the financial reporting framework, (2)
the valuation principles are consistently applied, (3) the valuation principles are supported by the underlying
documentation, and (4) the method of estimation and the significant assumptions are properly disclosed
according to GAAP.

10.13 Some of the typical assertions found in owners’ equity descriptions and account balances are:

• The number of shares shown as issued is in fact issued.

• No other shares (including options, warrants, and the like) have been issued and not recorded or
reflected in the accounts and disclosures.

• The accounting is proper for options, warrants, and other stock issue plans, and related disclosures
are adequate.

• The valuation of shares issued for noncash consideration is proper in conformity with accounting
principles.

10-5
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Chapter 10 - Finance and Investment Cycle

• The board of directors has authorized all owners’ equity transactions.

10.14 Some of the important assertions found in the long-term liability accounts are:

• All material long-term liabilities are recorded.

• Liabilities are properly classified according to their current or long-term status. The current
portion of long-term debt is properly valued and classified.

• New long-term liabilities and debt extinguishments are properly authorized.

• Terms, conditions, and restrictions relating to noncurrent debt are adequately disclosed.

• Disclosures of maturities for the next five years and the capital and operating lease disclosures are
accurate and adequate.

• All important contingencies are either accrued in the accounts or disclosed in footnotes.

• Liabilities are appropriate valued.

10-6
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Education.
Chapter 10 - Finance and Investment Cycle

10.15 a. Confirmations for stockholder equity: Capital stock may be subject to confirmation when
independent registrars and transfer agents are employed. Such agents are responsible for knowing the
number of shares authorized and issued and for keeping lists of stockholders’ names. The basic information
about capital stock, such as number of shares, classes of stock, preferred dividend rates, conversion terms,
dividend payments, shares held in the company name, expiration dates, and terms of warrants and stock
dividends and splits, can be confirmed with the independent agents. Many of these items can be
corroborated by the auditors’ own inspection and reading of stock certificates, charter authorizations,
directors’ minutes, and registration statements. However, when there are no independent agents, most audit
evidence is gathered by vouching stock record documents (such as certificate book stubs). When
circumstances call for extended procedures, information on outstanding stock (very small, closely held
companies) may be confirmed directly with the holders.

b. Notes and bonds payable: Written confirmations are usually obtained from the independent
parties. If the notes are payable to banks, the standard bank confirmation may be used. Formal debt
instruments can be confirmed by letter to the holder or his or her agent. The confirmation requests should
include questions of amount, interest rate, due date, collateral, restrictive covenants, and other terms. To aid
in the search for unrecorded liabilities, confirmation requests should be sent to lenders with whom the
company has done business in the recent past even if no liability balance is shown at the confirmation date.

10.16 The information that can be confirmed when independent registrars and transfer agents are utilized by the
client include the items as features of interest in the answer to review question 10.9. Many of these items
can be corroborated by the auditors inspecting the reports from these agents, reading the minutes of the
directors, and reading prospectuses.

10.17 Off-balance-sheet information refers to information that relates to obligations and commitments assumed
by the clients that do not appear on the balance sheet as current or long-term liabilities. Such information
should be disclosed by the client in the footnotes to the financial statements. Therefore, the auditors must
be alert to these items and gather evidence that will allow the auditors to determine whether the footnote
disclosure is adequate. Such information includes leases, endorsements on discounted notes or others’
obligations, guarantees, repurchase or remarketing agreements, commitments to purchase at fixed prices,
commitments to sell at fixed prices, legal judgment, litigation, and pending litigation.

10.18 If a company does not monitor notes payable for due dates and interest payment dates in relation to
financial statement dates, these misstatements can appear in the financial statements:

• Understated interest expense and understated current liabilities resulting from failure to accrue
interest expense.

• Understated current liabilities and overstated long-term debt resulting from failure to classify the
“current portion of long-term debt” in current liabilities.

10.19 The unfortunate auditors learned that they should know about the requirements of the securities acts, they
should use experts in the area if they do not have expertise themselves, and they can ask the SEC for advice
in advance.

When suspecting violation of U.S. securities laws (SEC), an auditor should take the factual and descriptive
information to a competent attorney for review and an opinion. Auditors can advise company management
to consult with the SEC about the necessity for conforming to the law in connection with contemplated
transactions.

10.20 Auditors could discover the off-balance-sheet financing described in Case 10.2 (“Off-Balance Sheet
Inventory Financing”) by (1) making inquiries about large and unusual financing transactions, (2) noticing
the large “sale” transaction when performing analytical comparisons of monthly or seasonal sales, (3)
examining the sales contract, (4) discussing with management the business purpose of the transaction, and

10-7
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Education.
Chapter 10 - Finance and Investment Cycle

(5) inquiring in secretary of state records for identification of customer company incorporators and
registered agent.

10.21 Related parties might inflate values with spurious transactions, finally putting them in financial statements
of an auditee (“Go for the Gold” case).

10-8
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Chapter 10 - Finance and Investment Cycle

10.22 First, it is essential that the auditors have expertise in the client’s industry. When such expertise is lacking,
the auditors must secure the necessary knowledge by hiring knowledgeable personnel or a consultant with
the appropriate knowledge. Second, the auditor must take into account the historical nature of films of this
type. While management may expect one film to be as successful as recent films of a similar genre, the
auditor must take into account the full range of successful and unsuccessful films. A statistical analysis
could generate a range of values, which the auditor may use. Within this range, the auditor would likely
take a conservative estimate. This may be at odds with management who may want to take a more
aggressive approach to the revenue estimate. Third, the auditors must analyze the assumptions used by
management to reach their estimates. These assumptions may be based on overly optimistic projection of
ticket sales, DVD sales, and other merchandising agreements.

SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS

10.23 a. Incorrect Because of the large amounts of the items, a substantive approach is preferred.
b. Incorrect Auditors can never ignore internal controls.
c. Correct Controls must be reviewed (and tested for public companies); however, a
substantive approach is preferred.
d. Incorrect This would be the least effective approach.

10.24 a. Correct This is the purpose of covenants.

b. Incorrect The covenants are to protect the lender.
c. Incorrect Auditors are not involved in structuring client transactions.
d. Incorrect The board of directors should protect the shareholders from too much debt.

10.25 a. Incorrect This is a related party, but the definition is incomplete.

b. Incorrect This is a related party, but the definition is incomplete.
c. Correct This is the complete definition.
d. Incorrect This is a related party, but the definition is incomplete.

10.26 a. Incorrect This ignores accruals.

b. Incorrect This procedure does not lend itself to statistical sampling because of the low
volume of transactions.
c. Incorrect This also ignores dividends receivable.
d. Correct Independent evidence from an outside dividend reporting service is the best
evidence for existence, completeness, and valuation.

10.27 a. Incorrect This should be prevented by controls, not the audit.

b. Incorrect See answer (a).
c. Correct The danger is that someone might move securities so the auditor counts them
twice.
d. Incorrect This is a danger, but audits cannot be relied upon to detect counterfeit securities.

10.28 a. Incorrect Related parties can own the bonds, but their ownership must be disclosed.
b. Incorrect This is not the responsibility of external auditors.
c. Incorrect This is not a primary responsibility of external auditors.
d. Correct Among the choices available, obtaining an opinion from legal counsel is the best
response. The legality of a bond issue is important although not the only
important thing.

10-9
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Chapter 10 - Finance and Investment Cycle

10.29 a. Incorrect A company does not necessarily need to use a transfer agent.
b. Incorrect These are usually approved by directors.
c. Incorrect Stock dividends are recorded at fair market value.
d. Correct Capital stock transactions are important by definition, and the directors should
have approved all of them.

10.30 a. Incorrect The approximate market value should be shown as the account balance on the
balance sheet, not in parentheses.
b. Incorrect The classification of the investment is determined by the maturity or intent, not
by the profitability of the investment.
c. Correct Losses on investment should be recorded in the accounts and shown in the
financial statements. (Losses on trading securities in the income statement; loss
on available-for-sale securities in the equity section.)
d. Incorrect The loss would not be shown separately in the equity section of the balance
sheet.

10.31 a. Incorrect This is a substantive test that has little to do with controls.
b. Incorrect Prepaid expense would have to be calculated based on the payment date.
c. Incorrect This might provide evidence regarding imputed interest expense, but only if all
liabilities are recorded. Imputed interest generally requires a detailed test
considering the specific terms of the debt.
d. Correct “Detect unrecorded liabilities” is the best response, but remember that the
procedure might be ineffective if the interest expense on an unrecorded liability
is also unrecorded.

