CHAPTER 22

AUDIT OF THE CAPITAL ACQUISITION

AND REPAYMENT CYCLE
 FEBRYA EKA DEWANTY

Our 1710533043

Team
Layout EKA MIFTAHUL JANNAH
1710533031
Learning Objective 1

Identify the accounts and the unique characteristis

of the capital acquisition and repayment cycle.
 Characteristics of the Capital Acquisition and Repayment Cycle

Relatively few transactions A legal relationship exists

affect the account between the client entity and
balance,but each one is the holder of the stock,
often highly material in bond, or similar ownership
amount. document.

The exclusion of a single A direct relationship

transaction could be material in exists between the
itself. interest and
dividends accounts and
debt and equity.
Accounts in the Cycle
~ Notes payable
~ Contracts payable
~ Mortgages payable
~ Bonds payable
~ Interest expense
~ Accrued interest
~ Appropriations of retained earnings
~ Treasury stock
~ Dividends declared
Cash in the bank
 Capital stock – common
 Capital stock – preferred
 Paid-in capital in excess of par
 Donated capital
 Retained earnings
 Dividends payable
 Proprietorship – capital account
 Partnership – capital account
 Design and perform
Identify client tests of controls and
business risks substantive tests of
transactions for
affecting notes payable
Methodology for capital acquisition and
Designing Tests repayment cycle
of Balances for Notes
Payable Design and perform
Set tolerable misstatement analytical procedures
and assess inherent for notes payable
risk for notes payable
Design tests of
Assess control details of notes
risk for payable to satisfy
notes payable balance-related
audit objectives
 Your Picture Here
Audit of Notes
Payable -

Note Objectives
Internal controls over
notes payable are

Payable adequate.

Transactions for
principal and interest
Note payable is a legal are properly authorized
obligation to creditor, and recorded.
which may be unsecured or The liability for notes
secured by assets and payable and the related
bears interset. interest expense and
accured liability are
properly.
Notes Payable and the Related
Interest Accounts
 Internal Controls

Proper authorization for Proper documents and

the issue of new notes records

Adequate controls over Periodic independent

the repayment of principal verification
and interest.
Learning Objective 3
Identify the primary concerns
in the audit of owners’ equity
transactions.
Owners’ Equity
Publicly held corporation is
a corporation whose stock is sold to
and owned by the public instead of private
investors.
 Closely held corporation  is a corporation that:
Has more than 50% of the value of its outstanding
stock owned (directly or indirectly) by 5 or fewer
individuals at any time during the last half of the
tax year, and. Isn't a personal service corporation.
There is a huge difference between audit of owner’s equity for a
closely held corporation and a publicly held corporation. Actually
in auditing of closely held corporation , auditor spend less time in
verifying owner’s equity. Because usually limited transactions
related to capital accounts occured during the year.
Test of Controls and Su
bstantive Tests of Trans
actions
Tests of notes payable transactions involve the iss
ue of notes and the repayment of principal and inte
rest.
Notes Payable and the Related
Interest Accounts
Analytical Procedures for Notes
Payable
Analytical Procedure Possible Misstatement

Recalculate approximate interest expense on the Misstatement of interest expense and accrued
basis of average interest rates and overall monthly interest, or omission of an outstanding note
notes payable payable

Compare individual notes outstanding with those

Omission or misstatement of a note payable
of the prior year

Compare total balance in notes payable, interest

Misstatement of interest expense and accrued
expense, and accrued interest with prior-year
interest or notes payable
balances
Major Balance-Related Audit Objecti
ve in Notes Payable

1. Completeness 2. Accuracy
Existing notes payable are Notes payable in the schedule are
included. accurately recorded.
Audit of Capital Stock and
Paid in Capital - Objectives
Completeness Transaction
Existing capital stock transactions are recorded.

Occurrence and Accuracy Transaction

Recorded capital stock transactions occured and are accurately recorded.

Accuracy Balance
Capital stock is accurately recorded.

Presentation and Disclosure

Capital stock is properly presented and disclosed.
Audit of Dividends - Objectives

Occurrence Occurrence
Recorded dividends Dividends are paid to
occurred. stockholders that exist.

Completeness Completeness
Existing dividends are Dividends payable are
recorded. recorded.

Accuracy Accuracy
Dividends are Dividends payable are
accurately recorded. accurately recorded.
Audit of Retained Earnings - Obje
ctives
Transactions involving retained There may be correction to:
earnings:

Net earnings for the year Prior-period earnings

Dividends declared Prior-period adjustments
Appropriations of retained
earnings
Thank you