Normal communting costs not claimable
-Site based ie builders
- secondment less than 24 months (also accommodation and subsistence)
Wholly, exclusively and necessarily in the performance of the duties. Exclusively means must give no private benefit at all. Necessary is tested whether the duties of the employment cound not be performed without the outlay.
- Protective clothing is deductable
- preparing oneself to perform duties (newspapers, course textbooks to further carreer etc) not deductable
AUDIT AND ASSURANCE
Purpose of external audit is to give an opinion on the financial statements. Objective is to soley report to shareholders. Independent and Impartial
Statutory - Law requires ie charities, limited liablity companies, investment businesses, trade unions. companies as per Companies Act 2006.
Non-statutory - For benefit of propritors, company owners, trustees, professional governing bodies. Every undertaking which produces accounts may be audited.
Non- Stat advantages
- Partner settling of accounts
- Proving to revenue tax liablity for partners
- Assist with sale and loan / overdraft negotiation
- Sleeping partner checking profits due to them
Frauds of 1990 Enron, Parmalat, WorldCom lead to Sarbanes-Oxley Act 2002. Affected regulation of the accounting profession.
Directors are accountable for shareholder investment.
Corporate Governance is the management of companies.
Communication between directors and shareholders is financial statements. Also need to communicate pay and benefits, going concern and management risks.
To determine if communication is fair and accurate and un biased assurance is sought.
Types of Assurance Services
Review Engagements: Cost efficient alternative to an audit where audit not required by law. Enagles auditor to state wheter on the basis of procedures which do not provide all the evidence anything which comes to the auditors attenction to believe that the financial statements are no prepared correctly under the financial reporting framework. Level of assurance is not as high as from an audit.
Internal audit review: Part of organisations's system of controls. Reponsiblity is determined by management. It is an appraisl or monitoring activity. Examine, evaluate, and report ot management and directors of internatl accounting and control systems.
Assurance and reports
Truth and fairnes: Factual, free from bias, reflect the commercial substance of the busniess' transactions. Unqualified report means financial statments are true and fair and properly prepared. Qualified see chapter 19.
True: Information is factual and conforms with reality. Accounts correctly extracted from books and records.
Fair: information is free from discrimination and bias.Complies with expected standards.
Reasonable assurance. cannot guarantee that the financial statements are correct.
Limitations on Audit
- Auditing is not objective, judgements have to be made (risk assessment, what to test, whether errors are representative, audit opinion)
- not all items in the FS are tested (what to sample, sampling risk)
- Limitiations in accounting and control systems (non-routine transactions, human error, possiblity of collusion in fraud, cost/benefit trade off, possiblits of controls overrride)
- Audit report has inherent limitatiations (standard format, laymen not understand audit jargon)
- Audit report is issued a long time after the year-end (current and historic position may be different)
- Audit evidence sometimes indicates what is probable, not certain (estimates, judgements, intentions)
ISA 200 “the auditor should plan and perform the audit to reduce audit risk to an acceptable low level that is consistent with the objective of the audit”
Professional scepticism is an attitude that includes a questioning mind and a critical assessment of evidence.
Audit Risk = Inherent Risk x Control Risk x Detection Risk
Audit risk is the ristk that the financial statements contain a material misstatement and the risk that the auditor will fail to detect any material misstatement
Inherent Risk x Control Risk = chance of a material misstatement
Detect Risk = chance does not detect misstatement
Audit Risk is focused on the financial statements of a company, whereas business risk is related to the company as a whole. If identifying audit risks make sure they are explained in relation to financial statements.
When looking at a company to determine risks to that company consider
1) Sales (Are they on credit, cash, when booked and received money for is there a risk they may not be received.
2) Related Industry (Are suppliers / buyers cyclical, in decline, growing sectors . Likely to go bankrupt and not pay, single source etc)
3) Controls. Are credit checks in place on customers before supplying them etc
4) Variance. Are results different from budget
5) Recent Business Changes: What can impact business in short tem.
Materiality should be calculated at planning stage of audit. The calculation should be based on experience and judgement and revised during audit if necessary.
Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
Observation and Inspection
Companies that use e-business
IAPS 1013 Electronic commerce – effect on the audit of financial statements provides guidance.
- business activity and industry
- e-commerce strategy
- extent of e-commerce activites
- outsourcing arrangements
Specific e-commerce risks
- loss of transaction integrity
- security risks
- improper accounting policies ( capitalisation of expenditure, translation of foreigh currency allowances for warranties and returns, revenue recognition)
- non-compliance with taxation and other laws and regulations
- failure to ensure that contracts are binding
- over reliance on e-commerce
- systems and infrastructure failures or crashes.
IAS 315 reference to security, transaction integrity and process alignment.