Week_11_Investing_Cycle_Part_1 audio

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Part 1 of 3 of the Investing and Financing cycle

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Chapter 10 :

Chapter 10 Finance and Investment Cycle “ Credit has done a thousand times more to enrich mankind than all the goldmines in the world. It has exalted labor, stimulated manufacture and pushed commerce over every sea. ” --Daniel Webster 10- 1

INVESTING AND FINANCING CYCLE:

INVESTING AND FINANCING CYCLE Concerned with transactions related to the use of the organization's funds (investing) and sources of those funds (financing) other than operations. Accounts affected by investing and financial cycle transactions include investments in securities; notes and bonds payable; and, stockholders' equity accounts. 10- 2

Inherent Risks:

Inherent Risks Complex GAAP related to debt securities Derivatives Debt restructure issues Loan covenants Impairment of assets / investments Related party transactions – questions of substance over form of transactions 10- 3

Exhibit 10.1 Finance and Investment Shenanigans:

Exhibit 10.1 Finance and Investment Shenanigans 10- 4

Investment and Finance Activities:

Investment and Finance Activities Financial Plan – determine the organization's needs Capital budget – capital spending plan Raise capital – activities related to debt and equity transactions Mergers and acquisitions – typically requires significant amounts of debt / equity Investment of excess funds – investment policy by Board of Directors 10- 5

Control Considerations:

Control Considerations Transactions authorized by BOARD OF DIRECTORS Documentation: Investments in securities: BROKER'S ADVICE Property, plant and equipment: VENDOR'S INVOICE (for purchased PPE) or INTERNAL COST RECORDS (for manufactured PPE) Bonds and notes payable: Documentation from DEBTHOLDERS Stockholders' Equity: Documentation from REGISTRAR CASH RECEIPTS/DISBURSEMENTS JOURNALS 10- 6

Finance and Investment Cycle: Control Procedures:

Finance and Investment Cycle: Control Procedures Physical Controls Securities held by an independent custodian or in a secure location Securities CUSIP numbers recorded Securities recorded in the client's name Access to safe-deposit box requires more than one employee Physical items periodically compared to detail records Cash receipts from Investing and Financing cycle transactions deposited intact and daily (electronic transfer preferred) 10- 7

Finance and Investment Cycle: Control Procedures (cont.):

Finance and Investment Cycle: Control Procedures (cont.) Separation of Duties Transactions AUTHORIZED by the Board of Directors General Accounting RECORDS transactions A separate function or external custodian has CUSTODY of stock and bond certificates Performance Reviews Compare current investing and cycle transaction data against prior-year data or expected data Compare revenue and expenses against organization standards or expectations. Compare transactions on monthly statement to cash receipts/disbursements 10- 8

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