10.32 a. Incorrect This is somewhat true because the bank won’t let the auditor in without
permission. However, (d) is more important.
b. Incorrect It is unlikely that either would be able to detect forged securities.
c. Incorrect The auditor could do this without the client.
d. Correct A client representative should be present to acknowledge return so the auditor
will not be accused of theft.

10.33 a. Correct Stock certificates should be defaced but retained so the auditors can actually see
the canceled certificate.
b. Incorrect See (a).
c. Incorrect The defaced certificates should be retained so the auditors can see that they have
not been issued.
d. Incorrect See (c).

10.34 a. Incorrect Registrar/transfer agent has no record of restrictions on the payment of

dividends.
b. Correct The number of shares issued and outstanding is the record kept by the
registrar/transfer agent.
c. Incorrect Registrar/transfer agent has no record of guarantees of preferred stock
liquidation value.
d. Incorrect Registrar/transfer agent has no record of the number of shares subject to
agreements to repurchase.

10.35 a. Correct Capital stock transactions are important by definition, and the directors should
have approved all of them.
b. Incorrect Sales of stock should be traced to cash receipts, but not necessarily other
transactions.
c. Incorrect Purchases of treasury stock should be traced to cash disbursements, but not
sales.
d. Incorrect If shares are sold, the numbered certificates will not be available.

10-10
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Chapter 10 - Finance and Investment Cycle

10.36 a. Incorrect Stock splits have no effect on retained earnings.

b. Incorrect This would not go to beginning balance of retained earnings.
c. Correct These should be authorized by the board of directors.
d. Correct Gain or loss on treasury stock transactions should be audited.

10-11
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Chapter 10 - Finance and Investment Cycle

10.37 a. Correct To conceal fraud related to marketable securities, collusion between those
responsible for record keeping and custody would be required. The possibility of
collusion is reduced if no direct contact between responsible parties exists.
b. Incorrect Securities must be registered in the name of the company.
c. Incorrect Custody and authorization are incompatible duties.
d. Incorrect How the trust company secures the assets has nothing to do with preventing
fraud at the company.

10.38 a. Incorrect This ignores accruals.

b. Incorrect The interest earned depends on the effective rate, not the face rate.
c. Correct The audit program for long-term investments includes making an independent
computation of revenue (such as dividends and interest). For example, bond
certificates contain information about interest rates, payment dates, issue date,
and face amount that the auditor can use to recalculate bond interest earned,
including amounts accrued but not collected, during the period the auditee has
held the investment.
d. Incorrect See (a).

10.39 a. Incorrect Banks do not open safe deposit boxes.

b. Incorrect Auditors normally do not rely on tests of transactions for securities. The auditor
normally needs to count the certificates.
c. Incorrect Banks do not know what is added to or removed from safety deposit boxes.
d. Correct Securities should be inspected simultaneously with the verification of cash and
the count of other liquid assets to prevent transfers among asset categories for
the purpose of concealing a shortage. If this procedure is not possible but the
securities are kept by a custodian in a bank safe deposit box, the client may
instruct the custodian that no one is to have access to the securities unless in the
presence of the auditor. Thus, when finally inspecting the securities, the auditor
may conclude that they represent what was on hand at the balance-sheet date.

10.40 a. Incorrect This is not a suitable objective for analytical procedures because gains and
losses can result from unique circumstances.
b. Correct The auditor may develop expectations regarding the completeness assertion for
unrecorded investment income from stocks by using dividend records published
by standard investment advisory services to recompute dividends received.
Interest income from bond investments can be calculated from interest rates and
payment dates noted on the certificates. Income from equity-based investments
can be estimated from audited financial statements of the investees. Thus,
applying an expected rate of return to the net investment amount may be an
effective means of estimating total investment income.
c. Incorrect The auditor must evaluate management’s plans for the securities.
d. Incorrect This is not a suitable objective for analytical procedures because market prices
are volatile and difficult to predict.

10.41 a. Incorrect If bonds are unrecorded, nothing will show up in bond premium or discount.
b. Incorrect This has nothing to do with completeness of bonds payable.
c. Correct The recorded interest expense should reconcile with the outstanding bonds
payable. If interest expense appears excessive relative to the recorded bonds
payable, unrecorded long-term liabilities may exist.
d. Incorrect If the payable account is incomplete, the bond will not be on the listing the
auditor uses to select confirmations.

10-12
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Chapter 10 - Finance and Investment Cycle

10.42 a. Incorrect Held-to-maturity debt is recorded at cost.

b. Correct By reconciling interest expense with interest-bearing obligations, the auditor
verifies the amount of outstanding liabilities. If interest expense is excessive in
relation to the long-term debt, unrecorded interest-bearing obligations may be
outstanding.
c. Incorrect The auditor is usually less concerned about existence than completeness.
d. Incorrect If the bond is unrecorded, it will not be in the ledger.

10.43 a. Incorrect This is a management decision.

b. Incorrect This might be a good cash disbursements control, but (d) is more important.
c. Incorrect This is a management decision.
d. Correct Control is enhanced when different persons or departments authorize, record,
and maintain custody of assets for a class of transactions. Authorization of notes
payable transactions is best done by the board of directors.

10.44 d. Correct Events such as the renewal of the note payable do not require adjustment of the
financial statements but may require disclosure. Accordingly, the auditor should
determine that the renewal had essentially the same terms and conditions as the
recorded debt at year-end. A significant change may affect the presentation of
notes payable such as a reclassification from short term to long term.

10.45 a. Incorrect Review of minutes for authorization is an important audit procedure.

b. Correct The registrar would not have information related to the investor or market
information.
c. Incorrect The broker in particular would have information on the sale of investments to
the client.
d. Incorrect Determining market value is an important audit procedure.

10.46 a. Incorrect Review of minutes for authorization is an important audit procedure.

b. Incorrect The registrar would have record of stock sold.
c. Correct Market price is not important in valuing shareholder’s equity.
d. Incorrect Obtaining management representation is an important procedure.

10.47 a. Incorrect There is no evidence that the certificates are forgeries.

b. Correct The main concern is that someone sold the IBM securities (in order to use the
cash) and repurchased the securities at a later date. This may have been done for
personal use or for the company.
c. Incorrect There is no evidence that the securities are not properly presented on the balance
sheet.
d. Incorrect The fact that there is a certificate for IBM stock indicates that the company still
owns 100 shares of IBM.

10-13
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Chapter 10 - Finance and Investment Cycle

SOLUTIONS FOR EXERCISES, PROBLEMS, AND SIMULATIONS

10.48 Internal Control Questionnaire for Equity Investments

The three questions in the problem can be called “environment” questions. Questions specific to
management assertions are:

Existence or Occurrence

a. Are marketable securities investment transactions supported by invoices from brokers or other
documents supporting securities not obtained through brokers?

b. For investments held by the company, are CUSIP numbers recorded for each certificate and are
the CUSIP numbers periodically compared to the securities being held?

Completeness

c. Do the cash disbursements procedures contain directions for identifying and accounting for
investments in marketable securities?

d. Are subsidiary records of investments kept? Are they reconciled periodically with a control
account? Are sales proceeds analyzed to account for gains and losses?

Rights and Obligations

e. Are securities recorded in the company’s name or in broker accounts in the company name?

Valuation or Allocation

f. Are investments representing control over investees accounted for by the equity method?

g. Does the controller approve investment security transactions for proper calculation of interest
purchased in bond transactions, special terms of options, warrants, and other features of complicated
investment securities?

h. Does the controller’s office receive notice of dividends declared in companies in which
investments are held so accounting can match the proper period? Do accountants have instructions to
accrue interest to the date of the financial statements?

Presentation and Disclosure

i. Does the board of directors, vice president of finance, or treasurer indicate in writing the intent of
the management in connection with classifying investment securities?

10-14
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Education.
Chapter 10 - Finance and Investment Cycle

10.49 Investment Securities

a. The objectives (specific assertions) for the audit of investment securities are to obtain evidence
regarding the:

• Existence of the investment securities at the balance-sheet date.

