#105- What can an auditor do?

Below is the query raised by one of our blog's readers:

" Somehow I came across ur blog online. I'm curious to know the difference between a auditor n accountant. I'm stuck in a situation where my company's accounts was done using MYOB Software to keep records, then when the YAs ended, we will send to our accounts auditor to do for us. but the problem nw is, when our accounts does not tally, they did not help to check for us n throw back to us to do all checking. I mean, we are not certified accountants( we onli used the MYOB software) to keep our accounts records. Now our accounts is stuck. Does it means tat auditor do not do accounting jobs? "

Our view are as belows:

Strictly speaking, auditor is not allowed to investigate the discrepancies for the book-keeper. Auditor is bound by the principle of independence, which means that auditor is allowed to reviewed and checked the account and provide opinion on the true and fairness of the account they are auditing. Auditor is strictly prohibited from investigating the difference and helping you to tally.

In short, to answer your question, auditor is not allowed to perform accounting jobs.

However, if the difference is not material, you may highlight to auditor that the amount is immaterial and they may consider to discharge.

#84- Market capitalization vs book value

In accounting, we look at net asset of the Company as an estimated guide of the value of the Company. However, the market value of the Company might differ from the book value (i.e. net asset of the accounting record).

Auditor can request management to analyze the difference between market capitalization and book value.

If market capitalization > book value. Auditors should consider what are the premium the investors are paying? Any figures on the balance sheet does not reflect true picture? Does the figure stated in accordance to accounting standards?

If market capitalization < book value. Auditors should consider the impairment issue for all assets and goodwill.

#76 Classification of Tax Refund

Should tax refund be classified as Income in financial statement?

Let's look at the double entries of tax refund upon receipt of advice / monies from the Income Tax Authority of the country:

Dr. Cash
Cr. Taxation Expense

Let's illustrate with example. Company XYZ made provision for tax in relation to Year of Assessment 2008 amouned to US$200 based on its tax computation, full payment of US$200 has been made. US$200 has been charged to its income statement as taxation expense.

In the same year/ subsequent year, Comptroller of Income Tax inform the Company that there's a computation error, and the actual tax for YA 2008 should be US$180 (ie overpaid by S$20). The Company should have recorded a credit to its taxation expense account (i.e. a gain to income statement) as tax refund.

In short, tax refund should not be classified as income in financial statement. It should be considered a credit to taxation expense account.