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Auditing - Related Company Balance

  • 17-09-2010 07:30PM
    #1
    swanvill
    Registered Users, Registered Users 2 Posts: 276 ✭✭


    Hi Just a quick question.

    Two companies, company 1 Irish with a related entity in company 2 (German) have common shareholders & directors but are not parent & sub both with same year end. What audit test should the auditors of the Irish company carry out to make sure its debtor/creditor balance with the German company is correctly stated?

    Thanks

    Swanvill


Comments

  • #2
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    Hi

    There are a number of tests which may be possible. Here are just some of them

    1) Copy of creditors/debtors statement from German company.
    2) Copy of trial balance of German company confirming balance.
    3) Review post year end payments and receipts and post year end credit notes or write offs.
    4) Send a debtors circularisation letter to the german company and review reply.
    5) Get directors to certify the balance.
    6) Review the age profile and query older unpaid invoices.Review for recoverability of the balance and possible write off of old invoices.
    8) Letter of representation if there is a specific issue with the balance that requires clarification.


    Does this get me the marks :)

    Kind Regards


    dbran


  • #3
    Hanley
    Banned (with Prison Access) Posts: 21,981 ✭✭✭✭Hanley


    dbran wrote: »
    Hi

    There are a number of tests which may be possible. Here are just some of them

    1) Copy of creditors/debtors statement from German company.
    2) Copy of trial balance of German company confirming balance.
    3) Review post year end payments and receipts and post year end credit notes or write offs.
    4) Send a debtors circularisation letter to the german company and review reply.
    5) Get directors to certify the balance.
    6) Review the age profile and query older unpaid invoices.Review for recoverability of the balance and possible write off of old invoices.
    8) Letter of representation if there is a specific issue with the balance that requires clarification.


    Does this get me the marks :)

    Kind Regards


    dbran

    Goddamit tell us test 7!!! I need to know!!! :D:D


  • #4
    smcgiff
    Closed Accounts Posts: 5,943 ✭✭✭smcgiff


    Hanley wrote: »
    Goddamit tell us test 7!!! I need to know!!! :D:D

    What do you mean... It's there after point 6. Of course, BEING point 7 only REAL accountants are able to see it.

    Sorry, did you say you can't see a point 7?!? :eek:


  • #5
    swanvill
    Registered Users, Registered Users 2 Posts: 276 ✭✭swanvill


    Thanks Dbran for your reply I could always see point 7 even though you decided to hide it under a different name :-)

    The reason for my question was that the firm that was carrying out the audit decided to rely on a directors letter confirming the balance which I did not think was very thorough but there you go it might be enough if the directors are competent :-)


  • #6
    dbran
    Registered Users, Registered Users 2 Posts: 2,094 ✭✭✭dbran


    Hi Swamvil

    Test number 7 is a secret test.... I could tell you but I would have to hunt you all down and kill you. :D

    The problem with using directors letter of rep alone as the sole audit evidence is that it does not count if there is information that you would expect to be there but is for some reason unavailable. So for example you may use letter of rep if you are getting audit evidence as to the recoverability of the debt. The directors are the only people who would know if the German subsidiary is going well and its future prospects. So the letter of rep is the only audit evidence that would be possible in that case.

    However it would not be sufficient if there is no other evidence whatsoever confirming (say) the actual amount of the balance, or if they refuse to give you any audit evidence at all, or if in fact the evidence that you have is contradicting what is said in the letter of rep.

    All of this is assuming on a number of different factor such as materiality, etc. so as I don't know the details of the case I cant comment any further.

    Hope this helps

    Dbran


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