• Ownership of the investment securities.
• Accurate cost and market value of the investment securities.
• Proper classification of the investment securities.
• Proper presentation and disclosure of the investment securities in the financial statements.
• Proper recognition of interest income.
• Proper recognition of investment gains and losses.

b. The following audit procedures should be undertaken with respect to the audit evidence for
existence and cost valuation of Bass’s held-to-maturity investment securities:

• Inspect and count securities in the company’s safe and safe deposit box.
• Examine brokers’ statements to obtain assurance that all transactions were recorded.
• Examine documents in support of purchases and sales of investment securities.
• Inspect the minutes of the board of directors meetings.
• Obtain a client representation letter that confirms the client’s representations concerning
the held-to-maturity investment securities.
• Verify the calculation of interest income.
• Review the propriety of the presentation and disclosure of the securities in the financial
statements.
• Make certain that the client representation letter includes the proper assertions concerning
the securities portfolio.

c. The following audit procedures should be undertaken with respect to the audit evidence regarding
Bass’s controlling equity investment in Commercial Industrial, Inc.

• Inspect and count securities in the company’s safe and safe deposit box.
• Examine documents in support of purchases and sales of investment securities.
• Inspect the minutes of the board of directors meetings.
• Review the audited financial statements of the (25 percent) investee.
• Verify that the equity method of accounting was used for carrying value of the
investment in Commercial Industrial.
• Obtain a client representation letter that confirms the client’s representations concerning
the controlling interest.
• Verify the calculation equity method income.
• Review the propriety of the presentation and disclosure of the securities in the financial
statements.
• Make certain that the client representation letter includes the proper assertions concerning
the controlling interest.

