Production or Conversion Cycle

 Production or conversion cycle covers the production of entity’s product for sale. It is where materials, labor and
overhead are converted into finished goods.
 The primary objective of this cycle is the proper valuation of inventories and cost of goods sold.
 Proper allocation of costs to each run made by production department.
 Discussed intensively in Cost Accounting Subject.

Summary of Control-related duties and responsibilities: Production or Conversion Cycle

Duties and Persons Assigned to perform function Procedures Performed by Auditor

Responsibilities
Custody Production Department- physical custody of materials
and labor documents is normally held.
Authorization Production Department- is authorized to make
production runs. However, in case of special runs,
authorization must come from the BOD or authorized
representatives.
Recording Transactions are recorded by the Cost Accounting.
Observes physical count and reconciles result to
entity’s records or if held by other parties, he may
send confirmation requests to custodian
Reviews production orders and related documents
supporting production runs made by the
department whether it bears the necessary
authorization
Reviews the competency of the individuals making
journal entries and reconciliation of the general
ledger

Finance and Investment Cycle

 Involves three major categories of transactions: Investment, Long-term Debts and Shareholders’ Equity
 Covers processes like accounting for investments, mergers, long-term liabilities and equity transactions.
 Auditor commonly employs substantive testing to gather sufficient appropriate evidence
 Also control-related duties and responsibilities is one of the major considerations of the auditor.
Duties and Persons Assigned to perform function Procedures Performed by Auditor
Responsibilities
Custody Internal official (ex.Corporate Secretary) or Independent Auditor inquires directly to assigned custodians
External Custodian- keeps unissued equity and debt If held internally, auditor observes the
certificates. accounting of unissued certificates.

Authorization BOD- approves large amounts of transactions in this Auditor reviews minutes of the meeting of the
cycle or other resources . BOD.
Recording General Accounting- records transactions by personnel Reviews the competency of the individuals
making journal entries and reconciliation of the
general ledger
Notes: 1. Settlement of equity or debt securities previously issued is cancelled (certificate is shredded). The purpose of this is
to avoid excessive payments
2.in debt instruments, the general accounting shall appropriately monitor any accruing interest from the liabilities.
Investment Cycle

Duties and Persons Assigned to perform function Procedures Performed by Auditor

Responsibilities
Custody Investment certificates are kept as follows:
 Negotiable Certificates- brokerage account
 Titles to real estate- may be kept in a safe with
the entity or bank safe deposit box
Authorization BOD- approves large amounts of transactions in this
cycle or other resources .
Recording General Accounting- records transactions by personnel
Moreover, most companies monitor transactions in the
investment cycle through a subsidiary ledger/s
maintained by the treasury department
Auditor inquires directly to assigned custodians
If held internally, auditor observes the
accounting of unissued certificates.
Auditor reviews minutes of the meeting of the
BOD.
Reviews the competency of the individuals
making journal entries and reconciliation of the
general ledger