I think people's perception of the scope and detail of audits is far greater than it actually is. You have to remember, auditors only audit the financials. They really do not look too deeply into the legality of the business and business practices. It is essentially an audit of the accounting function of the business. Ultimately, the directors sign on the financials - they are the ones who oversee the business and they are the ones who should bear most of the responsibility.
As an auditor myself, I doubt that the below points you touched on will be dealt with by the auditors:
- HS code switching - depends how material the duties expense is, but if it is material, they might do substantive testing on the duties balance. This could involve getting a breakdown of revenue by HS code and coming up with an expected duties expense based on that revenue breakdown. In saying this, it is not the role of an auditor to intervene on the operations of the business and force them to make payments if something is wrong. Auditors are not experts on international duties laws, nor do they have time to look into these matters deeply - this is ultimately a matter for the client. Same principle applies for FSFE.
-Ark International - again, auditors are not legal experts and can not determine if Ark International has established an 'economic nexus' in the respective state.
-Duties revenue and costs - it is my understanding that as long as the financial statements comply with accounting standards in respect to disclosures, the client can map their financials however they like and hide duties revenue and duties costs in P&L line items.
However, the below points will likely be touched on:
-Editing of invoices - if invoices have been edited, a corresponding GL entry has to be made to reflect that change (assuming the $ amount is being changed). Auditors will be making sure that invoices agree to GL for both revenue and expenses testing.
-Accounts receivable - as the balance was quite material at the HY, auditors will have to test the account. If it is due to GST receivable, testing would probably involve agreement to BAS statement.
Another thing to mention is that the staff from probably manager down are often oblivious to what is going on with the client in the real world (in other words, they are just there to do a job, and they don't read the AFR and understand what to look out for). This is just one out of about ten clients that they will deal with over the busy period and they will very likely just roll-forward what was done last year without applying a whole lot of skepticism. Hopefully though, the partner has put the fear of God into them to not stuff CTT's audit up.
Good stuff Harrison, and I agree that the scope of an audit is limited.
However I think i've laid out in detail how each point relates to the audit.
For instance the details around ark international relate to whether that entity has been audited prior, since the deed of cross guarantee didn't apply until this year. If sales haven't been made in this entity - then that has implications for sales taxes. We draw inferences from the accounts, even if they are Grant Thornton.
I think people's perception of the scope and detail of audits is far greater than it actually is. You have to remember, auditors only audit the financials. They really do not look too deeply into the legality of the business and business practices. It is essentially an audit of the accounting function of the business. Ultimately, the directors sign on the financials - they are the ones who oversee the business and they are the ones who should bear most of the responsibility.
As an auditor myself, I doubt that the below points you touched on will be dealt with by the auditors:
- HS code switching - depends how material the duties expense is, but if it is material, they might do substantive testing on the duties balance. This could involve getting a breakdown of revenue by HS code and coming up with an expected duties expense based on that revenue breakdown. In saying this, it is not the role of an auditor to intervene on the operations of the business and force them to make payments if something is wrong. Auditors are not experts on international duties laws, nor do they have time to look into these matters deeply - this is ultimately a matter for the client. Same principle applies for FSFE.
-Ark International - again, auditors are not legal experts and can not determine if Ark International has established an 'economic nexus' in the respective state.
-Duties revenue and costs - it is my understanding that as long as the financial statements comply with accounting standards in respect to disclosures, the client can map their financials however they like and hide duties revenue and duties costs in P&L line items.
However, the below points will likely be touched on:
-Editing of invoices - if invoices have been edited, a corresponding GL entry has to be made to reflect that change (assuming the $ amount is being changed). Auditors will be making sure that invoices agree to GL for both revenue and expenses testing.
-Accounts receivable - as the balance was quite material at the HY, auditors will have to test the account. If it is due to GST receivable, testing would probably involve agreement to BAS statement.
Another thing to mention is that the staff from probably manager down are often oblivious to what is going on with the client in the real world (in other words, they are just there to do a job, and they don't read the AFR and understand what to look out for). This is just one out of about ten clients that they will deal with over the busy period and they will very likely just roll-forward what was done last year without applying a whole lot of skepticism. Hopefully though, the partner has put the fear of God into them to not stuff CTT's audit up.
Note: Above views are my own.
Good stuff Harrison, and I agree that the scope of an audit is limited.
However I think i've laid out in detail how each point relates to the audit.
For instance the details around ark international relate to whether that entity has been audited prior, since the deed of cross guarantee didn't apply until this year. If sales haven't been made in this entity - then that has implications for sales taxes. We draw inferences from the accounts, even if they are Grant Thornton.