While auditing accounts of one Construction company, I came across some CASH expenses they have incurred for paying BRIBES to various Govt officials. No doubt that these are illegal expenses and disallowed.
But my question is – CAN WE RECORD THESE EXPENSES IN BOOKS AND LATER DISALLOW THEM?
Becoz accounting and tax audit, statutory audit are two different concepts. If we refer the accounting standards, it is not mentioned that company cannot record illegal expenses BUT in audit it is mentioned that they are disallowed.
My Principal (Auditor of Company) was of the view not to show them in books of accounts whereas I was of the view to account them first and later to disallow it.
Kindly suggest me – what is correct and if my view is correct then whether it is practically followed by you people also?