10-15
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Other documents randomly have
different content
 [1299] A 255 = B 310-11.
[1300] Cf. below, p. 412 ff.
[1301] A 256 = B 312. For A 257 = B 312 on the empirical manner of
distinguishing between the sensuous and the intelligible, cf. above, pp. 143 ff., 149 ff.
[1302] Cf. above, pp. 143-4, 147, 214-15, 291 ff.
[1303] Kant here (A 286 = B 342) speaks of this concept of the noumenon as an
object of non-sensuous intuition as being “merely negative.” This is apt to confuse the
reader, as he usually comes to it after having read the passage introduced into the
chapter on Phenomena and Noumena in the second edition, in which, as above noted
(p. 409), Kant describes this meaning of the term as positive, in distinction from its
more negative meaning as signifying a thing merely so far as it is not an object of our
sense-intuition. Cf. below, p. 413.
[1304] Kant’s meaning here is not quite clear. He may mean either that the
categories as such are inapplicable to things in themselves, or that, as this form of
intuition is altogether different from our own, it will not help in giving meaning to the
categories. What follows would seem to point to the former view.
[1305] A 286 = B 343.
[1306] A 287-8 = B 344.
[1307] A 288 = B 345.
[1308] A 288 = B 344. Kant allowed the section within which this passage occurs
to remain, without the least modification, in the second edition.
[1309] Benno Erdmann’s explanation (Kriticismus, p. 194) of Kant’s omission of
all references to the transcendental object, namely, because of their being likely to
conduce to a mistaken idealistic interpretation of his teaching, we cannot accept. As
already argued (above, p. 204 ff.), they represent a view which he had quite definitely
and consciously outgrown.
[1310] B 306. Cf. above, pp. 290-1.
[1311] B 308. This, it may be noted, is in keeping with the passages above quoted
from the section on Amphiboly.
[1312] A 255 = B 311.
[1313] Cf. above, p. 404 ff., especially pp. 409-10; also above, p. 331.
[1314] In order to form an adequate judgment upon Kant’s justification for
distinguishing between appearance and reality the reader must bear in mind (1) the
results obtained in the Transcendental Deduction (above, p. 270 ff.); (2) the
discussions developed in the Paralogisms (below, p. 457 ff.); (3) the treatment of
noumenal causality, that is of freedom, in the Third and Fourth Antinomies; (4) the
many connected issues raised in the Ideal (below, pp. 534-7, 541-2), and in the
Appendix to the Dialectic (below, p. 543 ff.). Professor Dawes Hicks is justified in
maintaining in his book, die Begriffe Phänomenon und Noumenon in ihrem
Verhältniss zu einander bei Kant (Leipzig, 1897, p. 167)—a work which
unfortunately is not accessible to the English reader—that “the thing in itself is by no
means a mere excrescence or addendum of the Kantian system, but forms a
thoroughly necessary completion to the doctrine of appearances. At every turn in
Kant’s thought the doctrine of the noumenon, in one form or another, plays an
essential part.” Indeed it may be said that to state Kant’s reasons for asserting the
existence of things in themselves, is to expound his philosophy as a whole. Upon this
question there appears in Kant the same alternation of view as in regard to his other
main tenets. On Kant’s discussion of the applicability of the category of existence to
things in themselves, cf. above, p. 322 ff. Also, on Kant’s extension of the concepts
possibility and actuality to noumena, cf. above, pp. 391 ff., 401-3.
[1315] ‘Ideal’ and ‘Idealist’ are printed with capitals, to mark the very special
sense in which these terms are being used. As already noted (above, p. 3), the same
remark applies to the term ‘Reason.’
[1316] Cf. above, pp. xli-ii, xliv, liii-v, 331.
[1317] A 260 ff. = B 316 ff.
[1318] Cf. above, pp. 38-9, 119, 131-3, 338-9, 394-400.
[1319] Above, p. xxx ff., and below, p. 601 ff.
[1320] Cf. A 267 = B 323.
[1321] Cf. Adickes’ Systematik, pp. 60, 70, 72, and 111-12.
[1322] A 270 = B 326.
[1323] Cf. A 264 = B 319, and A 266 = B 322.
[1324] Cf. below, pp. 563-5, 589 ff., 601 ff.
[1325] I have dwelt upon this at length in my Studies in the Cartesian Philosophy.
[1326] A 271 = B 327.
[1327] The un-Critical character of Kant’s doctrine of the pure concept has already
been noted (above, pp. 418-19), and need not be further discussed.
[1328] A 272 = B 328.
[1329] A 273 = B 329.
[1330] This is Leibniz’s mode of stating the absolutist view of thought (cf. above,
p. xxx ff.) to which, as we shall find, Kant gives much more adequate and
incomparably deeper formulation in the Dialectic. Cf. pp. 430, 547 ff., 558 ff.
[1331] Adickes, K. p. 272 n., allows that the passage may be of earlier origin than
the passages which precede and follow it.
[1332] Pp. 214-15.
 [1333] As such it is commented on above, p. 410 ff.
[1334] Loc. cit.
[1335] A 290 = B 347.
[1336] Cf. above, p. 409 ff.
[1337] Kant’s commentators have frequently misrepresented this aspect of his
teaching. Cf. below, pp. 498, 520-1, 527-37, 541-2, 543 ff., 555, 558-61.
[1338] A 490 = B 518.
[1339] Cf. above, pp. 416-17.
[1340] Those readers who are not already well acquainted with the argument of the
Dialectic may be recommended to pass at once to p. 441. What here follows
presupposes acquaintance with the nature and purposes of the main divisions of the
Dialectic.
[1341] Introd. to Reflexionen, Bd. ii.
[1342] W. x. p. 123 ff. Cf. above, pp. 219-20.
[1343] Cf. Dissertation, § 27 n.
[1344] Op. cit. Cf. § 24 with § 27.
[1345] Op. cit. § 27.
[1346] Cf. ii. 567, 571, 584, 585.
[1347] Cf. ii. 1251 and 586.
[1348] Cf. below, pp. 458, 488 ff.
[1349] In Reflexionen ii. 573, 576, and 582 we find Kant in the very act of so
doing. Compositio, co-ordinatio, and commercium are treated as synonymous terms.
[1350] The problem of freedom is first met with in Kant’s Lectures on Metaphysics
(Pölitz, edition of 1821, pp. 89, 330), but is not there given as an antinomy, and is
treated as falling within the field of theology. In Reflexion ii. 585, also, it is equated in
terms of the category of ground and consequence, with the concept of Divine
Existence, the “absolute or primum contingens (libertas).” Upon elimination of
theology, and therefore of the cosmological argument, from the sphere of antinomy,
Kant raised freedom to the rank of an independent problem.
[1351] A 462 = B 490.
[1352] Cf. below, pp. 498-9, 571 ff.
[1353] Cf. below, p. 454, with references in n. 1.
[1354] A 507 = B 535. Cf. below, pp. 481, 545-6.
[1355] Cf. ii. 93, 94, 95, 1233, 1247.
 [1356] This is the view represented in Reflexionen ii. 94, 95.
[1357] Cf. Reflexionen ii. 124.
[1358] Cf. Reflexionen ii. 95.
[1359] Cf. below, p. 457.
[1360] Cf. ii. 86 ff.
[1361] Cf. Reflexionen ii. 114-15.
[1362] B 394 n. Immortality is here taken as representing the Idea of the soul as
unconditioned substance.
[1363] Cf. below, p. 454, with further references in n. 1.
[1364] Systematik, pp. 115-16.
[1365] Above, p. 334.
[1366] This conclusion is supported by the evidence of the Reflexionen: they
contain not a single reference to schematism.
[1367] A 293 = B 349.
[1368] Pp. 173-4.
[1369] Cf. A 61 = B 85.
[1370] Adickes, Systematik, p. 77 ff.
[1371] Cf. Kant’s caveat in A 293 = B 349 against identifying dialectic with the
doctrine of probable reasoning.
[1372] Pp. 427-8.
[1373] A 298 = B 355.
[1374] Cf. above, p. 332.
[1375] Reicke, i. p. 105.
[1376] Op. cit. i. pp. 109-10.
[1377] A 301-2 = B 358.
[1378] A 303 = B 359.
[1379] A 305 = B 362.
[1380] The wording of the concluding sentence of the third paragraph (A 307 = B
363-4) is so condensed as to be misleading. “It [viz. the principle of causality] makes
the unity of experience possible, and borrows nothing from the Reason. The latter, if
it were not for this [its indirect] reference [through mediation of the understanding] to
possible experience, could never [of itself], from mere concepts, have imposed a
synthetic unity of that kind.”
[1381] A 310 = B 366.
[1382] Schein des Schliessens would seem to be here used in that sense.
 [1383] Cf. above, p. 424.
[1384] Cf. also A 669 = B 697; A 680 = B 709.
[1385] Cf. Vaihinger, “Kant—ein Metaphysiker?” in Philosophische
Abhandlungen (Sigwart Gedenkschrift), p. 144.
[1386] A 312 = B 368.
[1387] A 313 = B 370.
[1388] A 316-17 = B 373. The context of this passage is a defence of Plato’s
Republic against the charge that it is Utopian, because unrealisable.
[1389] A 317-18 = B 374-5.
[1390] Reflexionen ii. 1240. Cf. Schopenhauer: World as Will and Idea (Werke, ii.
p. 277: Eng. trans. i. p. 303): “The Idea is the unity that falls into multiplicity on
account of the temporal and spatial form of our intuitive apprehension; the concept,
