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Q1. I am the owner of a company and I manage it myself. The company has revenue of $4m cash and has been recorded in the Financial Statements for year 2000 and I would pay my tax according to this $4m earned. One day during the Financial Year 2000, I took $2m cash from this revenue to buy a product for my own use. Is this considered money laundering?
Q2. Does different company have different accounting policy? If yes, Can you give me an example?
Q3. Why does an auditor need an analysis of expenses included in operating expenses? Is it because the expenses might be wrongly classified?
Q4. What is the materiality guideline for inventory and goodwill?
Apart from the slightly different wording (financial statements instead of FS) and the specification of the Financial Year 2000, this is EXACTLY the same as the previous post from you. That previous post received a detailed response from me 4 hours and 8 minutes after your original post and 12 hours 47 minutes before this latest post from you.
Did you not like my original response? Did you feel that the Financial Year 2000 was crucial to my answer? Or are you simply hoping that I will give you a different answer?
Sorry for the repost. I am new to this forum and that is a repost from my previous questions as I thought that the post did not go through. Sorry for the confusion.
To avoid confusion this is your reply.
1) depends upon how the 2m has been treated. Is it recorded as a loan to a director? That’s ok (private company it’s ok) or has it been recorded as a benefit upon which tax has been calculated – that’s also ok.
If it’s simply Credit Cash, Debit …… ????? Hmmmm, where’s the Debit?
You know, it’s not so easy as a simple “One day I took $2m for my own use” Where’s the Debit?
2) Of course different companies can have different accounting policies! One treats government grants as a deferred credit and another deducts the grant from the related asset
3) Not only wrongly classified (administrative rather than as cost of sales) but also classifies as operating instead of being capitalised (borrowing costs, development expenditure)
4) not sure what you mean by the question. Work on the principle that “an item is material if its inclusion or omission would likely affect the view of the financial statements in the mind of an informed reader”
Ok?
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My question 4: I know that total assets have a materiality guideline of 1%-2%, so how about goodwill and inventory? Is it clearer this way?
Firstly, do you understand how materiality guidelines work? You say that “total assets have a materiality guideline of 1% – 2%” those extreme benchmarks are amounts against which to measure errors discovered by auditors during their routine audit work.
We find an error of $XXXXXX. Is it material? There are three benchmarks against which to measure:-
revenue
profit
total assetsand if our error lies beyond any of those three benchmarks, then it’s material
The error itself could be in any part of the company’s accounting records but an error in, for example, the calculation of an accrual for unclaimed holiday pay would not be compared with the “total asset” benchmark whereas the error of failing to capitalise borrowing costs would be measured against both the profit benchmark and the asset benchmark
You specifically ask about goodwill and inventory. Errors discovered in the calculation or measurement in either or both of these would be considered against the profit benchmark and the asset benchmark
Even if the error may be below the critical levels it could, when aggregated with other errors, become critical and would then be the subject of discussion between auditor and directors / audit committee
Does that answer your question?
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