Feb 13 MOS 1023

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Western University
Management and Organizational Studies
Management and Organizational Studies 1023A/B
Kate Helsen

Feb 13: Audits and Fraud – Audits – people assume that this is a financial audit – Several types of other audits: tax, operational, compliance, financial statement, fraud Tax Auditing 1. Sales tax – Charge on goods (HST) levied by the government – Government will do a periodic review to check that the company charges and sends tax on a timely basis. – Often people are audited because there is a large change in activity 2. Payroll tax – Companies must deduct taxes by law – income tax, Canada pension plan, unemployment insurance – See if company is properly deducting taxes. 3. Income tax – Profits must be on personal tax return if it is a sole proprietor. – vs. Corporation: many owners. Distinct legal entity. Will not audit person's personal books – If a company spends a lot on business expenses, Rev. Canada only lets you deduct part of the expenses – permanent different Internal Auditing – Procedures in place are still being followed? – Looks at integrity of information – Do the right people have the right access to data? – Is the inventory process looked after? External Auditing – Auditors will often come in quarterly. Strong relationship with auditors throughout the year – looking at the assessment of risk for a company – If you don't have an internal auditor, an external viewer may be asked – People may often hide debt they have incurred. Tendency for organization to omit items that do not look good on a record – i.e. Overstate revenues – investors know conflict of interest exists. Skepticism of financial information – Main role – external professional auditors lend credibility/enhance credibility – Can eliminate conflict of interest. Audits are paid for by company now, so it is debatable if there is still no conflict of interest – there may be bias so the auditor won't be fired. Relationship b/w Accounting and Auditing – Accountants/management make the entries. Auditors simple must state that the company complies with accounting principles, enhancement of a faithful representation. – Auditors determine whether it reflects the economic transactions of the company and the general standards – Cannot sue an auditor, because auditor does not deal with business risk. Business Risk vs. Information Risk – People buy stocks based on what they believe about the company in the future – Lenders will lend money if there is a good risk on it –
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