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Transaction Cycle: The Capital Acquisition and Repayment Cycle






Transaction Cycle: The Capital Acquisition and Repayment Cycle


To establish whether the client’s financing arrangements are effective and efficient. This mainly involves examining whether there is consistency in the books of accounts. This is particularly effective and efficient in establishing why such a substantial investment is not providing the forecasted internal rate of return and why the capital was erroneously calculated (Arens, & Loebbecke, 1997).


This process will involve having the auditor ensuring that there is reliable financial reporting and the effective and efficient operations have been undertaken. The auditor will also have to investigate whether the project team has been following compliance with the relevant laws and regulation this could lead to hefty punitive measures from the law enforcers. Internal control will also involve safeguarding the project’s equipment against pilferage and unauthorized use. The auditing process will include investigating on relevant control concerning the repayment of principle and interest. This process is not short term as it may also involve periodic independent verification of proper accounting techniques and documentation processes (Arens, & Loebbecke, 1997).


Common tests of control involve the investigation of evidence of performance. These tests are performed to investigate control risk below the maximum. The material to be analyzed includes initials or electronic authorizations. Such activities include investigating invoices for the evidence of the clerk’s initials that verify the price, the relevant extension and accounts. When there is the presence of a control measure but the absence of evidence performance, then re-performance can them be used by the auditor including a dual-purpose test. This may included re-examining the evidence of price, extension or account.

Observation is also used in the examination of controls such as the separation of duties. Year end balances control measures are also included in the auditing process as opposed to analyzing each of the transactions. This is mainly exercised if the project team had set up various controls in their plan to count inventory transaction and sub-transactions. However, these tests are only conducted when the project team had set up an accounting system and the set up system had controls. This process serves to mainly establish whether the existing systems and control measures are correctly functioning and are both effective and efficient. This forms a basis on deliberating on whether the controls can be relied upon (Ricchiute, 2006).


The auditor will finally carry out substantive tests of transactions involved in the execution of the project. The processes are mainly designed for checking on currency errors or irregularities that impinge on the accuracy of the financial statements directly. The substantive tests of transactions are conducted to investigate on material misstatement at the assertion level. These tests will emphasize the overall plausibility of the transactions and the general ledger balances. During this procedure, analytical procedures will be utilized that focus on the plausibility of the transactions and the ledger balances. This will also involve the test of detail balances taking into account the closing balances in the general ledger (Ricchiute, 2006).

This investigation is mainly concerned with the correctness of monetary transactions. The process is focused on transaction objectives and is usually executed to a limited number of transactions known as test samples. The samples of transactions in a journal for an entire financial period are usually analyzed. This is useful in establishing whether the transaction amounts are correct and whether these amounts and transactions are correctly posted and summarized (Arens, & Loebbecke, 1997).


Ricchiute, D. N. (2006). Auditing. Mason (Ohio: South-Western/Thomson Learning.

Arens, A. A., & Loebbecke, J. K. (1997). Auditing, an integrated approach. Upper Saddle River, N.J: Prentice Hall.

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