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
Chapter Overview
Nature of the Investing and
Financing Cycles
Overview of the Cycles
Investing Activities
Financing Activities
Understanding the Entity and
Environment
Understanding the Entity and
Environment
Investing Cycle Audit
Objectives
Investing Cycle Analytical
Procedures
Investing Cycle
Inherent Risk
Consideration of Internal Controls
Preliminary Audit Strategies
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
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
Study Break
1. This cycle involves activities such
as the purchase and sale of land,
buildings, and equipment not
generally held for resale.
A. Investing Cycle
B. Financing Cycle
C. Cash Disbursements Cycle
D. Cash Receipts Cycle
A. Investing Cycle
Study Break
2. All of the following are classes of
transactions associated with the
audit of plant assets, except:
A. Depreciation Expense
B. Disposal of Fixed Assets
C. Payroll Expense
D. Acquiring of Fixed Assets
C. Payroll Expense
Study Break
3. 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.
A. Inspect plant assets
B. Examine title documents and contracts
C. Impairment of plant assets
D. Review provisions for depreciation
A. Inspect plant assets
Financing Cycle
Financing Cycle Audit
Objectives
Financing Cycle Analytical
Procedures
Financing Cycle
Inherent Risk
Consideration of Internal Control
Common Documents and Records
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
Preliminary Audit Strategies for
Long-Term Debt
Substantive Tests of Long-Term
Debt
Initial Procedures
Analytical Procedures
Tests of Details of Transactions
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
Study Break
4. This cycle involves activities such
as acquiring debt, issuing bonds,
and issuing common stock.
A. Investing Cycle
B. Financing Cycle
C. Cash Disbursements Cycle
D. Cash Receipts Cycle
B. Financing Cycle
Study Break
5. This financing function involves
making payments to the proper payees
in according with board of director or
management authorizations.
A. Authorizing bonds
B. Authorizing capital stock
C. Paying bond interest and cash dividends
D. Recording financing transactions
C. Paying bond interest and cash dividends
Study Break
6. All of the following are tests of
details of balances for the
financing cycle, except:
A. Confirmation of accounts payable
B. Confirmation of long-term debt
C. Review authorization and contracts
D. Recalculate interest expense
A. Confirmation of accounts payable
Preliminary Audit Strategies for
Shareholders Equity
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
Analytical Procedures
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
