What attitude should auditors have when there are problems in financial statements?

1. When the professional suspect plans to check the financial statements, the auditor's plan should provide reasonable assurance to expose possible material misrepresentations.

When carrying out audit procedures, auditors must always remember that although most false statements are unintentional errors, they are sometimes caused by fraud or illegal behavior of ordinary employees or management.

Auditors should not assume that customer management is dishonest, but they should not be honest with them unconditionally and never doubt them.

In other words, auditors should be alert to the fact that management may deliberately misrepresent financial statements.

Auditors should objectively evaluate the observed situation and collected evidence, and properly track any potential negative indicators or signs to determine whether they lead to material misrepresentation in financial statements.

Auditors should not only understand accounting and auditing issues, but also thoroughly understand the business nature and risks of customers and the economic nature of transactions.

As an excellent auditor, one must be curious and observant, and be persistent in seemingly irrelevant questions or clues.

2. Excess inventory In foreign countries, many financial statements are false and untrue, all related to inventory.

As early as 1938, mckesson &; Robbins' total assets are $87 million, of which $6,543,800+million in inventory is fictitious.

After the investigation by the Securities and Exchange Commission of the United States, the professional bodies of accountants were urged to make it clear that it is a necessary audit procedure for accountants to observe customers' inventory.

Compared with other asset items, inventory inspection is more complicated and time-consuming. Its main characteristics are as follows: for general manufacturing and trading industries, inventory is the main item of balance sheet, accounting for about 20% ~ 30%, and it is also the largest component of WorkingCapital.

Inventory lending in different places (including factories and branches) makes it difficult to control and count inventory.

There are many kinds and items of inventory, and there are great differences, so it is difficult for auditors to observe and identify them when taking stock (such as gems, chemicals, electronic components, etc.).

Inventory may be impaired in value due to sluggishness, obsolescence, scrapping and damage, and it is often difficult for auditors to make reasonable judgments because they do not know enough about customer production and marketing activities and industry trends.

Inventory cost calculation is complex, which requires not only accuracy, but also consistency of calculation methods.

In addition, the follow-up evaluation of inventory (cost method and market method) and the collection and accounting of relevant information often keep auditors busy.

The main way to cheat inventory is to inflate quantity or unit price.

With regard to the overflow of quantity, accountants can do a good job of checking inventory and effectively find and prevent it.

Unfortunately, due to the auditor's improper observation of inventory, it is impossible to find the phenomenon of false inventory. The reasons include: 1. The observer of inventory is a novice who just walked out of school; The people sent to observe the inventory every year are discontinuous.

2. Partners and managers seldom go to the scene to observe the inventory.

Auditors were cheated because they only took a small part.

4. The auditor allows the company personnel to track and record the items selected by the auditor, so that the company has the opportunity to falsify the unselected items afterwards.

5. The auditors found a situation that showed that there might be fraud, which forced the company to correct it, but they didn't realize that there might be other more common intentional fraud in the company.

6. Auditors inform customers in advance where they will observe the inventory quantity, so that customers can make wrong adjustments to the inventory in the unobserved positions.

In order to audit the inventory point, auditors should pay attention to the following matters: 1. The inventory observation team should be led by experienced cadres who are familiar with customer operations.

The greater the risk, the higher the requirement for experience.

For less experienced assistants, appropriate supervision should be given, and they should be encouraged to inform their partners, managers or other leaders on site in case of doubt.

2. If the partner or manager can't come to the inventory site in person, the telephone number should be reserved for the assistant to contact in case of major problems.

Hold a meeting in advance before the audit to remind key points, which helps to ensure that less experienced assistants can notice potential problems.

3. When conducting inventory review: (1) The focus of sampling should be on high-value projects.

(2) If not every location is included in the audit scope, don't inform the customer of the location in advance or prematurely; If CycleCounting is adopted, don't make customers familiar with the sample selection mode easily.

(3) Professional vigilance should be enhanced for major or abnormal inventory discrepancies, or for clients to record the items selected by inspectors, or for clients to pay too much attention to audit procedures.

(4) For inventory items that seem to be unused for a long time, or whose storage location and storage method are abnormal, we should be vigilant to determine whether there is damaged, expired or excessive inventory.

(5) Inventory transfer and receiving activities between the company and the factory should be avoided or reduced as much as possible; If it is unavoidable, it should be determined whether proper control has been carried out.

Other audit procedures can also be used to detect customer inventory overflow. Table 1 lists various phenomena that may lead to inventory overflow and the corresponding audit procedures.

Third, the excessively radical accounting treatment of audit risks is related to the business philosophy and leadership style of customer management.

Honest and upright management usually adopts relatively stable business strategies, including accounting principles and practices.

On the contrary, the top managers of some companies prefer to take risks. Therefore, the accounting principles and practices adopted are also positive accounting, such as revenue recognition, capitalization and deferral of costs, depreciation and amortization of expenses.

Management likes to adopt radical accounting principles, which means that they are very concerned about the appearance of financial statements, regardless of their essence.

In other words, radical management regards accounting principles as a tool to beautify financial statements.

Auditors should pay attention to the essence and authenticity of the adoption of special accounting principles, especially the assumptions and calculation process of some abnormal estimates.

In other words, auditors should regard financial statements as a picture, and understand whether the information it conveys is meaningful and meets your perception and expectation from the perspective of enterprise management.

If the auditor concludes that the management's behavior seriously violates the principle of good faith, it is best to stay at a respectful distance from others and terminate the appointment, because it is generally accepted that auditing standards are not designed to detect the conspiracy of management.

Auditors should pay special attention to phenomena that may lead to material falsehood in financial statements, such as improper recognition of income, improper preparation for recovery possibility (loss), summary of costs and expenses, related transactions or abnormal balance. Table 2 lists these problems and the usual audit procedures (omitted). Conclusion Due to the lack of experience of auditors and the supervision of senior personnel, many false statements in financial statements have not been found.

Usually assistants may work too hard, so they can only see the trees for the trees.

Suspicious clues are often taken for granted, but the truth is not explored in depth.

Because of the complexity of business operation and the weakness of human nature, it is impossible to eliminate mistakes and fraud.

Nevertheless, if auditors can persist in professional suspicion and be familiar with all possible signs of fraud, it will certainly increase the possibility of exposing the false appearance of financial statements.

Perform analysis procedures and track the causes of discrepancies.

This procedure should be carried out by someone who is more experienced in the customer's industry and operation.

1. The inventory summary table contains an unusually large number of items with high unit price.

2. The ownership of the accounting period is unclear or inappropriate, resulting in the inventory including the sold items or the accepted purchases not being recorded.

3. The production line or technology changes, or the market or sales volume drops rapidly, but the price loss reserve is not properly accrued.

4. The calculation method or procedure of inventory cost is suspicious, or it shows that the cost calculation is wrong or improper.

5. Gross profit margin is significantly higher than expected.

Trace the card information of the inventory (if it is not sampled, find out the reason).

If the inventory is obtained from other sources, please find out the relevant documents and reasons.

In some cases, test the current and future sales of project inventory.

Test the ownership during the accounting implementation period, check the accounting records after the period, and write to the main suppliers.

Compare the sales of the affected inventory items in this period and after this period; Check the relevant documents and ask the management to explain.

Perform additional price tests.

Ask the management about the reason for the suspicious calculation method.