lnu8l lSWA8uPAnl

A31109011

Auul1lnC 1PL lnvLS1lnC Anu llnAnClnC C?CLLS

Nature of the Invest|ng and I|nanc|ng Cyc|es

1he audlLor usually wanLs Lo obLaln answers Lo Lhe followlng quesLlons when audlLlng lnvesLlng and flnanclng
acLlvlLles

1 WhaL asseLs are necessary Lo supporL Lhe operaLlons of Lhe enLlLy and whaL are managemenL's longrange
plans for growlng Lhe enLlLy's asseL base?
2 WhaL asseLs were acqulred or dlsposed of durlng Lhe perlod?
3 Pow were newly acqulred asseLs flnanced and whaL are managemenL's longrange plans for flnanclng Lhe
enLlLy's growLh?

lnvesLlng acLlvlLles are Lhe purchase and sale of land bulldlngs equlpmenL and oLher asseLs noL generally held for
resale ln addlLlon lnvesLlng acLlvlLles lnclude Lhe purchase and sale of flnanclal lnsLrumenLs noL lnLended for
Lradlng purposes
llnanclng acLlvlLles lnclude LransacLlons and evenLs whereby cash ls obLalned from or repald Lo credlLors (debL
flnanclng) or owners (equlLy flnanclng) llnanclng acLlvlLles would lnclude acqulrlng debL caplLal leases lssulng
bonds or lssulng preferred or common sLock llnanclng acLlvlLles would also lnclude paymenLs Lo reLlre debL
reacqulrlng sLock (Lreasury sLock) and Lhe paymenL of dlvldends
lmporLanL llxed AsseL 1ransacLlons and lssues

W AcqulslLlon of planL and equlpmenL lncludlng caplLal leases
W ulsposal of planL and equlpmenL
W 8epalr and malnLenance LransacLlons
W uepreclaLlon (maLchlng)
W CaplLal / operaLlng lease dlsclosures

SelecLed Speclflc AudlL Cb[ecLlves for Lhe lnvesLlng Cycle

ASSL81lCn CA1LCC8? 18AnSAC1lCn CLASS Auul1 C8!LC1lvLS Auul1 8ALAnCL Auul1 C8!LC1lvLS
LxlS1LnCL Anu
CCCu88LnCL
8ecorded acqulslLlons of planL asseLs
dlsposals of planL asseLs and repalr and
malnLenance LransacLlons represenL
LransacLlons LhaL occurred durlng Lhe
year
8ecorded planL asseL represenL producLlve
asseLs LhaL are ln use aL Lhe balance sheeL
daLe
CCMLL1LnLSS All acqulslLlons of planL asseLs dlsposals
of planL asseLs and repalr and
malnLenance LransacLlons LhaL occurred
durlng Lhe perlod were recorded
lanL asseL balances lnclude Lhe effecLs of
all appllcable LransacLlons durlng Lhe
perlod
8lCP1 Anu
C8LlCA1lCn
1he enLlLy owns or has rlghLs Lo all
recorded planL asseLs aL Lhe balance sheeL
daLe
vALuA1lCn Anu
ALLCCA1lCn
1ransacLlons for depreclaLlon expense and
lmpalrmenLs Lo Lhe value of planL asseLs
are properly valued
lanL asseLs are sLaLed aL cosL less
accumulaLed depreclaLlon and are wrlLLen
down for maLerlal lmpalrmenLs
8LSLn1A1lCn Anu
ulSCLCSu8L
uepreclaLlon repalr and malnLenance
LransacLlons and operaLlng leases are
properly ldenLlfled and classlfled ln Lhe
flnanclal sLaLemenLs
lanL asseLs and caplLal leases are properly
ldenLlfled and classlfled ln Lhe flnanclal
sLaLemenLs
ulsclosures perLalnlng Lo Lhe cosL book
value depreclaLlon meLhods and useful
llves of ma[or classes of planL asseLs Lhe
pledglng of planL asseLs as collaLeral and
Lhe ma[or Lerms of caplLal lease conLracLs
are adequaLe

@he Invest|ng Cyc|e
MaLerlallLy
lanL asseLs are normally a maLerlal aspecL of Lhe flnanclal sLaLemenLs 1he prlmary conslderaLlon ln evaluaLlng Lhe
allocaLlon of maLerlallLy ls Lhe deLermlnaLlon of Lhe magnlLude of mlssLaLemenL LhaL wlll lnfluence Lhe declslons of a
reasonable flnanclal sLaLemenL user A secondary conslderaLlon ls Lhe relaLlonshlp Lo Lhe cosL of deLecLlng errors
lnherenL rlsk
llxed asseLs are noL vulnerable Lo LhefL
ComplexlLy of deLermlnlng caplLal lease
valuaLlon challenges wlLh consLrucLed asseLs
AccounLlng esLlmaLe lnvolved ln depreclaLlon
lmpalrmenL LesL for old asseLs sLlll on Lhe books
ClasslflcaLlon lssues wlLh repalr an malnLenance

