| Course | ACC 546 Auditing (ACC/546) |
|---|---|
| Week | 6 |
| Paper type | Audit program for financing and investing cycles |
| Length | about 1,151 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | MS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 546 Week 6
Auditing the Financing and Investing Cycles at a Composite Listed Boat Manufacturer: Debt and Covenants, Convertible Notes, Equity Transactions, Investments, a Finance Joint Venture and Aluminum Swaps
[Student Name]
University of Phoenix
ACC/546: Auditing
Week 6 Assignment
[Instructor Name]
[Date]
The manufacturer, its financing and investments and the test results are composites written for a model paper; standards and research findings come from the sources listed.
A composite manufacturer builds fiberglass fishing boats and aluminum pontoon boats at two plants and sells them through about 300 independent dealers. Its shares are listed on a national exchange. This year it borrowed to expand its pontoon plant, issued convertible notes, bought back shares and continued a joint venture that provides floor-plan financing to its dealers. Its financing and investing transactions are few, but each is large enough to matter on its own. In these cycles a single transaction can be material, so the auditor examines nearly every one and spends its effort on the estimates behind them. This paper presents the program and results.
Term Loan, Revolver and Covenants
The company has a $90 million term loan and a $60 million revolving credit facility. The risks are completeness and accuracy of debt, interest and classification. The team confirms balances, rates, payments, collateral, letters of credit and any other arrangements directly with the agent bank, reads the credit agreement and amendments, traces draws and repayments to bank statements and recalculates interest expense for the year. It then recalculates the two covenants, a ceiling of 3.25 on total debt divided by the year's operating cash earnings as the agreement defines them and a minimum fixed charge coverage of 1.25, using audited figures. Dichev and Skinner (2002) found that covenants are often set tight and violations are common, so the team tests compliance carefully. Results: the debt ratio was 2.9 and coverage 1.6, in compliance, and the current portion was correctly classified.
Convertible Notes
The company issued $75 million of notes convertible into shares at $48. Since the 2020 simplification, most convertible notes are carried as one liability, with no separate equity component for the conversion option. The team reads the indenture, confirms the principal with the trustee, recalculates the effective interest, evaluates whether any embedded features require separate accounting and tests the if-converted effect in diluted earnings per share. Results: accounting and earnings per share were correct.
Equity Transactions
The board authorized repurchases of up to $50 million, and the company bought back $31 million of shares. The team traces the authorization to board minutes, confirms shares outstanding with the transfer agent and vouches repurchases to broker statements. It recomputes dividends declared from board resolutions and shares outstanding on the record date. For stock compensation, it tests grant-date fair values, including the option pricing inputs, for new grants and recomputes expense. Results: agreed without exception, and the repurchases fell within the authorized amount.
Marketable Securities
The company holds $44 million of Treasury and corporate bonds. The team confirms holdings with the custodian, tests fair values using an independent pricing service, evaluates the classification as available for sale and recomputes the unrealized gains and losses in other comprehensive income and any credit loss allowance. Results: fair values agreed within $40,000.
The Dealer Finance Joint Venture
The company owns 40% of a finance company that provides floor-plan loans to its dealers and accounts for it using the equity method. Its carrying amount is $38 million. The team obtains the joint venture's audited financial statements, evaluates the other auditor's qualifications and independence, recomputes the company's 40% share of income and dividends and considers intercompany profit on boats financed by the venture. Because the venture's allowance for loan losses depends on dealer health, the team reads the other auditor's report and discusses the allowance with the venture's management. Results: the share of income was correctly recorded; no impairment indicators were present.
Aluminum Swaps
The company uses swaps to fix the price of aluminum for pontoon tubes and designates them as cash flow hedges. At year end, the swaps had a fair value liability of $3.8 million. Auditing fair values requires evaluating the method, data and assumptions (Public Company Accounting Oversight Board, 2018). The firm's valuation specialist independently valued the swaps using exchange forward curves and counterparty confirmations and found a value within $150,000 of management's. The team also tested hedge documentation and effectiveness and the amounts deferred in other comprehensive income. Results: no exceptions.
Capital Expenditures for the Plant Expansion
The investing cycle also includes the $52 million pontoon plant expansion. The team vouched additions over $500,000 to contracts, invoices and completion certificates, tested capitalized interest on the construction period, inspected the new production line and searched repairs expense for capital items. It confirmed that equipment not yet placed in service was held in construction in progress and not depreciated. Results: $1.1 million of installation costs had been expensed and were reclassified to equipment.
Presentation and Disclosure
The financing and investing notes carry information investors use heavily. The team tested the debt maturity table against the agreements, the covenant disclosure, the fair value hierarchy for securities and swaps, the equity-method investment's summarized financial information and the share repurchase disclosure in the equity note and the risk factor discussion. It also checked that the statement of cash flows classified the repurchases and dividends as financing, securities purchases and plant additions as investing and the joint venture's distributions consistently with the nature of the returns.
Board Minutes and Contracts
Across all areas, the team read minutes of board and committee meetings for the year and through the report date for authorizations, new agreements and commitments, such as a letter of intent to buy a dock manufacturer that required subsequent event disclosure.
