Client Understanding - Essay Example

Client Understanding Client Understanding Working papers are considered to be one of the most important forms of audit documents that help in the analysis of a particular company. The basic aim of working papers is to provide a record of the basis for the auditor’s report. These working papers are kept in record for few years and they can be reviewed at any future date when any dispute occurs between a client and an auditor. These working papers provide a proper trail for an audit whilst also helping in planning, performance and supervision of an audit (Millichamp et al, 2008).

There are numerous factors due to which an asset’s loss or profit is recorded when the asset is sold. The main purpose of recording gain or loss on the disposal of asset is to test certain audit assertions. The audit assertions tested include existence and completeness and valuation. The existence assertion ensures that a company has sold off its asset and it no longer has that asset, whilst the completeness assertion ensures that all the relevant non-current assets of a company are completely recoded i.e. none of the non-currents assets are omitted or wrongfully entered onto the Balance Sheet.

This kind of practice helps in over estimating the financial statements in order to make the financial statement look better to potential investors. The valuation assertion is used to analyze whether a company has charged proper depreciation on its non-current assets or has the depreciation been over charged in order to evade tax surcharges. Heavy losses can be showed through incorrect valuation and these losses would help in reducing the tax surcharges of the company or the other reason may be the fact that the management of company may try to save some secretive profit for them.

Gains and losses recorded within the working papers ensure correct valuation on the non-current assets register (Millichamp et al, 2008). The other reasons for recording gain and loss is that this information would help in providing evidence that assets have been recorded at their correct market value and that proper gains and losses are recorded whenever such an asset is sold in order to provide an evidence to the shareholders of the company. The recording of these gains and losses also help in analyzing working papers in order to match those gains and losses to the sales proceeds that are received for the non-current assets sold.

The gains and losses recorded within the work papers help in reviewing the accumulated depreciation calculated on the non-current assets that has been sold. Hence all of this provides a proper documentation record that can help in ensuring that proper depreciation has been recorded through out the life of the non-current asset (Millichamp, 2008). The double-entry system also makes sure that if incorrect loss or gain is recorded on such assets sales, the accounts of the company may not tie up properly.

This would lead to an investigation and any chance of a fraud being committed can be reduced (Accounting Standard Board, 2003). References Top of Form Accounting Standards Board. (2003). Disposal of non-current assets and presentation of discontinued operations. London: Accounting Standards Board. Bottom of Form Top of Form Millichamp, A. H., & Taylor, J. (2008). Auditing. Cincinnati, Ohio: South-Western. Bottom of Form