Can we account illegal expenses?

Hi Guys,

 

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?

Replies (5)

in my view, you can record such exp. in books of account..............

Thnx dude, for reply

Yogesh, you have to some how book the expense.. otherwise how the Cash balance of the company will be tallied?

Hi Mr. Kaustuv,

 

No Doubt that if we don't account these expenses then our cash balance won't be tallied. But in last two days I was thinking then why my principal told me not to show them. (I could ask him also but he is out of station and damn busy right now).

 

Reason may be - AS ACCEPTING BRIBE IS AN OFFENCE, GIVING IT ALSO IS A CRIME.

So, my principal might be of the view that if that particular company was selected for assessment, then it would be problematic for company and it might be liable for legal action for giving bribes.

 

WHETHER MY CONTENTION IS CORRECT?

Dear

It depends upon the value. We can treat it as "Project Expenses" (incidental Expenses) incurred which implied amount spent at various level at various offices to obains approvals etc.,

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