Question

Ahmad sells frozen curry puffs made by his wife. Each week he shops at a local market and grocery store for ingredients and raw material for his products. His wife prepares the product from scratch and stores the raw product frozen, ready for distribution or sale. Ahmad’s daughter keeps a record of the expenditure, as well as the accounts for purchases and sales. At the end of each financial year, Ahmad pays taxes on his income.
a) Discuss the type of audit necessary for Ahmad’s business. Why?
b) Ahmad wants to expand his business and intends to apply for a bank loan. Give him some advice on the financial matters pertaining to this expansion plan.

Answer 1

1.

TAX AUDIT TYPE OF AUDIT NECESSARY FOR AHAMAD’S BUSINESS.

TAX AUDITING IS PERFORMED BY A TAX DEPARTMENT OF GOVERNMENT OR DESIGNATED TAX AUTHORITY. THE TAX AUDITING MAY BE PERFORMED AS A CONSEQUENCE OF A COMPLAINT FOUND BY THE GOVERNMENT OR ANY OTHER WHISTLEBLOWER. AHAMAD NEED NOT INTERACT WITH THE TAX AUTHORITY SINCE THE TAX AUDITING IS INITIATED BY THEMSELVES AND THE REPORTS AND FINDINGS ARE SUBMITTED DIRECTLY TO THE GOVERNMENT.

2)

IF AHAMAD WANTS TO EXPAND BUSINESS AND FOR APPLYING LOAN. GROWING YOUR BUSINESS WILL REQUIRE ESTABLISHING A SOLID FOUNDATION OF INTERNAL CONTROLS INCLUDING ACCOUNTING, AUDITING, PURCHASING AND DAMAGE CONTROL PLANNING. THIS SESSION WILL GIVE YOU AN OVERVIEW OF WHAT YOU NEED TO PREPARE FOR.

AUDITS PROVIDE VALUABLE INFORMATION ABOUT A BUSINESS. MANY TIMES, BUSINESSES WILL CONDUCT AUDITS TO DETERMINE AREAS OF THEIR BUSINESS THAT COULD BENEFIT FROM IMPROVEMENT. WHEN DONE CORRECTLY, AUDITS CAN HELP LOCATE ISSUES AFFECTING OPERATIONAL EFFICIENCY AND INTERNAL CONTROLS AS WELL AS IDENTIFY ERRORS IN THE BOOKS AND RECORDS.

THE PROCESSES THAT WE’RE TALKING ABOUT HERE ARE BROKEN DOWN INTO SEVERAL DIFFERENT CATEGORIES. THE FIRST FOR EXAMPLE WOULD BE ORDER TO CASH. FROM THE TIME THAT YOU ACTUALLY RECEIVE AN ORDER FROM A CUSTOMER, ALL THE WAY THROUGH UNTIL THE TIME THAT YOU GET PAID, THERE ARE SEVERAL STEPS ALONG THE WAY.

OU WANT TO MAKE SURE THAT EVERY STEP IS DOCUMENTED ALONG THE WAY, BECAUSE ANYBODY THAT YOU HIRE INTERNALLY TO ACTUALLY DO THIS WORK FOR YOU WILL NEED TO FOLLOW THIS PROCESS FOR AUDITING PURPOSES. FOR EXAMPLE, WHEN YOU GET AN AUDIT TO BE ABLE PRESENT TO AN ACQUIRER AT SOME POINT DOWN THE ROAD, HAVING AN ESTABLISHED PROCESS IS REALLY ONE OF THE THINGS THAT THEY LOOK AT TO ENSURE THAT THERE IS NO FRAUD, FOR EXAMPLE, OR THAT YOU HAVE GIVEN ENOUGH THOUGHT INTO HOW THE BUSINESS ACTUALLY MANAGES THE MONEY.