What should b ans 4 dis Interview Question

Dear Niki, Practically If change of months involves the change of year(say mar - april) / quarter(dec-jan) then the expenses should be bokked in the month in which services were received i:e mar / dec..Because in this case deferment of booking of expenses makes the financial statements UNRELIABLE...

If change of months is within the same quater (say oct - nov), then i don't think there is a issue involved in it..

Since u have have mentioned that client is resorting to WINDOW DRESSING (i:e Manipulating the financial statements) hence IT IS THE AUDITOR's DUTY TO CONVINCE THE MANAGEMENT AND IF NOT THEN BRING THR FACT IN HIS REPORT...

good question !!!!

As per my interpretation there are two aspects involved:

1. Can we book an expense for which official bill is not received yet?
2. Should the professional disclose the window dressing intention of the client?

For the first one, as amir said, if the change of months do not result in different reporting years, then the expense entry can be made when the bill is received- owing to convinience in daily operations.

For the second one, the professional should act ethically and advise the client to avoid window dressing.

agree with Mr. Nikhil

Practically speaking the bill should be booked when the bill is actually received. And if it is a matter of date of booking, well that thing can always be managed. One more thing i would like to mention that the expense has not accrued as the bill has not been received yet. So my conclusion is that the entry should be made only after the receipt of the bill. Regarding ethics, i belive both, the client as well as the auditor is ethical

I M ASSUMING THAT CHANGE IN MONTH RESULTS INTO CHANGE IN QUARTER/YEAR

As per the concept of prudence all expenses and losses should be recognised as and when they are incurred, irrespective of the fact whether the bill is recived or not.

Correct me if i m wrong

I do have a bit different contention, that is "substance is more important then the incidental things"

as  Nikhil interpretated there are two aspects involved:

1. Can we book an expense for which official bill is not received yet?
2. Should the professional disclose the window dressing intention of the client  

I will say we must book the expense in book whether it is received or not yet, so far the transacted is completed and value is concerned , it will be wrong to not to disclose a expense and overstate profit. not receiving bill is a incidental thing a duplicate bill can be received on a few second via internet or fax, so the most important is we have incurred a expenses with 100% certainty  during a particular year it will surely affect our profit.  Even we does not know the actual expense of Tax, bad debt, repairs , discount, aftersale expenses we provides provision so as to ensure that when it really accrues we do not affecr that year profit as it is related to the previous year, But now  contract is final , expenses incurred with Rs. 125000, non receipt of bill is a tiny-miny thing(if we know the expense) so we must show it in books .

regarding second issue , a chartered accountant should not answer it openly, "CUSTOMER IS GOOD",

But one must see him self before any one, indulging in window dressing  is a crime statutorilyas well as socially. Computer Repairs is not a expense and a sort of investment  , so bank will understand this. and if you want more knowledge on this bettr see chartered Accountant code of conduct or CA final Audit book "about CA professional ethics". and find you answer 

One of the basic character of an auditor is honesty (AAS 1). How many members of ICAI have this character. The greedy of the promoters of Satyam Computers navigated the auditors. The CA s are people connected with finance which is the fuel of living.

Most of the energy of members is utilised to dress the bad as good which is the root cause of explosion of black money. If the auditor is honest as a body of individuals, the volume of black money will be limited as he is the watch dog of the country's finance.

Unless the auditor is honest by character there will be no end to the episodes like Satyam Computers.

Motivate honesty among members and save the image of our profession.

Proud to Be a CA student

 according to me an expense should be booked as when it is incurred and the auditor should take proper measures to correct his client  as per my views.Please correct if wrong 

acc. to me dis exps must me buked as it takes place...on prudence basis to buk all expnses...........

Well hmm the amount you say is Rs.1.25 lakhs and is towards computer exp. From the question I assume that this is out of ordinary transaction. Have to considered this exp for part capitalisation into fixed assets?? With regard to the matter of transferring to exp. hmm well if the work done by the technician is part complete in nature it cannot be transferred to exp. until the work itself is finished or atleast the required stage is completed until then it is merely an advance. As per accrual concept only if the service is ACCRUED can you consider it for P&L a/c. In this case the word accrued is matter in question. As per prudence take into consideration the capitalisation effect, ofcourse whether it can be an advance and then consider the balance as exp. because that value as exp. would be the correct fig. to show for that FY. But the bill is most important. if the expense has not accrued like I said irrelevant of the amount take as advance until you receive the bill. The auditor is not a technical person. That is the most important limitation of the auditor.

It is given that the expense has already been incurred and amt of exp is known. So it means that it is the liability of the company to pay to the creditors. Therefore, the exp should be recognised in either P&L or Bal Sheet, depending on whether it is a revenue exp or capex. If the payment has not been made yet, the company should recognise the same as current liability

The auditor must advise the management to recognise the exp if the financial statements are prepared for any quarter / year ending. If the management refuses to comply then he must state this fact in his report and qualify the report, if his report is sought for

YUP I AGREE WITH mR. nIKHIL