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