Corporate Audit Principles and Case Studies

Audit Engagement and Process

The Charter Manager demonstrates commitment to the audit engagement.

Preparation Work

The office is made available to auditors, and all necessary documentation is prepared.

Internal and External Management Control

• Internal: Review of documentation within the company.
• External: Review of documentation related to customers and suppliers.

Key Audit Elements

• Audit Evidence: Observations of business operations.
• Working Papers: Documentation forming the basis of the audit.
• Audit Report: The final document summarizing the audit findings and opinion, indicating a “yes” or “no” conclusion.

Companies Obligated to Audit

Companies are obligated to undergo an audit if they meet any of the following criteria:

• Total assets exceeding €2,850,000.
• Turnover figures exceeding €5,700,000.
• More than 50 employees (template workers).

Auditor Requirements

To exercise the role of an auditor, the following requirements must be met:

• Be of legal age.
• Possess Spanish nationality or that of any European Community (EC) member state.
• Not have a criminal record for crimes.
• Have obtained the corresponding authorization from the ICAC (Instituto de Contabilidad y Auditoría de Cuentas), specifically:
  1. Obtained a university degree.
  2. Passed the theoretical and practical examination of the ICAC.
  3. Passed the professional competence examination, convened and recognized by the state.

Basic Elements of an Audit Report

The basic elements that must be included in an audit report are:

• Title or identification.
• Addressee and acting auditor.
• Scope paragraph.
• Alleged comparative paragraph.
• Emphasis paragraph.
• Paragraph salbatats.
• Opinion paragraph (IMPORTANT).
• Name, address, and registration details of the auditor.
• Auditor's signature and stamp.

Company Accounting and Auditor Proposals

Practical Audit Adjustments: Case Studies

Case Study 1: Unrecorded Depreciation

The company purchased machine X in 2005 for €30,000, with an estimated useful life of 10 years, according to the employer. Until the year 2010, no depreciation had been recorded. The auditor reports the need for the employer to make the corresponding adjustment for depreciation.

Company's Initial View / Total Depreciation Calculation

Resulting total depreciation: €18,000 (Account 681) to (Account 2813) €18,000 (Calculated as €3,000 for current year + €15,000 for prior years = €18,000).

Prior years' depreciation entry: €15,000 (Account 678) to (Account 2813) €15,000.

Calculation: (€30,000 / 10 years) * 6 years = €18,000.

Auditor's Proposed Adjustment Entries

The auditor proposes adjustments for accounts (681) and (678):

Debit (129) Retained Earnings        €18,000
    Credit (681) Depreciation Expense (Current) €3,000
    Credit (678) Prior Year Expenses           €15,000

Additional entries related to the asset and accumulated depreciation:

Debit (2813) Accumulated Depreciation €18,000
    Credit (213) Machinery                    €18,000

Debit (129) Retained Earnings         €18,000
    Credit (213) Machinery                    €18,000

Note: The accounting entries provided in the original text may not fully align with standard accounting practices for depreciation adjustments, particularly the use of accounts (681) and (678) as credits in the first compound entry, and the direct credit to (213) Machinery in the subsequent entries. They are presented here as found in the source document.

Case Study 2: Sale of Machine

The company sells a machine with an original value of €40,000 and an accumulated depreciation balance of €15,000. The selling price of the machine is €15,000.

Company's Entry

Debit (572) Bank / Cash               €15,000
    Credit (213) Machinery                    €15,000

Auditor's Proposed Adjustments

The auditor proposes the following adjustments to correctly record the sale:

Debit (2813) Accumulated Depreciation €15,000
Debit (572) Bank / Cash               €15,000
Debit (671) Loss on Sale of Fixed Asset €10,000
    Credit (213) Machinery                    €40,000

An alternative or additional adjustment provided:

Debit (2813) Accumulated Depreciation €15,000
Debit (671) Loss on Sale of Fixed Asset €10,000
    Credit (213) Machinery                    €25,000

Note: The first auditor adjustment provides a complete entry for the sale, including cash received. The second adjustment focuses on removing the asset at its net book value (original cost minus accumulated depreciation) and recognizing the loss. Both are presented as found in the source document.