Sunday, February 8, 2015

Non- Audit: long working hours - worth it?

Its a widely known fact in the market, commercial, university and all other possible places that financial audit require long working hours. Late night in office, weekend during one peak period.

Is it worth it to devote so much hours? In life, time is limited in one's life. You may have 70 years of life span- but would you be able to spend the entire 70 years with parents? Would you be able to spend good 5 years of time before your kids grow older?

What do you want in life? Money? Time? Career progression? What do you want at this stage of life?

Its good to think about these questions seriously before you gets old.

What do you want in life?

Saturday, February 7, 2015

Audit - debt overdue more than one year

This is going to be a post that involves significant judgements.

As previously discussed, auditor would review management assessment relating to doubtful debt, where we understand the normal debts turnover (day) and identify the long outstanding debtors for further review and discussion. For instance, auditor would pick material overdue debts aged more than 90 days if normal turnover is about 60 days.

What if you noted a debtor, whose debt is overdue more than a year and with no provision? Is this a straight away action when we push the client to provide allowance for doubtful receivale in full?

Your audit client may come back to you on their assessment / story / justification on why no allowance is required. This then involves auditor to test management's justification. Test the subsequent receipt, test the story of the long standing customer by researching online etc etc.

This matter is always not straight forward and with lot of uncertainty. If there's no subsequent receipt, what should auditor do if management insist that the amount can be recovered in full. Based on experience, we would require client to pass an allowance amount equals to 50% of gross amount to demonstrate that we understanf mangement justification, but due to uncertainty - management should provide 50% allowance.

Usually, this is easier for client to accept. Note: the percentage determined is judgemental and varies among different auditors.

It is also important to disclose management process of assessing allowance for doubtdul receivable as a process involves significant judgement in the financial statement.

As the number years of audit experience, the auditors tend to be able to make judgemental call that can reflect the business substance better. Hence, pls discuss this matter with the audit partner as well.

Monday, February 2, 2015

Assessment of insurance claims receivable

Audit client may encountered/ experienced certain incidents for which the company (i.e. audit client) has purchase insurance previously. The audit client has recorded a insurance claims receivable to cover the expense that has been incurred.


For instance, the employee of the company may suffer minor injury and got hospitalized for a period of 1 day. The hospital bill has been paid by the Company, who then claim the fee incurred under Company's insurance. The accounting entries recorded are as follows:


Dr. Insurance claims receivable
Cr. Cash


The insurance claims receivable represents the full amount of fee the Company had paid and intend to claim back from insurance. The question is whether if the incident is fully covered by the insurance. Management of the audit client or in-charge is responsible to go through the insurance purchased and determine:
- if the incident falls within the insurance coverage of the insurance purchased;
- if there's any cap on the claim amount


Management is required to evaluate this incident against the insurance policy. In addition, management may consider to discuss with the insurance agent on the likelihood of claiming insurance and the quantum as the insurance agent may have more in-depth industry experience / knowledge on this matter.


If the insurance claims receivable recorded by audit client is not likely to be fully recovered - management is required to estimate the receivable amount ( by reviewing historical trend or talking to insurance agent) and charge the remaining unrecoverable amount to profit or loss.


As claiming insurance may be a lengthy process - hence, do expect relatively long lead time.

Friday, January 30, 2015

Audit - goods rejected by audit client pending credit note from supplier

The title of this post is long, as we want to articulate out a scenario clearly for our reader to understand.

It is common for a company in trading/ manufacturing industry to return goods to the supplier, due to a number of reasons. For instance, returned of goods due to quality matters/ incorrect pricing as previously quoted/ excess quantity etc.

In some circumstances, return of goods is a straightforward process where the vendor would issue credit note to the audit client to reduce payable amount by your audit client.

However, there are circumstances where the vendor may not accept the goods returned and didn't issue any credit note to the audit client. There could be possibility that the supplier delay its process in issuing credit note. This may result in incorrect payable balance.

How can auditor pick up this instance. We can inquire management / accountant if there's any major dispute/goods returned matter yet to be resolved. In addition, we can also review reconciliation on statement of account issued by supplier to review if theres any long-standing reconciling item that may suggest goods returned not accepted by supplier.

To illutrate, if the statement of account from supplier shows a higher amount of receivable (from audit client) as compared to a payable balance recorded in audit client's book. This could be due to: a) payment made by audit client not yet received by supplier, b) goods returned by customer not yet accepted by supplier, c) goods delivered by supplier not yet taken up by audit client. An investigation into this reconciling item should tell the auditor what causes the difference.