Malaysia Public Holidays 2011 - One Stop Malaysia

Malaysia Public Holidays 2011 - One Stop Malaysia

Test of Details of Balances

The test of details of balances are performed based on a number of sub objectives :

a. Existence - the aim here is to ascertain that the account being tested consists of items which really exist, for example, all the items which are recorded in inventory do not include items that do not exist and or the credit sales only contain items that have incurred.

b. Completeness - here the auditor wants to ascertain that no items are left out.

c. Accuracy - the aim here is to ascertain that every item in the account is correctly recorded, that is, there are no misstatements.

d. Classification- the aim is to ascertain that every item in the account is correctly classified in the ledger, for example, trade debts payable within one year or one accounting period, are classified as a current asset in accounts receivable. Those payable outside the period is classified as a long term asset.

e. Cut-off- here, the auditor aims at ascertaining that the transactions are recorded in the correct period. For example, the sales for the current period as recorded as such and not included as the sales in the next period. Special attention should be paid to transactions that occur near the balance sheet date.

f. Detail tie-in- the aim here is, the auditor wants to ensure the balances in the general ledger and the subsidiary ledger are reconciled. for example, for accounts receivable, the auditor ascertains that the balance of the account in the general ledger is the same as the total of the debtors in the subsidiary ledger.

g. Net Realizable value- Here the auditor wants to ascertain that the item being examined is shown at net realisable value. for example, for accounts receivable, the balance shown should only consist of those that are collectible, that is , after deducting the allowance for bad debts.


h. Right and Obligation- This relates to assets and liabilities. All assets shown in the financial statements, should only consist of those where the client has the right to them. All liabilities should consist only of those that are the obligations of the client.

i. Presentation and Disclosure- this means all accounts are properly classified and described in the financial statements. For example, accounts receivable should be placed under current assets and should be described as such not as note receivable.

Commencement of Business

It is important to set a date for the commencement of a business. Only after a commencement date has been established can overhead expenses, such as salaries, electricity, water, telephone and rental charges, be tax deductible.

Commencement of business is a question of fact which can be decided by reference to the commencement of an essential part of a business activity such as opening door to do business- for a trading and distribution company, employing key personnel - for marketing and service provider or beginning the manufacturing process for a manufacturing company. Documentation is required for the purpose of substantiating these facts in the event of tax audit.

REVENUE NEED NOT BE GENERATED

The generation of revenue or sales plays no part in determining the date of business commencement. Where no sale os generated for a financial year, current year business loss is said to exist. This loss can be carried forward to the following year of assessment where it can be deducted from business income.

The pessimist sees difficulty in every opportunity;
The optimist sees opportunity in every difficulty.

More than one year has gone by and yet I 've not post anything to this blog. What a shame. I can't make excuses like no time, too busy etc... ehm... I will try my best to allocate my time for this blog in my aim to help me, myself, my staff hopefully, my associates and the general public in getting a clear understanding of an auditing, accounting and taxation world.



For a kick start I'll reproduce articles from various reliable sources and hope everybody can learn something from it..


Happy reading!!

HDA Act - auditor perspective...

In Malaysia, in addition to the statutory audit requirements under the Companies Act 1965, auditors for housing developers are also required to prepare another auditors' report to the Controller of Housing in accordance with the format stipulated in the Housing Developers (Housing Development Account) Regulations, 1991 (HDA Regulations).

Under the HDA Act and HDA Regulations, a Housing Development Account (HDA) shall be opened and maintained by the housing developers for each phase of the housing development undertaken by them. The housing developers shall pay all monies received from the buyers into the HDA.

No monies shall be withdrawn by the housing developers except for the purposes listed in Regulation 7 of the HDA Regulations, accompanied with specific supporting certificates or documents stated in the said Regulation. With the approval of the Controller, a housing developer may withdraw all monies remaining in the HDA when the housing development project has been completed, and a solicitor has certified that the obligations of the housing developers in respect of transfer of title under all sale and purchase agreements in that housing development project have been fulfilled.

An Auditor's responsibilities under the HDA Act include, among others, the requirement to examine the HDA and report on any fraudulent act or misappropriation of money in the HDA maintained by the housing developers.

HDA Regulations (Amendments) 2002

On 18 November 2002, the HDA Regulations were amended by the Minister of Housing and Local Government. Three of the new Regulations amended by the Minister required more stringent examination and reporting to be performed by auditors of housing developers, as follows:

Section 12A: Auditor to make annual report

Every auditor of a licensed housing developer shall, within six months after the close of the financial year of such developer, make an annual report to the Controller as to the HDA and shall state in every such report whether or not in her opinion:

a. each and every deposit and withdrawal recorded in the HDA are in accoudance with these Regulations;

b. the accounting and the records examined by her are properly kept ; and

c. if the auditor has called for an explanation or information from the officers or agents of the developer, such explanation or information has been satisfactory.

Section 12B: Auditor to lodge a report to the Controller

An Auditor of a licensed housing developer shall immediately, of she has found any fraudelent act or misappropriation of money in the HDA, lodge a report to the controller together woth a full statement and relevant documents relating to the act. Additionally, the auditor is bound to supply any further information or document if requested by the Controller.

Section 12C: Penalty

Any person who contravenes any provision under these Regulations shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding RM5,000 or to imprisonment for a term not exceeding 3 years or to both.

Key Issue arising from section 12A

As we can see, the amended Regulation 12A requires an auditor to check 100% of the deposits and withdrawals recorded in the HDA !!

Clearly therefore, auditors need to urgently considered the impact of the additiona resources that will need to be allocated to perform the audit engagement. Additionally we need to liase with the affected clients to ensure that the additional work can be scheduled in such a way that it does not conflict with the clients' requirements nor other audit engagements!