on the contrary, is the unity reconstructed out of multiplicity by the abstraction of our
reason; the latter may be defined as unitas post rem, the former as unitas ante rem.”
[1391] Lectures on Metaphysics (Pölitz, 1821), p. 79.
[1392] Reflexionen ii. 1243.
[1393] Lectures on Metaphysics, pp. 308-9.
[1394] Reflexionen ii. 1244.
[1395] Reflexionen ii. 1254.
[1396] Reflexionen ii. 1258.
[1397] Reflexionen ii. 1259.
[1398] Reflexionen ii. 1260.
[1399] A 320 = B 376-7.
[1400] A 321 = B 377.
[1401] A 323-4 = B 380-1. Cf. below, pp. 480, 529, 559-60.
[1402] Regarding the progressive series from the conditioned to its consequences,
cf. A 336-7 = B 393-4, A 410-11 = B 437-8, A 511 = B 539.
[1403] A 333 = B 390.
[1404] Cf. above, pp. 418, 436, 439-40; below, pp. 473-7, 520-1, 537, 543 ff., 575.
[1405] Cf. A 335.
[1406] Cf. A 337-8 = B 394-6 and note appended to B 394.
[1407] A 336 = B 393.
[1408] Cf. A 671 = B 699; above, pp. 426, 430, 436; below, pp. 552-4, 572 ff.
[1409] On the difference between the ascending and the descending series, cf. A
331-2 = B 338 and A 410-11 = B 437-8.
 [1410] The questions raised in the two introductory paragraphs (A 336-40 = B 396-
8) as to the content of the Ideas, their problematic character, and their possibility as
concepts, are first adequately discussed in later chapters. The three new terms here
introduced, Paralogism, Antinomy, and Ideal, can also best be commented upon in
their own special context.
[1411] A 341 = B 399.
[1412] Cf. below, pp. 466, 470.
[1413] A 347.
[1414] A 345-6 = B 403-4.
[1415] Cf. A 354-5.
[1416] Cf. above, p. 437.
[1417] A 348.
[1418] A 351.
[1419] A 363-4.
[1420] A 351.
[1421] K. 688 n.
[1422] A similar criticism holds true of the conception of identity employed in the
third Paralogism, and arbitrarily equated with the categories of quantity.
[1423] Cf. A 355-6.
[1424] It is very forcibly developed in Mendelssohn’s “Phädon” (1767)
(Gesammelte Schriften, 1843, ii. p. 151 ff.). This is a work with which Kant was
familiar. Cf. below, p. 470.
[1425] This is the argument which William James has expounded in his
characteristically picturesque style. “Take a sentence of a dozen words, and take
twelve men and tell to each one word. Then stand the men in a row or jam them in a
bunch, and let each think of his word as intently as he will; nowhere will there be a
consciousness of the whole sentence” (Principles of Psychology, i. p. 160).
[1426] A 363 n. Cf. below, pp. 461-2.
[1427] A 356. Cf. Adickes, K. p. 688 n.
[1428] The argument is here in harmony with Kant’s definition of transcendental
illusion.
[1429] A 358.
[1430] A 361.
[1431] A 364.
[1432] William James’s psychological description of self-consciousness is simply
an extension of this illustration. Cf. Principles of Psychology, i. p. 339; quoted above,
p. 278 n.
[1433] A 363 n.
[1434] A 362-3 and A 364. We must also, however, bear in mind that in this
chapter Kant occasionally argues in ad hominem fashion from the point of view of the
position criticised.
[1435] Cf. A 353-4.
[1436] Cf. Adickes, K. p. 695 n.
[1437] A 366.
[1438] P. 301 ff.
[1439] The note to A 344 has evidently got displaced; it must, as Adickes points
out, belong to A 404.
[1440] Cf. above, pp. 320, 455.
[1441] A 371-2.
[1442] A 380-1.
[1443] Cf. A 383.
[1444] A 383.
[1445] A 383.
[1446] A 381.
[1447] The first four paragraphs are probably a later intercalation (Adickes, K. p.
708 n.), since they connect both with the introductory sections of the Dialectic and
with the Introduction to the Critique. Also, the opening words of the fifth paragraph
seem to refer us not to anything antecedent in this section, but directly to the
concluding passages of the fourth Paralogism.
[1448] A 385.
[1449] A 393.
[1450] A 387.
[1451] Cf. above, pp. 215-16.
[1452] A 393-4.
[1453] A 394.
[1454] Pp. 326-7.
[1455] Pp. 327-8.
[1456] A 402. Cf. B 407.
[1457] K. p. 717 n.
[1458] Cf. below, p. 470.
[1459] B 406 ff.
 [1460] Kriticismus, p. 227, cf. p. 106 ff.
[1461] A. H. Ulrichs, Institutiones logicae et metaphysicae (1785).
[1462] In his review of Kant’s Prolegomena in the Allgemeine Deutsche Bibliothek
(1784).
[1463] Obviously by categories Kant here really means schemata. Cf. A 348,
where Kant states that “pure categories ... have in themselves no objective meaning....
Apart from intuition they are merely functions of a judgment, without content.”
[1464] Above, pp. 404 ff., 413 ff.
[1465] B 408.
[1466] Critical Philosophy, ii. p. 34. So also in Watson’s Kant Explained, p. 244.
[1467] Caird (op. cit. p. 35) takes account of Kant’s conception of a possible
intuitive understanding, but illegitimately assumes that by it he must mean a creative
understanding.
[1468] Cf. above, p. 295 ff.
[1469] Cf. B 415 n. In B xxxix. n. (at the end), quoted above pp. 309-10, Kant is
careful to point out that the representation of something permanent is by no means
identical with permanent representation.
[1470] P. 463.
[1471] Namely, as Refutation of Idealism, B 274 ff. Cf. above, p. 308 ff.
[1472] Cf. above, pp. 457, 462-3.
[1473] A 402.
[1474] Cf. above, p. 466.
[1475] B 413-15.
[1476] Gesammelte Schriften, ii. p. 151 ff.
[1477] Op. cit. p. 121 ff.
[1478] Op. cit. pp. 128 ff., 168.
[1479] Op. cit. p. 125 ff.
[1480] Regarding the value of the hypotheses propounded by Kant in his note to B
415, cf. below, p. 543 ff.
[1481] P. 321 ff.
[1482] Cf. above, p. 467.
[1483] Pp. 473-7.
[1484] Kriticismus, p. 226.
[1485] B 424.
[1486] B 421.
 [1487] B 424-5.
[1488] B 425-6. Cf. above, pp. lvi-lxi; below, p. 570 ff.
[1489] The only approach to such a reference is in B 426-7, noted above, p. 471.
[1490] A 672 = B 700. Cf. below, p. 554.
[1491] A 649 = B 677-8. Tetens in his Philosophische Versuche (1777) had devoted
an entire chapter to this question. His term Grundkraft is that which Kant here
employs. Cf. Philosophische Versuche, Bd. i., Elfter Versuch: “Concerning the
fundamental power of the human soul.” Incidentally Tetens discusses Rousseau’s
suggestion that this fundamental power consists in man’s capacity for perfecting
himself. Cf. Kant’s Lectures on Metaphysics (Pölitz, 1821, p. 192 ff.).
[1492] A 682-4 = B 710-12. A 771-2 = B 799 in the Methodology is similarly
ambiguous, though tending to the spiritualist mode of formulation.
[1493] Cf. above, pp. 275-6, 279 ff., 312 ff., 384-5, 464-5.
[1494] Cf. end of B xxxix. n., quoted above, pp. 309-10.
[1495] A 405 = B 432.
[1496] A 408 = B 435.
[1497] Cf. A 414 = B 441, where it is stated that there is no transcendental Idea of
the substantial.
[1498] Cf. above, p. 434 ff.
[1499] A 419 = B 447.
[1500] A 420 = B 447.
[1501] A very curious sentence in Kant’s letter to Schulze (W. x. pp. 344-5, quoted
above, p. 199) seems to be traceable to this source.
[1502] Cf. below, pp. 529, 559-60, and above, pp. 199-200, 433-4, 451. For A 410-
11 = B 439-40 on the difference between the ascending and descending series, cf. A
331-2 = B 387-8 and A 336-7 = B 393-4.
[1503] A 420 = B 448.
[1504] Cf. per contra A 486 = B 514.
[1505] The limitation of Kant’s discussion to space, time, and causality is, of
course, due to his acceptance of the current view that the concepts of infinity and
continuity are derived from our intuitions of space and time. As we have already
noted in discussing his intuitional theory of mathematical reasoning (above, pp. 40-1,
117 ff., 128 ff.), he fails to extend to mathematical concepts his own “transcendental”
view of the categories, namely, as conditioning the possibility of intuitional
experience. Such concepts as order, plurality, whole and part, continuity, infinity, are
prior to time and space in the logical order of thought; and to be adequately treated
must be considered in their widest application.
 [1506] Cf. A 507 = B 535, and above, p. 431 ff.; below, pp. 501, 545-6.
[1507] Cf. Kant’s posthumously published Transition from the Metaphysical First
Principles of Natural Science to Physics (Altpreussische Monatsschrift, 1882), pp.
279-80: “If we take in regard to space, not its definition, but only an a priori
proposition, e.g. that space is a whole which must be thought only as part of a still
greater whole, it is clear ... that it is an irrational magnitude, measurable indeed, but in
its comparison with unity transcending all number.” “If space is something
objectively existent, it is a magnitude which can exist only as part of another given
magnitude.”
[1508] Cf. Schopenhauer, World as Will and Idea (Werke, Frauenstädt, ii. pp. 585-
6; Eng. trans, ii. pp. 107-8). “I find and assert that the whole antinomy is a mere
delusion, a sham fight. Only the assertions of the antitheses really rest upon the forms
of our faculty of knowledge, i.e. if we express it objectively, on the necessary, a priori
