Simple accounting question

I'm a CPA candidate who just got an auditing job and I have a client that is very disorganized, to say the least.

In a nutshell, they don't book any year end closing entries, they book a lot of sales directly to retained earnings, and they didn't record any of the previous auditor's adjusting entries.

I'm trying to reconcile equity to the prior year's audited report and am having some trouble. Basically, I adjusted retained earnings for any of the prior auditor's adjustments that had a P&L effect and reversed his accruals and reclassified any incorrect client entries out of retained earnings. To reconcile equity, I'm starting with the prior year's audited equity figures, subtracting the effects of the current years' audit adjustments that flow through equity. But I'm still coming up with a discrepancy that is too bog to "plug". I suspect that it may be a problem with their GL.

Does anyone have tips on how best to identify the source of this problem? Thanks.

Reply to
plin321
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I would suggest that after doing all the adjustments which you mentioned below, ensure that your opening balances are the same as that of the financials as set out by the prev auditors. that means that their closing balances, after adjustments, should be your opening balances. if there is a problem after trying to match these, then take a detailed ledger print out and reconcile the account that does not balance correctly. these entries will have to be investigated first. I know it sounds like a shlepp but if your opening balances vary from the closing balances of the auditors, then you are already in big shizer and then the year following that, will just escalate or enlarge the problem. first make sure you start with the same figures that they had, then work your way through the general ledger to find the messed up entry. there are many ways that your client could have inadvertantly made an error in the books - the only way to find it is in the G.L. Retained earnings as a rule, cannot be a doctored figure. it must be exact.

f*&&6%^& !!

good luck

snipped-for-privacy@aol.com wrote:

Reply to
nay

wrote

And your company is doing an audit? If it were my audit client I'd of fired them by now. It smells of a lawsuit waiting to happen.

Yup. Take it up with the senior auditor in-charge. Your firm is on the hook, so let them know about it.

Reply to
Paul Thomas, CPA

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