Lesson: Auditing the Financing Cycle

In this lesson, the auditing of the financing cycle is discussed, focusing on the segregation of responsibilities between the finance and accounting departments. The importance of confirming the existence of an adequate authorization system for incurring debt and issuing equity is emphasized, along with ensuring the accuracy of debt and equity documents. The lesson also delves into verifying that the company is not exceeding its debt limits, reviewing the terms of contracts and loan documents, and evaluating the financial institution or broker which issues the client's debt and equity. General audit testing procedures for debt and equity are covered, touching on topics such as ensuring proper classification, verifying compliance with debt covenants, and examining stock issuances. Procedures for testing accuracy, existence, completeness, occurrence, valuation, allocation, rights and obligations, cutoff, and presentation and disclosure are also presented.