certain, most universal laws of nature. Their proofs alone are therefore drawn from
objective grounds. On the other hand, the assertions and proofs of the theses have no
other than a subjective ground, rest solely on the weakness of the reasoning
individual; for his imagination becomes tired with an endless regression, and
therefore he puts an end to it by arbitrary assumptions, which he tries to smooth over
as well as he can; and his judgment, moreover, is in this case paralysed by early and
deeply imprinted prejudices. On this account the proof of the thesis in all the four
conflicts is throughout a mere sophism, while that of the antithesis is a necessary
inference of the reason from the laws of the world as idea known to us a priori. It is,
moreover, only with great pains and skill that Kant is able to sustain the thesis, and
make it appear to attack its opponent, which is endowed with native power.... I shall
show that the proofs which Kant adduces of the individual theses are sophisms, while
those of the antitheses are quite fairly and correctly drawn from objective grounds.”
[1509] Cf. F. Erhardt’s Kritik der Kantischen Antinomienlehre (1888), a brief but
excellent analysis of this section of the Critique.
[1510] § 1 n.
[1511] Cf. A 431-2 = B 460-1: “...the concept [of the infinite] is not the concept of
a maximum; by it we think only its relation to any assignable unit, in respect to which
it is greater than all number.”
[1512] Cf. Kant’s statement in the Observation to this antithesis, A 431-3 = B 459-
61.
[1513] Kant regarded the point as a limit, i.e. as a boundary (Dissertation, § 14, 4;
§ 15, C: “The simple in space is not a part but a limit”; A 169-70 = B 211); whereas
certain modern mathematicians take the point as one of the undefined elements.
When the point is regarded in this latter manner, space may perhaps be satisfactorily
defined as a set of points. In arguing for the antithesis, and in the passages just cited,
Kant also assumes that, in the case of space, the properties of the class are determined
by the properties of its elements. This questionable assumption is involved in his
assertion that space can consist only of spaces.
[1514] A 438 = B 466.
[1515] A 439-41 = B 467-9.
[1516] A 441 = B 469.
[1517] Developed in the Dissertation (1770).
[1518] Zweites Hauptstück, Lehrsatz 4, Anmerkung 1. Cf. also Anmerkung 2.
[1519] Principles of Mathematics, i. p. 460.
[1520] Cf. above, p. 481 n. 2.
[1521] P. 489 n.
[1522] Cf. Schopenhauer, World as Will and Idea (Werke, Frauenstädt, ii. p. 590;
Eng. trans. ii. pp. 111-12). “The argument for the third thesis is a very fine sophism,
and is really Kant’s pretended principle of pure reason itself entirely unadulterated
and unchanged. It tries to prove the finiteness of the series of causes by saying that, in
order to be sufficient, a cause must contain the complete sum of the conditions from
which the succeeding state, the effect, proceeds. For the completeness of the
determinations present together in the state which is the cause, the argument now
substitutes the completeness of the series of causes by which that state itself was
brought to actuality; and because completeness presupposes the condition of being
rounded off or closed in, and this again presupposes finiteness, the argument infers
from this a first cause, closing the series and therefore unconditioned. But the
juggling is obvious. In order to conceive the state A as the sufficient cause of the state
B, I assume that it contains the sum of the necessary determinations from the
coexistence of which the state B inevitably follows. Now by this my demand upon it
as a sufficient cause is entirely satisfied, and has no direct connection with the
question how the state A itself came to be; this rather belongs to an entirely different
consideration, in which I regard the said state A no more as cause, but as itself an
effect; in which case another state again must be related to it, just as it was related to
B. The assumption of the finiteness of the series of causes and effects, and
accordingly of a first beginning, appears nowhere in this as necessary, any more than
the presentness of the present moment requires us to assume a beginning of time
itself.”
[1523] Op. cit. p. 24.
[1524] For comment upon Kant’s defence of his procedure cf. below, p. 496.
[1525] Cf. Kant’s Observation on the thesis.
[1526] A 451 = B 479.
[1527] Cf. also A 451 = B 479.
 [1528] Cf. Schopenhauer, op. cit. p. 591; Eng. trans. p. 113. “The fourth conflict is
... really tautological with the third; and the proof of the thesis is also essentially the
same as that of the preceding one. Kant’s assertion that every conditioned
presupposes a complete series of conditions, and therefore a series which ends with
an unconditioned, is a petitio principii which must simply be denied. Everything
conditioned presupposes nothing but its condition; that this is again conditioned raises
a new consideration which is not directly contained in the first.”
[1529] Above, p. 494.
[1530] A 459 = B 487.
[1531] Jean Jacques Dortous de Mairan (1678-1771), physicist and mathematician.
In 1740 he succeeded Fontenelle as perpetual Secretary of the French Academy of
Sciences.
[1532] Cf. above, pp. 435, 495 n. 4.
[1533] A 448-50 = B 476-8.
[1534] Cf. above, p. 427 ff.; below, pp. 520-1, 527-37, 541 ff.
[1535] A 462 = B 490.
[1536] Cf. above, pp. 434 ff., 479.
[1537] A 476 = B 504.
[1538] A 484 = B 512.
[1539] Ibid.
[1540] A 483 = B 511.
[1541] A 485 = B 513.
[1542] Cf. above, p. 481; below, pp. 545-6.
[1543] Kant is here playing on the double meaning of the German
“sinnleeres”—“empty of sense” and “non-sense.”
[1544] A 489 = B 517.
[1545] A 490 = B 518.
[1546] Above, p. 426 ff.
[1547] A 490 = B 518.
[1548] Cf. above p. 204 ff.
[1549] A 494 = B 522-3.
[1550] A 495 = B 523.
[1551] Cf. A 494 = B 522-3: “...we can say of the transcendental object that it is
given in itself prior to all experience.”
[1552] A 496 = B 524.
 [1553] A 491 = B 519.
[1554] Pp. 306-7.
[1555] A 497 = B 525.
[1556] A 501-2 = B 529-30.
[1557] A 506 = B 534.
[1558] Cf. end of passage: “There can be no lack of conditions that are given
through this regress.”
[1559] Cf. below, pp. 507-8.
[1560] Cf. below, pp. 507-9.
[1561] K. p. 414 n. The two last paragraphs of Section VII., which correct its
argument, that of the Transcendental Aesthetic, are probably later additions.
[1562] A 508 = B 536.
[1563] Loc. cit.
[1564] As to the distinction between the ascending and the descending series, cf.
above, pp. 453 n., 484.
[1565] Cf. A 522 = B 549-50.
[1566] A 514 = B 542.
[1567] Above, p. 506.
[1568] Cf. A 522 = B 550.
[1569] A 515 = B 543.
[1570] A 519-20 = B 547-8.
[1571] When Kant adds (A 521 = B 549), “and therefore absolutely also,” he
inconsistently reverts to the position ambiguously suggested in A 499 = B 527. Cf.
above, p. 506.
[1572] A 523-6 = B 551-4.
[1573] The assertion of infinite divisibility is not applicable, Kant states (A 526-7
= B 554-5), to bodies as organised, but only to bodies as mere occupants of space.
Organisation involves distinction of parts, and therefore discreteness. How far
organisation can go in organised bodies, experience alone can show us.
[1574] P. 508.
[1575] A 528 = B 556.
[1576] Cf. above, pp. 345-7.
[1577] A 535-6 = B 563-4.
[1578] Cf. A 537 = B 564-5; also A 546 = B 574-5, in which Kant asserts that man
knows himself not only through the senses but “also through pure apperception, and
indeed in actions and inner determinations which cannot be reckoned as impressions
of the senses.” Such statements would seem to show that, at the time of writing, Kant
had not yet developed his doctrine of inner sense.
[1579] A 532 = B 560.
[1580] A 536-7 = B 564-5.
[1581] A 533 = B 561.
[1582] A 536 = B 564.
[1583] A 538 = B 566.
[1584]Cf. Kant’s Uebergang von der metaph. Anfangsgründe der
Naturwissenschaft zur Physik (Altpreussische Monatsschrift (1882), pp. 272-3).
[1585] A 549 = B 577. Italics not in Kant.
[1586] In A 540 = B 568 a different and less satisfactory view finds expression.
[1587] A 542 = B 570.
[1588] A 544 = B 572.
[1589] A 546-7 = B 574-5.
[1590] A 548 = B 576.
[1591] A 552 = B 580.
[1592] A 553 = B 581.
[1593] A 557 = B 585.
[1594] A 553-4 = B 581-2.
[1595] Cf. A 537-41 = B 565-9 and A 544 = B 572.
[1596] Cf. A 566 = B 594.
[1597] Cf. above, p. 204 ff.
[1598] A 559 = B 587.
[1599] A 561 = B 589.
[1600] A 565 = B 593.
[1601] A 567 = B 593.
[1602] For Kant’s comparison of his Ideas with those of Plato, cf. above, pp. 447-
9.
[1603] §§ 803 ff. in 5th edition (Halle, 1763).
[1604] A 578 = B 606.
[1605] A 580 = B 608.
[1606] Cf. above, p. 418 ff.
[1607] A 272-4 = B 328-30.
 [1608] Cf. Kant’s distinction between distributive and collective unity in A 582-3 =
