Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
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
Chapter Overview
Overview

Nature
Nature of
of the
the Investing
Investing and
and
Financing
Financing Cycles
Cycles
Overview of the Cycles
Investing Activities

Financing Activities

Understanding the Entity and

Environment

Understanding
Understanding the
the Entity
Entity and
and
Environment
Environment

Investing
Investing Cycle
Cycle Audit
Audit
Objectives
Objectives

Investing
Investing Cycle
Cycle Analytical
Analytical
Procedures
Procedures

Investing
Investing Cycle
Cycle
Inherent Risk

Consideration of Internal Controls

Preliminary Audit Strategies

Substantive
Substantive Tests
Tests for
for Plant
Plant
Assets
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
Substantive Tests
Tests for
for Plant
Plant
Assets
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
Study Break
Break
1. This cycle involves activities such
as the purchase and sale of land,
buildings, and equipment not
generally held for resale.
A.
B.
C.
D.

Investing Cycle
Financing Cycle
Cash Disbursements Cycle
Cash Receipts Cycle

A. Investing Cycle

Study
Study Break
Break
2. All of the following are classes of
transactions associated with the
audit of plant assets, except:
A.
B.
C.
D.

Depreciation Expense
Disposal of Fixed Assets
Payroll Expense
Acquiring of Fixed Assets

C. Payroll Expense

Study
Study Break
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.
B.
C.
D.

Inspect plant assets

Examine title documents and contracts
Impairment of plant assets
Review provisions for depreciation

A. Inspect plant assets

Financing
Financing Cycle
Cycle

Financing
Financing Cycle
Cycle Audit
Audit
Objectives
Objectives

Financing
Financing Cycle
Cycle Analytical
Analytical
Procedures
Procedures

Financing
Financing Cycle
Cycle
Inherent Risk

Consideration of Internal Control

Common Documents and Records

Financing
Financing Cycle
Cycle Functions
Functions and
and
Related
Related Controls
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
Preliminary Audit
Audit Strategies
Strategies for
for
Long-Term
Long-Term Debt
Debt

Substantive
Substantive Tests
Tests of
of Long-Term
Long-Term
Debt
Debt
Initial Procedures

Analytical Procedures

Tests of Details of Transactions

Substantive
Substantive Tests
Tests of
of Long-Term
Long-Term
Debt
Debt
Tests of Details of Balances

Review Authorizations and Contracts

Confirm Debt
Recalculate Interest Expense

Tests of Details of Presentation and

Disclosure

Study
Study Break
Break
4. This cycle involves activities such
as acquiring debt, issuing bonds,
and issuing common stock.
A.
B.
C.
D.

Investing Cycle
Financing Cycle
Cash Disbursements Cycle
Cash Receipts Cycle

B. Financing Cycle

Study
Study Break
Break
5. This financing function involves
making payments to the proper payees
in according with board of director or
management authorizations.
A.
B.
C.
D.

Authorizing bonds
Authorizing capital stock
Paying bond interest and cash dividends
Recording financing transactions

C. Paying bond interest and cash dividends

Study
Study Break
Break
6. All of the following are tests of
details of balances for the
financing cycle, except:
A.
B.
C.
D.

Confirmation of accounts payable

Confirmation of long-term debt
Review authorization and contracts
Recalculate interest expense

A. Confirmation of accounts payable

Preliminary
Preliminary Audit
Audit Strategies
Strategies for
for
Shareholders
Shareholders Equity
Equity

Substantive
Substantive Tests
Tests of
of
Stockholders
Stockholders Equity
Equity
Initial Procedures
Analytical Procedures
Tests of Details of Transactions

Vouch Entries to Paid-in Capital

Accounts
Vouch Entries to Retained Earnings

Analytical
Analytical Procedures
Procedures

Substantive
Substantive Tests
Tests of
of
Stockholders
Stockholders Equity
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