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e-ccounting
November 2008

in this issue

Business Scenario
- Preparing for an Audit

Answer

Accounting Tip

Did You Know ?

Definition

Sandy's Recommendations

Next Issue - Year-end Prep!


 

about e-ccounting

e-ccounting is a monthly newsletter focusing on accounting tips and solutions. Our mission is to educate our clients, students and readers by offering these resources in response to your ongoing questions.

It is our objective to gather information and provide easy access for your current and future needs.
Back-issues are available on the accountrain website.

These tips are not complete answers to complex questions. We therefore recommend, when in doubt, contact the professionals or government agency.

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Sandy's Question Corner

Do you have an accounting question? Send it to us at accountrain



Workshops:

accountrain is now offering a series of three workshops. Take one, two or all three and save as you learn. The informative and interactive format guarantees a comfortable and fun learning environment. The topics:

1. Understanding How to Read Financial Statements

  • Who's interested in your reports and why
  • Why there's more to the Income Statement than just the "bottom line"
  • What's so important about the Balance Sheet, and
  • Key accounts, definitions, ratios and samples to review.

    2009 dates: To be announced in the Dec issue


2. Accounting 101 - for new and small business
  • Review of common questions, including GST, incorporating and many more
  • Choices for maintaining bookkeeping
  • Understanding government requirements
  • Shortcuts, tips and organizing all that paper!

    2009 dates: To be announced in the Dec issue


3. Year-end Prep & New Year Planning
  • It's never too late to get organized
  • Understand what's different including: depreciation, accruals, deferred revenue and prepaids
  • How to choose accounting help
  • Preparing for an audit, and how about avoiding an audit!
  • Learn to streamline your bookkeeping methods to save time and money.

    2009 date: To be announced in the Dec issue


For more information or to register, email accountrain


  • Business Scenario
    - Preparing for an Audit
  • What is the difference between an annual audit a company has done by their accounting firm versus a random government audit?

  • Answer
  • Let's start by referring to an audit as a review to soften the impact!

    An annual audit a company has done by their accounting firm should be a considered part of your accounting cycle.

    I must point out that an audit is one of three choices for the year-end process.

    As a non-profit or a company who reports to a Board of Directors you may be obligated to have an annual audit.

    The external accountant can preform any of the three choices, they are:

  • an audit
  • a review
  • a notice to reader
  • For more information on the difference ask your accounting staff or contact an accounting professional.

    The government may request a random or very specific audit.

    They will inform you:

  • why you are being audited
  • what it is for, ie GST, payroll, etc.
  • and what you will need.
  • Please know that if you require more time to prepare, it is appropriate to ask for an extension.

    If it is a government audit you can expect:

  • An optional interview segment, where they will ask a lot of questions about every aspect of the business, (they should provide you with the questions ahead of time).
  • That there may be more than one government staff, so again, have your own "team" so you won't feel intimidated.
  • To be asked to provide back-up of any of your invoices, payments, statements, etc.
  • To provide additional print-outs from your accounting software.
  • Accounting Tip
  • Be Prepared!

    Know ahead of time what exactly is being reviewed (by the Government or your External Accountant) and ask what reports / back-up they will be requesting.

    There may even be reports you can send ahead of time. For example, if it is your annual audit, the auditors will usually request a report called a Trial Balance, which can be faxed or emailed to them a few days ahead.

    An important note, once the report is sent, there should be no more transactions dated for the time frame they are auditing. If you do find additional items, give it to them, when they arrive.

    If it is your annual company audit / review, the accounting company will have a standard list of what they need, which will required a lot of preparation time and perhaps some additional assistance to put it together.

    This is an expense worth it's price, as the cleaner the review the quicker the auditors will be with their price reflecting their actual time and effort. I have also been told that it takes away the intimidation factor as consultants will be able to speak the same lingo as the auditors.

    If this is an annual event, it will become routine, it should not change much from year to year.

    If possible, request the same staff as the previous year as they will already know your file.

    If it is a government audit, they will be reviewing a very specific topic, ie GST, Payroll , etc., as well as potentially a very specific time frame. For example, if it is a GST review, it will probably be covering one of your submission periods (you may submit monthly, quarterly or annually).

    Why are you being audited (I am often asked)?

    You may have a pattern of submitting payments on a regular basis and all of a sudden you (a) haven't paid or (b) asked for a refund (perhaps due to expansion which has incurred large expenses).

    If these are out of character, it may bring attention to your account. You can help avoid the first scenario of not submitting by sending the paperwork in when it's due without a payment, or with at least a partial payment. (I am assuming it was not sent because you can't pay it in full).

    Don't be afraid to call and explain your situation. Try and think of it from their persecutive, if the form isn't filled out, they have no idea why (have you gone bankrupt, has the business closed, or you are behind in your paperwork?, etc.)

    As for the other scenario, requesting a refund, this you can not avoid, however usually in this case, they merely request you submit back-up for the five largest bills showing the GST on Purchases (ITC's) as well as have you answer a few questions about the nature of your business.

    Your bookkeeper should be able to provide this information.

  • Did You Know ?
  • Sending in your government reports without a payment is better than just waiting until you can pay it. As no form may prompt the government to initiate an audit or review. Even better, send the paperwork with a partial payment. It shows continued business and good faith.

    I have mentioned this already, but it is worth repeating, don't be shy to ask for extensions for submitting information or payment plans to pay outstanding government payables.

    For more Did You Knows?
  • Definition
  • Audit

    A financial audit, or more accurately, an audit of financial statements, is the examination by an independent third party of the financial statements of a company or any other legal entity, resulting in the publication of an independent opinion on whether or not those financial statements are relevant, accurate, complete, and fairly presented.

    Financial audits are either performed by firms of practicing accountants due to the specialist financial reporting knowledge they require. The financial audit is one of many assurance or attestation functions provided by accounting and auditing firms, whereby the firm provides an independent opinion on published information.

    Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors.

    Please also note - a government department can request an "audit".

    This definition was provided by wikipedia.


    For more definitions ...
  • Sandy's Recommendations
  • If possible, use the "team" approach. If you are being audited by a government department, have your bookkeeper(s) / accountant(s) in attendance to assist in several things, including:

  • clarifying questions
  • adding necessary information to your answers
  • finding the required documentation
  • printing requested reports.


  • If you are at all nervous, this "team" approach should be less intimidating.

    Also note, it is very likely the government will be sending more than one person, so the sides will be more balanced.

  • Next Issue - Year-end Prep!
  • Understand the year-end process

    Learn:

  • To streamline your bookkeeping methods to save time and money,
  • About depreciation, accruals, write-offs, deferred revenue and prepaid expenses,
  • How to prepare for your accountant, and
  • What to address on the financial statements.
  • 613-789-2623



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