B 610 with A 644 = B 672.
[1609] A 583 = B 611.
[1610] A 603 = B 631.
[1611] A 603-4 = B 631-2.
[1612] Cf. below, pp. 533, 536.
[1613] A 592 = B 620.
[1614] A 593 = B 621.
[1615] Cf. A 4-5 = B 8-9; A 735-8 = B 763-6.
[1616] Cf. above, pp. 427-8, and references there given.
[1617] Cf. above, p. 424.
[1618] Cf. above, p. 392 ff.
[1619] K. p. 475 n.
[1620] A 603 = B 631.
[1621] Cf. above, p. 527. The concluding paragraphs A 613-14 = B 641-2 can best
be treated later in another connection. Cf. below, p. 536.
[1622] A 614 = B 642.
[1623] A 613 = B 641.
[1624] A 616 = B 644.
[1625] A 619-20 = B 647-8.
[1626] Cf. below, pp. 541-2, 552 ff.
[1627] A 620 = B 648.
[1628] A 624 = B 652.
[1629] Universal Natural History and Theory of the Heavens (1755).
[1630] Critique of Judgment, §§ 64, 65.
[1631] Hamann completed his translation of Hume’s Dialogues on Natural
Religion on August 7, 1780 (cf. Hamann’s Werke, vi. 154 ff.): and Kant,
notwithstanding his being occupied in finishing the Critique, read through the
manuscript. It is highly likely that this first perusal of Hume’s Dialogues not only
confirmed Kant in his negative attitude towards natural theology, but also enabled
him to define more clearly than he otherwise would have done, the negative
consequences of his own Critical principles. The chapter on the Ideal, as we have
already observed (above, pp. 434-5, 527-9, 531), was probably one of the last parts of
the Critique to be brought into final form. It does not seem possible, however, to
establish in any specific manner the exact influence which Hume’s Dialogues may
thus have exercised upon the argument of this portion of the Critique. When
Schreiter’s translation of the Dialogues appeared in 1781, Hamann, not unwilling to
escape the notoriety of seeming to father so sceptical a work, withdrew his own
translation.
[1632] This is the main point of Hume’s argument in Section XI. of his Enquiry
concerning the Human Understanding.
[1633] A 631 = B 659.
[1634] A 641 = B 669.
[1635] Cf. above, p. 407 ff., and below, p. 552 ff.
[1636] Cf. above, p. 454, with further references in n. 1.
[1637] Cf. above, pp. 536-7.
[1638] A 642 = B 670.
[1639] A 769-82 = B 797-810.
[1640] A xiv, B xxiii-iv, and Reflexionen ii. 1451: “In metaphysics there can be no
such thing as uncertainty.” Cf. above, pp. 10, 35.
[1641] A 770-1 = B 798-9.
[1642] A 772 = B 800.
[1643] A 775 = B 803.
[1644] Cf. A 781-2 = B 809-10.
[1645] Cf. above, pp. 481, 501.
[1646] A 777-8 = B 805-6.
[1647] A 782 = B 810.
[1648] Cf. above, pp. 97-8, 102, 390-1, 426 ff., 447 ff.
[1649] A 651 = B 679.
[1650] Loc. cit.
[1651] A 653 = B 681.
[1652] Dissertation, § 30.
[1653] The extremely un-Critical reason which Kant here (A 647 = B 675) gives
for its necessarily remaining hypothetical is the “impossibility of knowing all possible
consequences.” This use of the term hypothetical is also confusing in view of Kant’s
criticism of the hypothetical employment of Reason in A 769 ff. = B 797 ff.
[1654] A 647 = B 675.
[1655] Loc. cit. and A 649 = B 677.
[1656] A 648 = B 676.
[1657] A 652 = B 680.
[1658] A 660-1 = B 688-9.
 [1659] A 656 = B 684.
[1660] A 656 = B 684.
[1661] A 658 = B 686.
[1662] A 660 = B 688.
[1663] The opening paragraphs of the section, A 642-5 = B 670-3, may be of the
same date as the concluding paragraphs.
[1664] Cf. per contra A 669-70 = B 697-8.
[1665] A 666 = B 694.
[1666] A 669 = B 697.
[1667] Cf. above, pp. 446-7.
[1668] Cf. A 681 = B 709.
[1669] Cf. per contra A 663-4 = B 691-2.
[1670] A 670 = B 698.
[1671] I may here guard against misunderstanding. Though the Ideas of Reason
condition the experience which they regulate, this must not be taken as nullifying
Kant’s fundamental distinction between the regulative and the constitutive. Even
when he is developing his less sceptical view, he adopts, in metaphysics as in ethics, a
position which is radically distinct from that of Hegel. Though the moral ideal
represents reality of the highest order, it transcends all possible realisation of itself in
human life. Though it conditions all our morality, it at the same time condemns it.
The Christian virtue of humility defines the only attitude proper to the human soul. In
an exactly similar manner, the fact that the Ideas of Reason have to be regarded as
conditioning the possibility of sense-experience need not prevent us from also
recognising that they likewise make possible our consciousness of its limitations.
[1672] Cf. above, pp. 473-7.
[1673] A 679 = B 707.
[1674] A 678 = B 706.
[1675] A 674 = B 702. Cf. A 678-9 = B 706-7.
[1676] A 680 = B 708.
[1677] As above noted (pp. 499 ff.), when we find Kant thus insisting upon the
completely soluble character of all problems of pure Reason, the sceptical,
subjectivist tendency is dominant.
[1678] A 669 = B 697.
[1679] Cf. above, pp. 536-7, 541-2.
[1680] A 686-7 = B 714-15.
[1681] A 693 = B 721.
 [1682] A 699-700 = B 727-8.
[1683] A 701 = B 729.
[1684] Nearly all the important points raised in the Methodology, and several of its
chief sections, I have commented upon in their connection with the earlier parts of the
Critique. Also, the Methodology is extremely diffuse. For these reasons I have found
it advisable to give such additional comment as seems necessary in the form of this
Appendix.
[1685] On Kant’s use of the terms ‘discipline’ and ‘canon,’ cf. above, pp. 71-2,
170, 174, 438.
[1686] Cf. above, p. 438.
[1687] A 4-5 = B 8-9.
[1688] Untersuchung: Zweite Betrachtung, W. ii. p. 283.
[1689] Kant here disavows the position of the Untersuchung in which (Erste
Betrachtung, § 4) he had asserted that mathematics deals with quantity and
philosophy with qualities.
[1690] For comment upon this distinction, cf. above, pp. 131-3, 338-9.
[1691] Untersuchung: Erste Betrachtung, § 2.
[1692] A 728 = B 756.
[1693] Untersuchung: Zweite Betrachtung, W. ii. p. 283.
[1694] Untersuchung: Erste Betrachtung, § 1, W. ii. p. 276: “Mathematics
proceeds to all its definitions by a synthetic procedure, philosophy by an analytic
procedure.”
[1695] In the Untersuchung Kant’s statements are more cautious, and also more
adequate. Cf. Erste Betrachtung, § 3, W. ii. p. 279: “In mathematics there are only a
few but in philosophy there are innumerable irresolvable concepts....”
[1696] A 731 n. = B 759 n.
[1697] The phrases which Kant employs (A 732-3 = B 760-1) are:
“unmittelbargewiss,” “evident,” “augenscheinlich.” Cf. above, pp. xxxv-vi, 36 ff., 53.
[1698] Cf. above, pp. 118, 142, 185-6.
[1699] Cf. above, p. 117 ff.
[1700] Cf. above, pp. 38-42, 93-4, 118-20, 133.
[1701] Cf. above, pp. 111-12, 114-15.
[1702] Cf. above, p. 131 ff.
[1703] A 737 = B 765.
[1704] Cf. above, pp. 36 ff., 117 ff., 128 ff., 565-6.
[1705] A 743-4 = B 771-2.
 [1706] A 753 = B 781. In A 745 = B 773 Kant’s mention of Hume can hardly refer
to Hume’s Dialogues (cf. above, pp. 539-40 n.). Kant probably has in mind Section
XI. of the Enquiry. The important discussion of Hume’s position in A 760 ff. = B 788
ff. has been commented upon above, p. 61 ff. With Priestley’s teaching (A 745-6 = B
773-4) Kant probably became acquainted through some indirect source. The first of
Priestley’s philosophical writings to appear in German was his History of the
Corruptions of Christianity. The translation was published in 1782. In A 747-8 = B
775-6 Kant quite obviously has Rousseau in mind.
[1707] Section III., on The Discipline of Pure Reason in Regard to Hypotheses, has
been commented on above, pp. 543-6.
[1708] A 782 = B 810.
[1709] Even in mathematics the indirect method is not always available. Cf.
Russell, Principles of Mathematics, i. p. 15.
[1710] A 794 = B 822.
[1711] Cf. above, p. 563 n. 2.
[1712] A 797 = B 825.
[1713] Cf. Critique of Judgment, W. v. p. 473; Bernard’s trans. p. 411: “God,
freedom, and immortality are the problems at the solution of which all the
preparations of Metaphysics aim, as their ultimate and unique purpose.”
[1714] A 800-1 = B 829.
[1715] The statement in A 801 = B 829 that morals is a subject foreign to
transcendental philosophy is in line with that of A 14-15 = B 28, and conflicts with
the position later adopted in the Critique of Practical Reason. Cf. above, p. 77.
[1716] A 803 = B 831-2.
[1717] Cf. below, pp. 571-5.
[1718] A 804 = B 832.
[1719] Cf. above, p. lvi.
[1720] These statements are subject to modification, if the distinction (not clearly
recognised by Kant, but really essential to his position) between immanent and
transcendent metaphysics is insisted upon. Cf. above, pp. liv-v, 22, 56, 66-70.
[1721] Cf. above, p. 541.
[1722] W. v. pp. 47-8; Abbott’s trans. (3rd edition) p. 136.
[1723] Cf. Critique of Practical Reason, W. v. pp. 31-7; Abbott’s trans. p. 120.
[1724] Cf. Critique of Practical Reason, W. v. p. 43; Abbott’s trans. p. 132: “The
