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Dear sir,
I have a qn, if expenditure is incurred, or there is an increase in subsequent expenditure during the year, the risk is that if they are incorrectly classified ( revenue or capital) they would be overstatement of either profit or say any inventory depending on the classification, am I correct?What would be the response to risk for this?
Thanks
Also, if laws and regulations were to be imposed on a company what would be the response to the risk?
Make sure the company’s internal controls for ensuring invoices are correctly coded are workingcorrectly.
Select some invoices at random and see where they have been posted.
Perform analytical procedures and investigate unusal changes in expenditure.
For laws and regulations, it is management’s duty to ensure they are followed. Auditors will cover laws relating to the FS as part of their audit (eg tax calculations). Auditors cannot be expected to know other laws and regs that might affect a business, so their responsibility is to be alert for evidence that they might have been broken rather then evidence to confirm the laws have been adhered to.
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