Government agencies such as the Inland Revenue are reassured that adjustments made to profit are accurate, therefore less likely to carry out intense investigation. It has been the growing trend that may auditors also offer the additional service tax advice. This can be particularly useful to the company as a means of saving tax. Employee's Employees are less likely to be users of audited accounts unless it is related to their direct benefit for example performance related pay. Unions on behalf of employees may also be interested.
Duty to keep accounting records (1) Every Company shall keep accounting records which are sufficient to show and explain the company's transactions and are such as to – (a) disclose with reasonable accuracy, at any time, the financial position of the company at that time, and (b) enable the directors to ensure that any balance sheet and profit and loss account prepared under this Part complies with the requirements of this Act (2)
The accounting records shall in particular contain- (a) entries from day to day of all sums of money received and expended by the company, and the matters in respect o which the receipt and expenditure takes place, and (b) a record of the assets and liabilities of the company. (3)
If the company business involves dealing in goods, the accounting records shall contain – (a) statements of stock held by the company at the end of the financial year of the company (b) all statements of stocktakings from which any such statement of stock mentioned in paragraph (a) has been or is to be prepared, and (c) except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified. (4)
A parent company which has a subsidiary undertaking in relation to which the above requirements do not apply shall take reasonable steps to secure that the undertaking keeps such accounting records as to enable the directors of the parent company to ensure that any balance sheet and profit and loss account prepared under this part complies with the requirements of this act.
In order to fully comprehend as to what is expected I have highlighted the key accounting requirements set out in the act. Account must represent a true and fair view of the company, and therefore the accuracy of the figures such as liabilities is important. 'Entries from day to day of all sums of money' This includes a daily cash sheet of the takings coming in and as wll as the expenses going out. 'a record of the assets and a liabilities of the company' By assets means al 'statements of the stock held' A record of the stock, which are held on the premises as well as purchased stock on delivery, must be kept.
If it has been bought it must be accounted for. 'all statements of stocktaking's' Stock take's must be carried out in order to support the value of the stock 'all goods sold and purchased' Once goods are purchased for example plant and machinery they must be included in the Assets of the company. Evidence supporting such purchases such as invoices are needed as some company's may amplify the value of their current assets in order to perceive their business as being more healthier. Goods sold must also be included.
In some cases where goods are sold for more than the purchase price, the difference will be added to the company's overall profit and hence be subject to Capital Gains Tax. Equally asset sold at a loss must be included to reduce the company's overall profit. NOTES and therefore auditors must be objective by expressing opinions independently of the entity and it's directors. Therefore the principle objective underpinning an auditor is to remain independent in order to provide an objective Yours Faithfully Earnest Peat & Co. Registered Auditors with ICAEW For and on behalf of Earnets Peat & Co. Nurul K Ali