moral law, although it gives no view, yet gives us a fact absolutely inexplicable from
any data of the sensible world, or from the whole compass of our theoretical use of
reason, a fact which points to a pure world of the understanding, nay, even defines it
positively, and enables us to know something of it, namely, a law.”
[1725] Cf. Critique of Practical Reason, in note to Preface.
[1726] Op. cit., Preface, at the beginning, Abbott’s trans. pp. 87-8. Cf. also the
concluding pages of Book I., W. v. pp. 103-6, Abbott, pp. 197-200.
[1727] Critique of Judgment, W. v. p. 468; Bernard’s trans. p. 406.
[1728] Op. cit. p. 474; Bernard’s trans. p. 413.
[1729] A 815 = B 843.
[1730] Cf. Critique of Practical Reason, W. v. pp. 143-4 n.; Abbott’s trans. p. 242:
“It is a duty to realise the Summum Bonum to the utmost of our power, therefore it
must be possible, consequently it is unavoidable for every rational being in the world
to assume what is necessary for its objective possibility. The assumption is as
necessary as the moral law, in connexion with which alone it is valid.”
[1731] Cf. Critique of Practical Reason, W. v. p. 142 ff.; Abbott’s trans. p. 240 ff.;
Critique of Judgment, W. v. pp. 469-70; Bernard’s trans. pp. 406-8.
[1732] Critique of Judgment, W. v. pp. 369-72; Bernard’s trans. pp. 407-10. Cf.
note in same section: “It is a trust in the promise of the moral law; not, however, such
as is contained in it, but such as I put into it, and that on morally adequate grounds.”
[1733] A 819 = B 847.
[1734] A 820 = B 848.
[1735] The distinction is less harshly drawn in Kant’s Logic, Einleitung, ix.
(Hartenstein), viii. p. 73; Eng. trans, p. 63: “Conviction is opposed to persuasion.
Persuasion is an assent from inadequate reasons, in respect to which we do not know
whether they are only subjective or are also objective. Persuasion often precedes
conviction.”
[1736] Cf. above, pp. 10, 543. Cf. Fortschritte; Werke (Hartenstein), viii. p. 561.
[1737] Cf. Logic, loc. cit. Cf. Foundations of the Metaphysics of Morals, W. iv. pp.
416-17: Abbott’s trans. pp. 33-34.
[1738] Regarding Kant’s distinction in A 827 = B 855 between Ideas and
hypotheses cf. above, p. 543 ff. Cf. also Critique of Judgment, W. v. pp. 392 ff., 461
ff.; Bernard’s trans. pp. 302 ff., 395 ff.
[1739] A 829 = B 857.
[1740] Cf. Kant’s Preface to the Critique of Practical Reason, W. v. p. 8 n.;
Abbott’s trans. p. 93 n. “A reviewer who wanted to find some fault with this work—
[the Foundations of the Metaphysics of Morals]—has hit the truth better, perhaps,
than he thought, when he says that no new principle of morality is set forth in it, but
only a new formula. But who would think of introducing a new principle of all
morality, and making himself as it were the first inventor of it, just as if all the world
before him were ignorant what duty was, or had been in thorough-going error? But
whoever knows of what importance to a mathematician a formula is, which defines
accurately what is to be done to work out a problem, will not think that a formula is
insignificant and useless which does the same for all duty in general.” Cf.
Fortschritte, Werke (Hartenstein), viii. p. 563.
[1741] Fragmente aus dem Nachlasse, Werke (Hartenstein), viii. p. 624, already
quoted above, p. lvii. Cf. also op. cit. p. 630.
[1742] Cf. Critique of Practical Reason, Conclusion, W. v. pp. 161-2; Abbott’s
trans. p. 260.
[1743] A 832 = B 860.
[1744] K. p. 633 n. Cf. above, p. xxii.
[1745] Cf. Adickes, K. p. 635 n., and Vaihinger, i. p. 306. In this table Critique is
distinguished from the System of pure Reason (cf. above, pp. 71-2). The
transcendental philosophy of pure Reason of this table corresponds to the Analytic of
the Critique, and to “pure natural science” in the absolute sense (cf. above, pp. 66-7).
The rational physics of this table corresponds to the Metaphysical First Principles of
Natural Science.
[1746] When Kant in A 840 = B 868 takes philosophy as including empirical
knowledge he contradicts the spirit, though not the letter of his own preceding
statements. In his Introduction to Logic (Hartenstein, viii. p. 22, Abbott’s trans. p. 12)
the empirical is identified with the historical.
[1747] Fortschritte, Werke (Hartenstein), viii. p. 554.
[1748] Op. cit. p. 520.
[1749] I.e. between the conception of philosophy as Schulbegriff and as Weltbegriff
(conceptus cosmicus). He explains in a note to A 839 = B 868 that he employs these
latter terms as indicating that philosophy in the traditional or humanistic sense is
concerned with “that which must necessarily interest every one.” I have translated
Weltbegriff as ‘universal concept.’ By conceptus cosmicus Kant means ‘concept
shared by the whole world,’ or ‘common to all mankind.’
[1750] Cf. Kant’s Logic, Introduction, § iii.: Abbott’s trans. pp. 14-15: “In this
scholastic signification of the word, philosophy aims only at skill; in reference to the
higher concept common to all mankind, on the contrary, it aims at utility. In the
former aspect, therefore, it is a doctrine of skill; in the latter a doctrine of wisdom; it
is the lawgiver of reason; and hence the philosopher is not a master of the art of
reason, but a lawgiver. The master of the art of reason, or as Socrates calls him, the
philodoxus, strives merely for speculative knowledge, without concerning himself
how much this knowledge contributes to the ultimate end of human reason: he gives
rules for the use of reason for all kinds of ends. The practical philosopher, the teacher
of wisdom by doctrine and example, is the true philosopher. For philosophy is the
Ideal of a perfect wisdom, which shows us the ultimate ends of all human reason.”
 [1751] A 839 = B 867.
[1752] A 851 = B 879.
[1753] A 850 = B 878.
[1754] A 848-9 = B 876-7. Cf. above, pp. 237, 311 n., 312 n., 384-5, 473-7, 554.
[1755] A 852 = B 880.
[1756] Cf. A 313 ff. = B 370 ff., above, pp. 498-9.
[1757] Cf. above, pp. xxviii-xxix.
[1758] Einleitung, § iv.: Abbott’s trans, pp. 17-23.
[1759] Supplementary to pp. xxv-xxxiii. Throughout I shall make use of my
Studies in the Cartesian Philosophy, and may refer the reader to them for further
justification of the positions adopted.
[1760] For recognition of this distinction, cf. Herbert Spencer, Principles of
Psychology, vol. i., 3rd ed., pp. 620-3.
[1761] Cf. Studies in the Cartesian Philosophy, pp. 80-2, 106-7.
[1762] This distinction is due to Galileo, though the terms “primary” and
“secondary” were first employed by Locke.
[1763] I have dealt with Avenarius’ criticism in “Avenarius’ Philosophy of Pure
Experience” (Mind, vol. xv. N.S., pp. 13-31, 149-160); with Bergson’s criticism in
“Subjectivism and Realism in Modern Philosophy” (Philosophical Review, vol. xvii.
pp. 138-148); and with the general issue as a whole in “The Problem of Knowledge”
(Journal of Philosophy, vol. ix. pp. 113-128).
[1764] On Descartes’ failure to distinguish between the mathematical and the
dynamical aspects of motion, cf. above, p. 584.
[1765] Essay concerning Human Understanding, IV. vi. 16.
[1766] Op. cit. IV. xii. 7.
[1767] Op. cit. IV. vi. 11.
[1768] Cf. above, pp. 27-8.
[1769] Though the concept of substance is also discussed by Hume, his treatment
of it is quite perfunctory.
[1770] Cf. above, pp. xxv ff., 61 ff.
[1771] Treatise on Human Nature (Green and Grose), i. p. 380.
[1772] Op. cit. p. 383.
[1773] Loc. cit.
[1774] For justification of the phrase “synthetic reason,” I must refer to my articles
in Mind, vol. xiv. N.S. pp. 149-73, 335-47, on “The Naturalism of Hume.”
 [1775] Treatise (Green and Grose), i. pp. 474-5.
[1776] Enquiry concerning Human Understanding (Green and Grose), p. 40.
[1777] Treatise, p. 471.
[1778] Enquiry (Green and Grose), pp. 25-6.
[1779] Éclaircissement sur chap. iii. pt. ii. liv. vi. de la Recherche: tome iv. (1712)
p. 381.
[1780] Enquiry, p. 57.
[1781] Enquiry, p. 32.
[1782] This is the objection upon which Beattie chiefly insists.
[1783] Op. cit. pp. 33-4.
[1784] Cf. above, pp. 39 ff., 54, 222 ff., 241, 286-9.
[1785] How far Hume’s criticism of empiricism really influenced Kant in his
appreciation of this deeper problem, it seems impossible to decide. Very probably
Kant proceeded to it by independent development of his own standpoint, after the
initial impulse received on the more strictly logical issue.
[1786] The assertion, by Kuno Fischer and Paulsen, of an empirical period in
Kant’s development, has been challenged by Adickes, B. Erdmann, Riehl, and
Vaihinger.
 [1787] Cf. B. Erdmann’s Kriticismus, p. 147; Critique of Judgment, W. v. p. 391
(Bernard’s trans, p. 301).
[1788] Above, pp. xxx-iii.
[1789] Philosophischer Kriticismus, 2nd ed. p. 209.
[1790] Cf. above, pp. lv-vi, lxi, 543 ff.
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