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Chapter 4 BALANCE SHEET
ACCOUNTS AND M-1 ANALYSIS INTRODUCTION The audit of an
auto/repair shop should include at least an inspection of the balance sheet of
the company. Audits of the balance sheet have revealed transactions such
as improper accruals and shareholder owned assets being maintained by the
business. This section will not go through all the balance sheet audit
procedures as there are many training manuals covering this topic. However,
some of the issues which have occurred in the auto body/repair shop industry
will be highlighted. COMPARATIVE REVIEW One of the package audit
requirements is to inspect the prior and subsequent years returns and
one of the steps which is recommended in
meeting that requirement, is a comparative review of the balance sheets for the
respective years. On one case, the examiner did an analysis of the 9002 and
9102 years and noted several potential issues. The first issue involved
the Other Investments account on line 9 of the 1120 balance sheets. The ending
balance for the 9002 year listed the balance as $133,000. The beginning
balance for the 9102 year listed the amount as $70,000, a decrease of
$63,000. The examiner later determined that this decrease was due to three
classic vehicles held for investment being taken off the corporate balance
sheet and transferred to the shareholder. The assets were taken off because the
company was in the process of being sold and the shareholder wanted the assets
for his personal investment. However, corporate costs were involved in the
restoration of the classic automobiles. On the same balance
sheet under Buildings and Other Depreciable Assets, the ending
balance of the account for 9002 year was listed as $112,298 with an
accumulated depreciation balance of $69,649 for a net balance of $42,649. The
9102 beginning balance showed an assets amount of $95,627 along with an
accumulated depreciation balance of $52,978 which still resulted in a net
figure of $42,649. In this case, a fully depreciated vehicle registered to the
shareholder was taken off. 4-1 Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Glossary |