Management and Organizational Studies 1023A/B Lecture Notes - Canada Pension Plan, Financial Audit, Audit Risk
DepartmentManagement and Organizational Studies
Course CodeMOS 1023A/B
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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
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,
–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
–If a company spends a lot on business expenses, Rev. Canada only lets you
deduct part of the expenses – permanent different
–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?
–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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