Accounting Information Systems: The Processes and Controls, 2nd Edition

INVESTMENT PROCESSES (STUDY OBJECTIVE 3)

In many instances, an organization finds that it has more funds on hand than necessary to operate the organization. The proper performance of the stewardship function would suggest that management should invest these excess cash funds in a place where they can earn a return. Management should properly manage, or administer, the investment of excess funds. Investment processes authorize, execute, manage, and properly account for investments of excess funds. While there are several ways for a corporation to invest such funds, the most frequently used methods would be to invest in marketable securities or repurchase the company's outstanding common stock. Marketable securities are stocks or bonds purchased on open securities markets. A corporation's own stock that is repurchased by the company on the open market is called treasury stock. Exhibit 12-4 shows the processes of investing excess funds.

Regardless of how the excess funds are invested, there should be a set of administrative processes that authorize, execute, and properly account for the investments. It is important to recognize that investment processes should not be initiated unless top management has no immediate plans to use those funds. Top management should be continually monitoring the funds available and considering the future need for funds. Thus, the recognition that there are excess funds and the related decision to authorize the investment of those funds are administrative ...