ConLrol rlsk
ey cycle relaLed Lo lnlLlal accounLlng for flxed asseL ls relaLed Lo conLrols over purchases and acqulslLlons
uoes managemenL have hlgh level conLrols Lo
8evlew Lhe producLlvlLy of flxed asseLs
8evlew Lhe reasonableness of depreclaLlon esLlmaLes based on acLual useful llves and galns / losses on
dlsposal of flxed asseLs

ubstant|ve @ests of |ant Asset 8a|ances

ueLermlnlng ueLecLlon 8lsk
1he audlLor's subsLanLlve LesLs wlll be much more exLenslve ln an lnlLlal audlL of a cllenL Lhan ln a repeaL
engagemenL ln a flrsL audlL evldence musL be obLalned on Lhe proprleLy of Lhe beglnnlng balances ln Lhe accounLs
and Lhe ownershlp of Lhe asseLs comprlslng Lhe balances

lnlLlal rocedures
An lmporLanL lnlLlal procedure lnvolves obLalnlng an undersLandlng of Lhe buslness and lndusLry lndusLrles LhaL are
very caplLal lnLenslve usually have heavy flxed operaLlng cosLs and requlre slgnlflcanL volume Lo break even
8efore performlng oLher subsLanLlve LesLs ln Lhe audlL program Lhe audlLor deLermlnes LhaL Lhe beglnnlng general
ledger balance for planL asseL accounLs agrees wlLh Lhe prlor perlod's worklng papers

AnalyLlcal rocedures
1he audlLor should malnLaln an approprlaLe level of professlonal skepLlclsm and lnvesLlgaLe abnormal resulLs
Level of flxed asseLs
lmpalrmenL of flxed asseLs
8easonableness of depreclaLlon
AudlL sLraLegy mlghL be modlfled Lo reduce Lhe exLenL of deLalls LesLs of LransacLlons and balances

1esL of ueLalls of 1ransacLlons
1hese subsLanLlve LesLs cover 3 Lypes of LransacLlons relaLed Lo planL asseLs
1 addlLlons
2 dlsposals and
3 repalrs and malnLenance

1esL of ueLalls of 8alances
2 procedures ln Lhls caLegory of subsLanLlve LesLs are
1 lnspecL planL asseLs and
2 examlne LlLle documenLs and conLracLs

AccounLlng LsLlmaLes 2 lmporLanL LesLs of accounLlng esLlmaLes lnclude subsLanLlve LesLs Lo
1 8evlew provlslons for depreclaLlonand
2 evaluaLe lmpalrmenLs of planL asseLs

@he I|nanc|ng Cyc|e
SlgnlflcanL lnvesLlng LransacLlons are usually accompanled by slgnlflcanL flnanclng LransacLlons 1he flnanclng cycle
lncludes 2 ma[or LransacLlon classes as follows
1 LongLerm debL LransacLlons lncludeborrowlngs from bonds morLgages noLes and loans and Lhe relaLed
prlnclpal and lnLeresL paymenLs
2 SLockholders' equlLy LransacLlons lnclude Lhelssuance and redempLlon of preferred and common sLock
Lreasury sLock LransacLlons and dlvldend paymenLs

MaLerlallLy
llnanclng llablllLles are normally a maLerlal aspecL of Lhe flnanclal sLaLemenLs
1he prlmary conslderaLlon ln evaluaLlng Lhe allocaLlon of maLerlallLy ls Lhe deLermlnaLlon of Lhe magnlLude of
mlssLaLemenL LhaL wlll lnfluence Lhe declslons of a reasonable flnanclal sLaLemenL user
1he audlLor also needs Lo conslder Lhe slgnlflcance of omlsslons of debL or obllgaLlons

lnherenL 8lsk
LongLerm debL ls noL usually vulnerable Lo LhefL
ComplexlLy of deLermlnlng caplLal lease
ConsolldaLlon of varlable lnLeresL enLlLles and off balance sheeL" flnanclng
CalculaLlon and reporLlng of lnLeresL expense

ConLrol 8lsk
1he followlng flnanclng funcLlons and relaLed conLrol acLlvlLles are assoclaLed wlLh Lhe flnanclng cycle
1 AuLhorlzlng bonds and caplLal sLock
2 lssulng bonds and caplLal sLock
3 aylng bond lnLeresL and cash dlvldends
4 8edeemlng flnanclng LransacLlons
3 8ecordlng flnanclng LransacLlons

ubstant|ve @ests of Long@erm Debt 8a|ances
ueLermlnlng ueLecLlon 8lsk
lrrespecLlve of wheLher flnanclng LransacLlons are lnfrequenL Lhe audlLor should always be alerL for unrecorded
llablllLles A prlmarlly subsLanLlve approach emphaslzlng LesLs of deLalls ls cosL effecLlve Lmphasls on Lhe
conflrmaLlon 1he audlLor relles prlmarlly on

