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Audit – is it relevant now?

“…the government is controlled and influenced by individuals who are like all individuals – they are selfish. It is naïve, if not exactly delusional, to expect them to put public interest before their own.”

An extract from Economics: The user guide by Ha-Joon Chang

Similarly auditors are individuals and first and foremost they will look after their own interest. The people via the parliament have to force them by law to look after the interest of the nation and communities their corporate clients work in.

Recent corporate failures have again brought to the forefront the question and relevance of Audits.

From the very beginning of our initiation in our accounting careers we are drilled the importance of Independence. But in our day to day training we see things far removed from the ideal world of books.

We have to ask the question what is the purpose of an audit?

Presently the purpose is to add respectability to the fiction called Annual reports made up by hard pressed accountants employed by the corporates to make the company accounts look its best.

Auditors avoid asking difficult questions because

  1. a) They lack knowledge – as competitive bidding has pushed the remuneration too low thus auditors cannot spend adequate time to understand company operations.
  2. b) Profit motive – They accept low priced assignment in the hope of selling other services to the clients. Finance directors are fully aware of this, as many of them were formerly in Auditing racket themselves, and exploit it to the fullest.

Thus we get a scenario where auditors are rubber stamping any fairy tale clients present it to them.

What is the solution?

  1. a) Audit threshold to be sufficiently high as last year done by EU to make the auditing worthwhile for the client and users of Audit reports.
  2. b) All audits allotted by a national Auditor like National Audit office in the United Kingdom or Comptroller and Auditor General Office in India.
  3. c) Audit fee fixed as per some criteria like turnover, industry etc. or some combination of it.
  4. d) Auditors only doing auditing. No other services could be provided by them. Something like a Glass Steagall Act.
  5. e) Major Corporates and companies of national importance audited by the National Auditor directly.

 

If all else fails better to abolish audit rather than continuing this falsehood.

Example of SDLT overlap relief

Leases attract Stamp Duty Land Tax (SDLT).

Sometimes a new lease is signed for the same property before the old lease expires, example when a lease is extended.

In such cases a relief called Overlap relief is available to avoid double taxation. A better back ground to overlap relief is given in SDLTM16010.

Given below is an example of calculation of this overlap relief with an spreadsheet attached which may help tax practitioners.

Current lease details:
Start date            14th Dec 2009
Lease term         15 years
End date              13th Dec 2024
Rent                      £85k + VAT = £102k

 

New Lease details:
Start date            31st Jan 2017
Lease term         20 years
End date              30th Jan 2037
Rent                      £110k + VAT = £132k

Below is the screen shot calculation of the SDLT payable.
To download the excel file click here – SDLT Overlap relief calculation

Capture

 

Training Costs: employees, directors and self employed

Employees and Directors: BIM 47080

Usually all expenses are allowable as revenue1 expense, except where employee and employer has some link outside work e.g. employee is son/daughter of the employer.

In such cases it should be ascertained whether the expenditure would have been incurred on an otherwise unconnected employee doing the same job.

 

Self-employed: BIM 35660

Expenditure is revenue expenditure if the course merely updates existing expertise or knowledge. Expenditure on a course which provides new expertise or knowledge is capital.

Capital expenditure makes it an intangible asset. Self-employed are not allowed capital allowance on Intangible assets. Only companies are allowed capital allowance on intangible assets.

 

Notes:

  1. Considered revenue as an employee can resign anytime.

PAYE and Payroll IDs:

Which payroll ID to give a old employee joining back.

Sometimes clients re-employ a person who use to work for them. The question crops up about payroll Ids. Below is the extract from HMRC guidance.

  • If an employee leaves and is re-employed you should use a different payroll ID and start their year to date information again – do not report the pay and tax figures from the earlier employment.
  • You should never re-use a previous payroll ID. A different Payroll ID must be used even if the employee is re-employed in a different tax year.
  • If you change an employee’s payroll ID, on your next submission use the indicator that the payroll ID has changed this pay period and also use the field to report the old payroll ID.

 

Source: HMRC Employer’s Bulletin : December 2017