Leases and Other Commitments
The company leases its dealer training center and a fleet of trucks that deliver boats to dealers. The team read the lease agreements, recomputed the lease liabilities and right-of-use assets at the incremental borrowing rate and tested the maturity analysis. It also reviewed the dealer floor-plan repurchase agreements, under which the company must buy back boats from the finance venture if a dealer defaults. Those guarantees are disclosed, and a liability for expected repurchase losses of $600,000 was recorded based on dealer credit reviews; the team tested the estimate against the last five years of repurchases.
Auditing Estimates With Skepticism
Griffith et al. (2015) found that auditors of complex estimates often focus on verifying management's numbers rather than developing independent expectations, a tendency shaped by time pressure and the structure of audit practice. The program addresses that risk by using independent pricing for securities, an independent valuation for the swaps and audited statements and discussion for the joint venture's allowance, rather than only recomputing management's figures.
Conclusion
The program confirmed debt and recalculated covenants with audited figures, evaluated convertible notes under current guidance, traced equity transactions to authorization and records, confirmed and independently priced investments, relied on audited information for the joint venture and used a specialist to value aluminum swaps. The results support the financing and investing balances and disclosures, and the approach to estimates was designed to test rather than repeat management's work.
References
Dichev, I. D., & Skinner, D. J. (2002). Large-sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091-1123. https://doi.org/10.1111/1475-679X.00083
Griffith, E. E., Hammersley, J. S., & Kadous, K. (2015). Audits of complex estimates as verification of management numbers: How institutional pressures shape practice. Contemporary Accounting Research, 32(3), 833-863. https://doi.org/10.1111/1911-3846.12104
Public Company Accounting Oversight Board. (2018). Auditing accounting estimates, including fair value measurements (AS 2501).
What the ACC 546 Week 6 instructions ask
ACC 546 Week 6 closes the course with audit programs for the business cycles not yet covered, often the financing and investing cycles, and sometimes payroll or capital assets. Typical requirements include identifying risks and assertions for debt, equity, investments and derivatives, selecting procedures such as confirmation with lenders, trustees and custodians, recalculation of interest and covenants, review of board minutes, testing fair value measurements and estimates, using specialists and evaluating presentation and disclosure. Many prompts describe a company's financing and investment activities and ask for a program with justification and results. Each procedure should be linked to the risk it answers, results should be reported and the design should rest on PCAOB guidance and research, referenced in APA form.
How this ACC 546 Week 6 example is built
A boat manufacturer has a financing and investing profile typical of mid-sized industrial companies: bank debt with covenants, a convertible note issued to fund a plant expansion, shareholder returns through dividends and buybacks, a securities portfolio, an interest in a finance company that lends to its dealers and commodity swaps on aluminum. The paper organizes the program by area. For each, it states the risk, then the procedures and their purpose. Fair value measurements receive extra attention, with a specialist testing the swaps and the team evaluating management's inputs. The paper reports results, adds the plant expansion, leases and dealer repurchase commitments and closes with research on how auditors approach complex estimates and how skepticism can be strengthened.
ACC 546 Week 6 grading rubric: where the points go
Graduate grading for this final program usually rewards a complete set of procedures matched to risks, correct handling of estimates and fair values and attention to presentation. Faculty check that debt is confirmed with lenders and covenants recalculated with audited amounts, that convertible instruments are evaluated under current guidance, that equity transactions are traced to board authorization and transfer agent records, that investments are confirmed with custodians and valued with appropriate evidence, that equity-method investments rely on audited investee information and that derivatives are tested with specialists where needed. Reported results, attention to disclosure and cited standards and research complete the grade.
ACC 546 Week 6 help: mistakes to avoid
ACC 546 Week 6 programs often treat debt as a confirmation exercise and stop there. Recalculate interest and covenants with audited figures, since a breach can change classification. Another gap is accepting management's fair values without testing inputs; use a specialist or independent pricing where needed and evaluate assumptions. Students also forget to trace equity transactions to board minutes and the transfer agent. For equity-method investments, obtain the investee's audited statements and consider timing differences. Tie each step to a risk and assertion, and keep the steps in a logical order. Report results. Finally, discuss how the auditor avoids simply confirming management's numbers when auditing estimates.
Related ACC 546 sample papers
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ACC 546 Week 6 questions, answered
What does ACC/546 Week 6 usually cover?
It usually covers audit programs for remaining business cycles, often financing and investing, including debt, equity, investments, derivatives and related estimates and disclosures.
Where can I find a free ACC 546 Week 6 sample paper?
The boat manufacturer's financing and investing program, with each procedure and its result explained in the margin, is free on this page. Tell us about your own cycle case and we will prepare the opening draft without charge.
How do auditors test long-term debt?
They confirm terms and balances with lenders, trace proceeds and payments, recalculate interest, test covenant compliance, review agreements and minutes and evaluate classification and disclosure.
How are equity-method investments audited?
By obtaining and evaluating the investee's audited financial statements, recomputing the investor's share of income, testing basis differences and considering impairment.
Why use a specialist for derivatives?
Valuing swaps and other derivatives often requires models and market data outside an auditor's usual expertise, so a valuation specialist tests the fair values and assumptions.
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