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Gill Gittings
Gill Gittings Registered Posts: 121 Dedicated contributor 🦉
Hi,

Just after some advice on how to deal with a tricky situation. I want to demonstrate to my manager that I can actually handle such a situation rather than go running to him when things go wrong.

I am on an audit at present and the client has refused to supply various information on the grounds that he think we don't need to see it. I have explained to the client that without this I cannot have a complete audit file and he said that the last person last year did not request such documents.

could you tell me how I go about getting this from the client? It is an audit assignment and not a financial account assignment.:confused1:

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  • peugeot
    peugeot Registered Posts: 624 Epic contributor 🐘
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    Well it all depends on how material the information you need is to the accounts themselves. If it is material then clearly you need the information from the client - if they don't co-operate or refuse to give you the information then you should refer this to your audit manager. He will then decide on how best to proceed - in such circumstances this is more important than trying to deal with it yourself as otherwise you risk getting on the wrong side of the audit manager and the client!

    If the information is not forthcoming and the area to which the information relates is material to the accounts then you have a scope limitation which will then give rise to an audit qualification. You also need to ask why the client is being so hesitant in providing the information - is there something s/he is trying to hide? ISA 240 requires a degree of "professional scepticism" and you must adopt this at all times - moreso under these circumstances. You need to question every shred of audit evidence. Have a look at last year's planning - was the client intimidating/threatening/hesitant last year. If they were then the client should have been classed as "high risk" with an extremely low materiality level (tolerable error) and more detailed testing.

    The auditors have a legal right to access to all the books and records pertaining to an entity and if this access is restricted in anyway this will undoubtedly have a detrimental affect on the audit report which could be costly to the client in terms of credit rating and reputation.

    My advice is forget about impressing your manager - stick to audit ethics and refer this matter to your manager. It covers you also.

    Regards
    Steve
  • Gill Gittings
    Gill Gittings Registered Posts: 121 Dedicated contributor 🦉
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    Thanks for the advice Steve. The company is a conservatory outlet and the owner is looking to sell this year due to retirement. I have asked for copies of warranty provisions and various payroll records but he says he has either misfiled them or does not have them. The other thing i am concerned about is his stock figures as these seem to be quite higher than normal and some sheets appear missing.:glare:

    Thanks again.
  • peugeot
    peugeot Registered Posts: 624 Epic contributor 🐘
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    I presume you attended the year end stocktake because stock in a conservatory retailer is going to be material to the accounts so surely whoever attended the count should have noticed if sheets were missing because one of the tests is to check the sequence of the sheets. If you did not attend the stock take and you were the auditors last year - without disrespect you have clearly not followed the auditing standards (ISA 500 "Audit Evidence"). If the stock count was attended then the fact that stock sheets were missing should have been addressed before the on-site audit work started.

    Warranty provisions are related to revenue recognition which is a key area audit area for fraud so you need evidence to support the provision. You can do this in one of 2 ways. Either get the clients calculation or you calculate the provision. If you calculate the provision then compare your calculations to the clients provision in the accounts - if there is a difference put it on the audit error schedule and see if it is (a) material in its entirety or (b) material when aggregated with other misstatements. The absence of the payroll records rings all sorts of alarm bells!

    The fact that the owner-manager retiring is also a key factor as s/he is going to want to dispose of the business at a higher price as possible. This could involve the manipulation of various figures in the accounts to achieve a higher profit/balance sheet position to attract buyers (typically the figures you're struggling to get audit evidence on surprise surprise!!) This in itself presents a wide range of financial statement risks that should have been addressed at planning stage. I would (at the very least) expect the overall inherent risk of this audit client to be 'medium' if not 'high' given the problems you've already encountered. Remember you should always reassess risk when doing audit work to keep it 'appropriate' in all circumstances.

    In addition, any purchaser of a business is going to ask for due diligence to be done. The minute an accountant doing the due diligence sees a qualified audit opinion for scope limitations this is going to ring alarm bells and any 'on the ball' auditor is basically going to tear their books and records to pieces regardless of what your client thinks and if they don't get the info they need then your client ain't going to sell his business - it's as simple as that.

    These issues need referring to your manager as clearly they are matters that will affect the auditors report.

    Good luck.

    Kind regards
    Steve
  • beverly hudson
    beverly hudson Registered Posts: 95 Regular contributor ⭐
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    peugeot wrote: »
    I presume you attended the year end stocktake because stock in a conservatory retailer is going to be material to the accounts so surely whoever attended the count should have noticed if sheets were missing because one of the tests is to check the sequence of the sheets. If you did not attend the stock take and you were the auditors last year - without disrespect you have clearly not followed the auditing standards (ISA 500 "Audit Evidence"). If the stock count was attended then the fact that stock sheets were missing should have been addressed before the on-site audit work started.

    This type of check is not mandatory so auditors do not necessarily have to attend the stock check. Certainly we tried to avoid it wherever possible.

    I would also have reservations about calculating provisions yourself because don't the auditing ethics restrict auditors doing accountancy work for the client? ES 1 I believe.

    Beverly
  • peugeot
    peugeot Registered Posts: 624 Epic contributor 🐘
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    This type of check is not mandatory so auditors do not necessarily have to attend the stock check. Certainly we tried to avoid it wherever possible.

    Yes it is. Where stock is material to the accounts under the ISA regime auditors MUST attend the stock count.
    I would also have reservations about calculating provisions yourself because don't the auditing ethics restrict auditors doing accountancy work for the client? ES 1 I believe.

    The poster is NOT calculating the provisions herself for inclusion in the financial statements, she is merely generating evidence to support the provisions. If your assertion is correct then this decimates any credibility "proof in total" calculations undertaken by auditors have. Audit evidence generated by the auditors is the "best" evidence - I was making a point that if the OP client was not forthcoming with the warranty provisions calculation then she could save herself hassle by doing them herself i.e. expected provision vs. actual provision and put any difference on the audit error schedule.

    ES 1 is not the provision for accountancy services standard - the one you are referring to is ES 5. ES1 is the integrity, objectivity and independence standard.

    Kind wishes
    Steve
  • Julia
    Julia Registered Posts: 78 Regular contributor ⭐
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    I would agree whole heartedly with Steve in this respect. You should refer this to your immediate supervisor.

    Also the point Steve makes about the stock visit is valid. Under the ISA regime audit firms are obliged to visit the stock take to undertake observation tests where stock/inventory is material to the accounts.

    Ethical standards do not come into generating evidence as Steve has already pointed out. Beverley if you look at the ISA for audit evidence you will see that reperformance is one of the ways the auditor can gather evidence. This is exactly what steve is referring to. Ethics do not come into it in this instance I am afraid.

    Julia (audit tutor)
  • Dean
    Dean Registered Posts: 646 Epic contributor 🐘
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    Steve, I think Beverly likes you! :001_wub:
  • Gill Gittings
    Gill Gittings Registered Posts: 121 Dedicated contributor 🦉
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    Thanks guys but I would always take Steves advice.

    Gill
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