Wednesday, July 16, 2014

Reasonableness test of licence fee

You audit client may be in regulated industries or providing services that are tightly regulated. In this intance, there are chances whereby the audit client is required to pay certain licence fee for the right to operate within that industry or the right to provide such service.

It is important for the auditor to review the agreement to review that allowable services to be provided by your audit client and whether if the licence has expired. This is to help to identify any non-compliance with the rules.

More often than not, your audit client is required to pay certain license fee - which could be based on certain % of revenue , specific rates for certain volume, etc.

Audit client must maintain a process to track the recording of these activities to ensure that the transactions recorded are complete. We, as auditor, also need to review the process in place to check that there is a robust process to ensure the completeness of these transactions. We also need to review the reasonableness of the license fee payable computed to test that the amount is not materially different for audit purpose.

A comparison of current year licence fee payable and prior year licence fee payable could help to identify fluctuation or absence of fluctuation that are expected.

 

Thursday, July 10, 2014

Knowledge sharing culture in Big 4

We received a question from a fresh graduate, who has concered that he or she might no have the strong knowledge to carry out audit in Big 4.

Whilst working big 4 in audit firm, I belive that there is a fairly strong culture with regard to knowledge sharing. More often than not, your audit issue would have an answer, if you walk around your floor and discuss the audit issue with your colleague in the audit firm.

When an associate joined a big 4 after graduation, he / she get the chance to go through some trainings and benefit from on-the-job training. Associate on the field will be able to learn experience through on-the-job training with the supervision of engagement senior or even peers, who might have encoutered certain audit issue.

The power of knowledge sharing is so important that the audit firms grow together. To us, Big 4 is a talent hub.

Also, Big 4 do have technical department to support the firm with regard to complex accounting / auditing issue, changes arising from new accounting standards.

Wednesday, July 2, 2014

Internship in Big 4, mid-tier audit firm or other acocunting firms

We received an email from an anxious intern - who has been accpeted to do her internship in one of the Big 4 accounting firms in Australia. As I understand that it is competitive to secure an internship in Big 4, the reader drop us an email to find out what to prepare and what is expected from an intern.

Extract of his or her email :

" For example, would I need to know audit assertions, control procedures, pivot tables & VLookup, or should I just refresh my accounting 101, know my debits & credits and be nice to people and ask for work?"

Being in one of the Big 4 before, I reverted to her to give him or her my personal opinion:

To me, the attitude and basic accounting knowledge plays a significant part in assessing an intern performance. I would expect the intern to demonstrate positive attitude and fundamental accounting knowledge (i.e. debit and credit of the accounting entries). That's it. I do not expect intern to know any other fancy accounting stuff.

Also, I mentioned to him or her that: she should not be afraid to ask, she should not be afraid to participate, she should not be afraid to do simple work. He or she just has to relax herself and enjoy her time during the entire internship.

 

Wednesday, June 25, 2014

Accounting for sign-on bonus paid to customers

In service industry, it is common for your audit client to give out sign-on bonus to particular customer to entice the customer to stay with the audit client for a certain period. Sign-on bonus could be upfront payment or payments could be straggerred throught the contractual period.

How should the sign-on bonus be accounted.

We are of the view that the sign-on bonus should be capitalised in full and amortized over the contractual peiod.

For instance, Audit Client A may pay offer customer XY for security guard services a sign-on bonus of US$2million for customer XY to stay with the Audit Client A for a period of 3 years. During this period, customer XY is not allowed to engage other security guad services provider. We are of the opinion that the US$2million should be capitalised and amortized over a period of 3 years.

This is to match the expenses and economic benefit over the contractual period.

Please let me know if you have different views on this :)

Myauditor - myauditing@gmail.com