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Financing Cycle Questions

The document contains questions about financing cycles and related audit objectives and risks. It discusses the key elements of financing cycles, which include obtaining cash from creditors or owners, debt versus equity financing, and payments of interest and dividends. It also addresses audit procedures related to financing cycles, such as substantive tests of transactions and balances. Multiple choice, true/false, and fill-in-the-blank questions test understanding of financing cycles, accounting controls, and audit risks.

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71 views

Financing Cycle Questions

The document contains questions about financing cycles and related audit objectives and risks. It discusses the key elements of financing cycles, which include obtaining cash from creditors or owners, debt versus equity financing, and payments of interest and dividends. It also addresses audit procedures related to financing cycles, such as substantive tests of transactions and balances. Multiple choice, true/false, and fill-in-the-blank questions test understanding of financing cycles, accounting controls, and audit risks.

Uploaded by

sheila
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY


DEPARTMENT OF ACCOUNTANCY

FINANCING CYCLE: QUESTIONS

TRUE OR FALSE.

TRUE The financing cycle includes transactions and events whereby cash is
obtained from or repaid to creditors or owners.

TRUE The two types of financing are debt financing and equity financing.

TRUE The payments of interest and dividends are also an integral part of the
financing cycle.

FALSE The audit objectives for the financing cycle includes occurrence which
means, liabilities, interest costs, and equity transactions are accurately valued
using GAAP and correctly journalized, summarized and posted.

FALSE Under the Test of Control and Substantive Test of Transaction in


Financing Cycle the auditors may conduct tests of compliance and may not
follow the approach of substantiating the individual transactions since the
transactions are few in number but large in peso amount.

TRUE Financing activities would include, for example, acquiring debt, capital
leases, issuing bonds, or issuing preferred or common stock.

FALSE Transactions does not require specific authorization by entity's BOD and in
some cases, the stockholders.

FALSE Issuance of stock is one of the major sources of funds. Thus, the audit of
SHE does not typically involved substantial reliance on substantive tests of
transactions and balances.

TRUE Financing cycle of a business includes the responsibilities of planning the


cash needs, raising capital, and investments. It embraces the major non-
operating activities of many companies.

TRUE In Internal Control the auditor's concerns are those controls that relates to
authorization, recordkeeping, and custody of stock certificates.
MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

MULTIPLE CHOICE.

1. Long-term debt and related income statement balances, as well as stockholders'


equity balances, are properly identified and classified in the financial statements,
according to the specific financing cycle audit objective, which is _______.
a. rights and obligations assertion
b. completeness assertion
c. existence or occurrence assertion
d. valuation or allocation assertion

2. The company's owners get funding from outside investors, resulting in a cash
inflow. Which cycle does this transaction belong to?
a. the revenue cycle
b. the payroll cycle
c. the production cycle
d. the financing cycle

3. Transaction cycles can be summarized on a high level as"give-get" transactions.


An example of "give-get" in the financing cycle would be
a. give cash, get cash
b. give cash, get goods
c. give cash, get labor
d. give goods, get cash

4. Certain documents or forms are generated and/or processed with each


transaction cycle. The issuing of long-term notes part of which transaction cycle?
a. the revenue cycle
b. the financing cycle
c. the human resources cycle
d. the expenditure cycle

5. Which statement is incorrect regarding the financing cycle?


a. Long-term obligations should be properly authorized by the board of
directors or by a required majority of the shareholders.
b. Proper control should be exercised over the payment of interest on long-
term liabilities
MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

c. Redeemed bonds should be cancelled, properly mutilated and


not retained for auditor in order to prevent the unauthorized
issuance
d. Bond ledger should be used in which details of bonds issued, cancelled
and outstanding are shown

6. Which of the following are examples of possible errors that relate to finance cycle
transactions?
a. Failing to make interest accruals or making them twice
b. Accruing interest in the wrong period
c. Making incorrect estimates of allowances for obligations
d. Failing to recognize that the entity violated a debt agreement
e. All of the above

7. Transactions relating to the finance cycle should be subject to appropriate


internal controls. Ensuring that individuals do not perform incompatible duties
and that crosschecking of individual works are observed is called:
a. Physical controls
b. Segregation of duties
c. Information processing controls
d. Some other answer

8. In terms of long-term liabilities under finance cycle transactions, which of the


following internal control measures may be adopted?
I. Long-term obligations should be properly authorized by the board of
directors or by a required majority of the shareholders.
II. There should be proper control over issued and unissued obligations as in
bonds, by an independent bond trustee or transfer agent.
III. Redeemed bonds should be canceled, properly mutilated and retained for
auditor in order to prevent the unauthorized issuance.
IV. Bond ledger should be used in which details of bonds issued, canceled
and outstanding are shown. A subsidiary bondholders’ ledger should also
be maintained by the issuing corporation or the bond trustee for bonds
registered, as to principal and payment
a. None of the above
b. I & II only
c. I, II, III, & IV
d. III & IV only
MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

9. Ensuring that financing cycle transactions are properly valued and recorded
refers to which specific accounting control objectives?
a. Existence or occurrence
b. Valuation and Classification
c. Completeness
d. Both b & c

10. Which of the following statements does not relate to performance reviews?
a. Reviews and analyses of actual performance versus budgets, forecasts,
and prior period performance
b. Relating different sets of data to one another, together with analyses of
the relationships and investigative and corrective actions (for example, the
management of a sports team might use attendance data to ascertain the
reasonableness of ticket sales)
c. Comparing internal data with external sources of information
d. Review of functional or activity performance (for example, sales reports,
receivable reports, etc., may be used to analyze performance and to
identify errors)
e. None of the above

IDENTIFICATION.

1. A cycle where the company will issue debt instrument to its lenders, then they will
pay for the debt and the associated interest. Financing Cycle
2. An accounting control objective where the financing cycle transactions actually
occurred. Existence or Occurrence
3. An accounting control objective where the financing cycle transactions are
properly valued and recorded. Valuation/Completeness/Classification
4. It consists transactions pertaining to the acquisition of capital funds through
borrowings from others, short-term and long-term excluding trade credit, and
share capital and subsequent redemption and reacquisition of these securities.
Financing Cycle
5. It is similar to the risk for investing cycle transactions and balances. Audit Risk
MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

6. It is a risk that is considered low since financing transactions receive


considerable attention from senior management. Control Risk
7. A risk that is often moderate to high for all related account balance assertions.
Inherent Risk
8. This test pertains to the existence or occurrence, completeness, rights and
obligations, and valuation or allocation assertions. Substantive test
9. This should be well-defined and established on both as to original transaction
resulting in a liability and as to payment of the liability. System authorization
10. In recalculating interest expense, the auditor re-performs the computations made
by the client. What assertion does this primarily relate to? Valuation or
Allocation

GROUP V MEMBERS:
Autentico, Vincent Angelo
Lumawig, Lady Daniel
Mutalib, Zara
Predregosa, Christian Selwyn
Rodrigo, Hillary Lynn
Solinap, Zygen Amor
MINDANAO STATE UNIVERSITY - GENERAL SANTOS CITY
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
DEPARTMENT OF ACCOUNTANCY

Tesnado, Erica
Villaflor, Shaira

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