Team Session: Common Accounting & Audit Errors in Client Books
📅 Duration: 30 Minutes
1. Introduction – Why This Session Matters (5 minutes)
Accurate accounting and error-free audit trails are not just internal standards—they are a
compliance requirement under multiple regulatory frameworks:
Under IFRS and IAS, financial statements must reflect true and fair values, free of
material misstatements.
For SMEs, IFRS for SMEs requires consistent treatment, proper accrual, and
complete disclosure.
Errors in classification, recognition, or reporting can lead to qualified audit opinions,
audit delays, and even regulatory penalties.
In Saudi Arabia, SOCPA and ZATCA mandate alignment with international standards
along with compliance in VAT, WHT, GOSI, and statutory reporting.
MISA licensed entities must submit accurate quarterly reports and may face
penalties for material misstatements.
Our firm’s goal: Quality and timely financial reporting for clients.
This session sets the foundation for reducing audit risks, improving monthly closing quality,
and ensuring regulatory compliance across all client files handled by our team.
2. Common Errors in Client Books (15 minutes)
🧾 Common Accounting Errors in Client Books
1. Misclassification of Income and Expenses
o Example: Income (e.g., scrap sales or reimbursements) wrongly credited to
expense accounts.
o Impact: Distorts P&L and affects profit margins.
2. Charging Personal Expenses to the Company
o Example: Owners or staff using company funds for personal groceries, travel,
or utilities, posted under company expenses.
o Impact: Overstated expenses, reduced taxable income, non-compliance with
ZATCA, and audit qualification risk.
3. Incorrect Capitalization vs. Expense
o Example: Routine repairs capitalized as fixed assets; or capital equipment
wrongly expensed.
o Impact: Wrong depreciation, misstated assets and profits.
4. Omission of Accruals and Prepaid Entries
o Example: Utilities, insurance, and unpaid salaries not recorded at
month/year-end.
o Impact: Misstated liabilities and net income.
5. Unreconciled Bank or Petty Cash Balances
o Example: Old cheques/deposits not cleared but included in balance.
o Impact: Overstated bank or cash positions; audit concern.
6. VAT Misstatements
o Example: Input VAT claimed without proper tax invoice, or on ineligible
expenses (e.g., staff welfare).
o Impact: ZATCA penalties and incorrect VAT filing.
7. GOSI and WHT Not Properly Accounted
o Example: GOSI on bonuses missed; WHT not deducted for foreign vendors.
o Impact: Penalties, wrong payroll cost, audit remarks.
8. Duplicate or Missing Entries
o Example: Rent recorded twice, or salaries missed.
o Impact: P&L errors, unbalanced ledgers.
9. Intercompany Transactions Not Properly Recorded
o Example: Only one side booked; the other party not recording the same.
o Impact: Trial balance mismatches, group audit issues.
10. Receivables and Payables Not Aged or Adjusted
o Example: Old dues not written off or reversed.
o Impact: Inflated working capital and incorrect financial ratios.
11. Unsupported Year-End Adjustments
o Example: Manual JEs posted to adjust profit/loss without any trail or
explanation.
o Impact: Major audit red flag and possible qualification.
🔹 Audit Red Flags:
Unusual or large manual journal entries without proper documentation or approval.
Cash additions not supported by valid source documents (no deposit slip, contract, or
evidence).
High-value or frequent cash transactions not justified by the business nature.
Negative cash balance in books, indicating likely manipulation or fictitious entries.
Old outstanding receivables/payables with no follow-up or aging adjustments.
Mismatch between physical inventory and stock records, or inventory unverified.
Unsupported or outdated fixed assets still on register but missing physically.
Incorrect or inconsistent opening balances, not matching previous audit reports.
Related party transactions not properly disclosed or documented.
Capital overdrawn through current account by owners/partners without proper
authorization.
Personal expenses debited to company books, especially under general or indirect
expenses.
Direct costs (e.g., purchases, subcontracting) wrongly posted under indirect GLs like
admin or utilities.
Absence of essential operating expenses like rent, utilities, or salaries.
Illegal or non-compliant transactions – e.g., dealing with banned vendors,
undocumented imports.
Large or long-pending balances in suspense, temporary, or clearing accounts.
Negative balances in VAT, salaries payable, GOSI, or trade payables.
Frequent year-end reversals or backdated entries, suggesting earnings
manipulation.
Bank reconciliation mismatches, with old uncleared items or forced balances.
Unrecorded statutory liabilities (GOSI, WHT, leave salary, EOSB, VAT).
Window dressing – e.g., delaying expenses, inflating receivables, or advancing
income.
Ghost employees – salaries paid to non-existent or former staff; often detected in
GOSI vs. payroll mismatches.
