How the audit discovered a mistake where the reported profit was 100 times overstated

Situation

The NNN company deals with sales. There is a real warehouse where the goods are delivered and the finished products are shipped from. In other words, there is a real flow of goods.

The owner tasked me with the preparation of documents for the sale of the company. A part of that process was an audit of the accounting department’s work.

When I took a look at the income balance report, it turned out that the income was… 1345%!

It was an absurd figure, it could not be the case in that business.

Solution

We began to examine the situation and it was found that the accountant showed only sales, pluses and did no write-off of the goods. The entrepreneur did not understand how everything was being shown in the report. For him, the business was successfully growing, money was received and expended, there was a profit on account.

And the question arose when the owner decided to sell this prosperous company.

With a huge profit shown by the accountant.

When the audit started, it turned out that the profit was not that big – 13-14%, which was 100 times less as compared to the reports.

Result

The audit allowed the entrepreneur to see the actual condition before the company was sold and to act according to the results of our work.