1 dlrecL communlcaLlon wlLh ouLslde lndependenL sources
2 revlew of documenLaLlon and
3 recompuLaLlons ln obLalnlng sufflclenL compeLenL audlL evldence

lnlLlal rocedures
lL ls lmporLanL Lo obLaln an undersLandlng of Lhe buslness and lndusLry deLermlne Lhe enLlLy's need for exLernal
flnanclng and lLs ablllLy Lo servlce debL 8ecause flnanclng ls so clearly llnked Lo lnvesLlng acLlvlLles Lhe audlLor may
perform Lhese procedures slmulLaneously
1he schedules assoclaLed wlLh longLerm debL may lnclude separaLe schedules of longLerm noLes payable Lo banks
obllgaLlons under caplLal leases and llsLlngs of reglsLered bondholders prepared by bond LrusLees

AnalyLlcal rocedures
An lmporLanL parL of audlLlng longLerm debL ls deLermlnlng LhaL Lhe flnanclal lnformaLlon sub[ecLed Lo audlL ls
conslsLenL wlLh Lhe audlLor's expecLaLlons 1he audlLor should also evaluaLe Lhe dlsclosures regardlng Lhe maLurlLles
of debL and debL covenanLs When performlng analyLlcal procedures Lhe audlLor should malnLaln an approprlaLe
level of professlonal skepLlclsm and lnvesLlgaLe abnormal resulLs

1esL of ueLalls of 1ransacLlons
lor bonds Lhe audlLor should obLaln evldence on boLh Lhe face value and neL proceeds of Lhe obllgaLlon aL Lhe daLe
of lssuance lssuances of debL lnsLrumenLs should be Lraced Lo cash recelpLs as evldenced by brokers' advlces

ubstant|ve @ests of tockho|ders' Lqu|ty 8a|ances
ueLermlnlng ueLecLlon 8lsk
lnherenL rlsk assessmenLs for asserLlons perLalnlng Lo sLockholders' equlLy balances depend on Lhe naLure and
frequency of LransacLlons affecLlng Lhe accounLs 8ouLlne sLock LransacLlons for publlcly held companles are ofLen
handled by a reglsLrar and Lransfer agenL ln such cases boLh lnherenL and conLrol rlsk assessmenLs for accounL
balance asserLlons affecLed by Lhese LransacLlons may be low lnherenL and conLrol rlsk assessmenLs may be hlgher
when Lhere are non rouLlne LransacLlons lnvolvlng sLock lssued ln acqulslLlons converLlble securlLles or sLock
opLlons
lnlLlal rocedures
1he audlLor should obLaln an undersLandlng of Lhe buslness and lndusLry and deLermlne
1 Lhe enLlLy's need for exLernal flnanclng and
2 1he deslrablllLy of uslng equlLy flnanclng Lo supporL Lhe growLh of Lhe enLlLy

1esL of ueLalls of 1ransacLlons
1hls caLegory of LesLs lncludes vouchlng enLrles Lo paldln caplLal accounLs and vouchlng enLrles Lo reLalne earnlngs
1esL of ueLalls of 8alances
1hls caLegory of LesLs lncludes revlewlng arLlcles of lncorporaLlon and bylaws revlewlng auLhorlzaLlons and Lerms of
sLock lssues conflrmlng shares ouLsLandlng wlLh Lhe reglsLrar and Lhe Lransfer agenL lnspecLlng Lhe sLock cerLlflcaLe
book and lnspecLlng cerLlflcaLes of shares held ln Lhe Lreasury

valueAdded Servlces ln Lhe lnvesLlng and llnanclng Cycles
When Lhe audlLor has compleLed Lhe audlL of lnvesLlng acLlvlLles he or she ls ln a poslLlon Lo evaluaLe Lhe enLlLy's
lnvesLmenLs relaLlve Lo oLhers ln Lhe lndusLry AudlLors are unlquely poslLloned Lo provlde Lhe followlng 2
lmporLanL valueadded servlces
O 1he audlLor can evaluaLe how effecLlvely Lhe enLlLy has been uLlllzlng lLs asseLs Lo generaLe sales proflLs
and cash flows and accompllshlng Lhe enLlLy's goals
O 1he audlLor ls Lhen poslLloned Lo provlde lndependenL advlce by evaluaLlng Lhe enLlLy's planned lnvesLlng
acLlvlLles and deLermlnlng wheLher Lhe planned sLeps besL supporL lLs goals