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Management and Organizational Studies 1023A/B Lecture Notes - Canada Pension Plan, Financial Audit, Audit Risk

Management and Organizational Studies
Course Code
MOS 1023A/B
Kate Helsen

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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
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